Macroeconomics Practice Quiz Questions
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Practice test I created out of quizzes to help me study.
- 1.
In the U.S. system of accounting, which of the following measures of income will have the highest value?
- A.
NNP (Net National Product)
- B.
NI (National Income)
- C.
GDP (Gross Domestic Product)
- D.
PI (Personal Income)
Correct Answer
C. GDP (Gross Domestic Product)Explanation
GDP (Gross Domestic Product) is a measure of the total value of all goods and services produced within a country's borders in a specific time period. It includes the value of consumption, investment, government spending, and net exports. NNP (Net National Product) is GDP minus depreciation, NI (National Income) is NNP minus indirect business taxes, and PI (Personal Income) is NI minus retained corporate earnings and social security contributions. Since GDP does not subtract any additional components like depreciation or taxes, it will have the highest value among these measures of income.Rate this question:
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- 2.
To avoid double counting in the computation of our GDP, we either count only the final sale price of an item or apply the concept of ______ to intermediate sales.
- A.
Capital consumption
- B.
Disposable income
- C.
Value added.
- D.
Price deflation.
Correct Answer
C. Value added.Explanation
To avoid double counting in the computation of GDP, we either count only the final sale price of an item or apply the concept of value added to intermediate sales. Value added refers to the additional value created at each stage of production, excluding the value of intermediate inputs. By focusing on value added, we ensure that each stage of production is only counted once in the calculation of GDP, preventing duplication and providing a more accurate representation of the economy's output.Rate this question:
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- 3.
National income may be estimated by
- A.
Adding up categories (types) of income.
- B.
Adding up the value of products and subtracting 1) depreciation (capital consumption allowance, 2) indirect business taxes, and 3) statistical discrepancies.
- C.
Both a and b.
- D.
None of the above
Correct Answer
C. Both a and b.Explanation
The correct answer is both a and b. National income can be estimated by adding up categories of income, such as wages, rents, profits, and interest. Additionally, it can also be estimated by adding up the value of products and subtracting depreciation, indirect business taxes, and statistical discrepancies. Both methods are used to calculate national income accurately.Rate this question:
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- 4.
Which one of the following is not part of the Expenditure Approach of computing GDP.
- A.
Consumption
- B.
Investment
- C.
Government spending
- D.
Wages and salaries
Correct Answer
D. Wages and salariesExplanation
Wages and salaries are not part of the Expenditure Approach of computing GDP. The Expenditure Approach calculates GDP by summing up the total consumption, investment, and government spending in an economy. Wages and salaries, on the other hand, are part of the Income Approach, which calculates GDP by summing up all the incomes earned by individuals and businesses. Therefore, wages and salaries are not directly included in the Expenditure Approach of computing GDP.Rate this question:
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- 5.
Only Currently Produced goods and services are counted in our GDP.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
GDP, or Gross Domestic Product, is a measure of the total value of goods and services produced within a country's borders during a specific time period. It includes only currently produced goods and services because it aims to capture the economic activity that is currently contributing to the country's output and income. Goods and services that were produced in the past are not included in GDP as they do not reflect the current state of the economy. Therefore, the statement that only currently produced goods and services are counted in our GDP is true.Rate this question:
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- 6.
Our National Income is underestimated because we do not
- A.
Place a value on owner-occupied housing
- B.
Count do-it-yourself production
- C.
Count corporate profits
- D.
All of the above
Correct Answer
B. Count do-it-yourself productionExplanation
The correct answer is "count do-it-yourself production." This means that when calculating the national income, we do not include the value of goods and services that individuals produce for their own consumption. This underestimates the national income as it does not account for the economic value generated by individuals through their own labor and production activities.Rate this question:
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- 7.
To change nominal values (current dollars) to real value (constant dollars) we must:
- A.
Multiply nominal values by a price index
- B.
Divide nominal values by a price index
Correct Answer
B. Divide nominal values by a price indexExplanation
To change nominal values (current dollars) to real value (constant dollars), we need to divide the nominal values by a price index. This is because a price index measures the average change in prices over time, and dividing the nominal values by the price index adjusts for inflation and gives us the real value of the goods or services in constant dollars.Rate this question:
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- 8.
The “implicit price deflator of GDP” and the “consumer price index” (CPI) are exactly the same thing.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The statement is false because the "implicit price deflator of GDP" and the "consumer price index" (CPI) are not the same thing. While both measures are used to track inflation, they have different methodologies and purposes. The CPI focuses on changes in the prices of a basket of goods and services commonly purchased by consumers, while the implicit price deflator of GDP measures changes in the overall price level of all goods and services produced in an economy. Therefore, they provide different perspectives on inflation and are not interchangeable.Rate this question:
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- 9.
A real wage rate is a wage rate that is
- A.
Higher than any other wage rate
- B.
Adjusted for changes in the price level
Correct Answer
B. Adjusted for changes in the price levelExplanation
A real wage rate is a wage rate that takes into account changes in the price level. This means that it is adjusted for inflation or deflation, ensuring that the purchasing power of the wage remains constant over time. By adjusting for changes in the price level, the real wage rate provides a more accurate measure of the true value of the wage, allowing for meaningful comparisons across different time periods.Rate this question:
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- 10.
If a man marries his maid, and she continues working at home (assuming that the man never pays his wife) then it is safe to say that measured GDP
- A.
Will not be affected
- B.
Will go down
- C.
Will go up
- D.
May go up or down
Correct Answer
B. Will go downExplanation
If a man marries his maid and she continues working at home without receiving any payment, it implies that her work is no longer considered as a part of the formal economy. In the calculation of GDP, only paid work is included. Therefore, the measured GDP will go down as the maid's unpaid work is no longer counted in the calculation.Rate this question:
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Sep 09, 2024Quiz Edited by
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Oct 11, 2010Quiz Created by
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