Exercise I: Chapter 1&2
1. Two equivalent ways to view GDP are as the:
a. total payments made to all workers in the economy or the total profits of all firms and
businesses in the economy.
b. total expenditures on all goods produced in the economy or the total income earned
from producing all services in the economy.
c. total profits of all firms and businesses in the economy or the total consumption of
goods and services by all households in the economy.
d. total income of everyone in the economy or the total expenditure on the economy's
output of goods and services.
2. Which of the following is a flow variable?
a. wealth
b. the number unemployed
c. government debt
d. income
3. All of the following transactions that took place in 2009 would be included in GDP for
2009 except the purchase of a:
a. book printed in 2009, entitled The Year 3000.
b. 2001 Jeep Cherokee.
c. year 2010 calendar printed in 2009.
d. ticket to see the movie 2012.
4. Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in
2002 and $1.50 in 2009. If four apples were produced in 2002 and five in 2009, whereas
three oranges were produced in 2002 and four in 2009, then real GDP (in 2002 prices) in
2009 was:
a. $5.
b. $6.50.
c. $9.50.
d. $11
5. Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in
2002 and $0.50 in 2009. If ten apples and five oranges were purchased in 2002, and five
apples and ten oranges were purchased in 2009, the CPI for 2009, using 2002 as the base
year, is:
a. 0.75
b. 0.80.
c.1
d. 1.25
6. Real GDP is a better measure of economic well-being than nominal GDP, because real
GDP:
a. excludes the value of goods and services exported abroad.
b. includes the value of government transfer payments.
c. measures changes in the quantity of goods and services produced by holding prices
constant.
d. adjusts the value of goods and services produced for changes in the foreign exchange
rate.
7. According to the definition used by the U.S. Bureau of Labor Statistics, a person is not
in the labor force if that person:
a. is going to school full time.
b. is temporarily absent from a job because of illness.
c. has been temporarily laid off.
d. is out of a job and looking for work during the previous four weeks.
8. The CPI is determined by computing:
a. an average of prices of all goods and services.
b. the price of a basket of goods and services that changes every year, relative to the same
basket in a base year.
c. the price of a fixed basket of goods and services, relative to the price of the same
basket in a base year.
d. nominal GDP relative to real GDP.
9. Assume a rancher sells a quarter-pound of meat to McDonald's for $1 and that
McDonald's sells you a hamburger made from that meat for $2. In this case, the value
included in GDP should be:
a. $0.50
b.$1
c. $2.
d. $3.
10. In the national income accounts, all of the following are classified as government
purchases except:
a. payments made to Social Security recipients.
b. services provided by police officers.
c. purchases of military hardware.
d. services provided by U.S. senators.
