UNIT 23: MEASURING A NATION’S INCOME (ANS)

Question 1
Which of the following questions is more likely to be studied by a microeconomist than a
macroeconomist?
Select one:
a. How rapidly is GDP currently increasing?
b. Why do national production and income increase in some periods and not in others?
c. Why do wages differ across industries?
d. Why do prices in general rise by more in some countries than in others?
Question 2
Which of the following is not a question addressed by macroeconomists?
Select one:
a. Why do production and employment expand in some years and contract in others?
b. Why is average income high in some nations but low in others?
c. What, if anything, can the government do to promote growth in incomes, low inflation,
and stable employment?
d. What is the impact of foreign competition on VN auto industry?
Question 3
Which of the following is not a question that macroeconomists address?
Select one:
a. Why do production and employment expand in some years and contract in others?
b. Why does the price of oil rise when war erupts in the Middle East?
c. Why is average income high in some countries while it is low in others?
d. Why do prices rise rapidly in some periods of time while they are more stable in other
periods?
Question 4
Which of the following statistics is usually regarded as the best single measure of a society’s
economic wellbeing?
Select one:
a. the trade deficit
b. gross domestic product
c. the unemployment rate
d. the inflation rate
Question 5
For an economy as a whole,
Select one:
 a. wages must equal income.
b. investment must equal the value of stocks and bonds purchased.
c. the market value of production must equal expenditure.
d. consumption must equal saving.
Question 6
Which of the following statements about GDP is correct?
Select one:
a. GDP measures two things at once: the total income of everyone in the economy and the
total expenditure on the economy’s output of goods and services.
b. Money continuously flows from households to firms and then back to households, and
GDP measures this flow of money.
c. GDP is generally regarded as the best single measure of a society’s economic well-
being.
d. All of the above are correct.
Question 7
For an economy as a whole, income must equal expenditure because
Select one:
a. individuals can only spend what they earn each period.
b. the number of firms is equal to the number of households in an economy.
c. every dollar of spending by some buyer is a dollar of income for some seller.
d. every dollar of saving by some consumer is a dollar of spending by some other
consumer.
Question 8
If an economy’s GDP falls, then it must be the case that the economy’s
Select one:
a. income falls and saving rises.
b. income falls and expenditure rises.
c. income and expenditure both fall.
d. income and saving both fall.
Question 9
If an economy’s GDP rises, then it must be the case that the economy’s
Select one:
a. income and saving both rise.
b. income rises and expenditure falls.
c. income rises and saving falls.
d. income and expenditure both rise.
Question 10
In the actual economy, households
Select one:
a. spend all of their income.
b. divide their income among spending, taxes, and saving.
c. buy all goods and services produced in the economy.
d. Both (a) and (c) are correct.
Question 11
According to the circular-flow diagram GDP
Select one:
a. cannot be computed as either the revenue firms receive or the payments they make to
factors of production.
b. can be computed as the revenue firms receive from the sales of goods and services but
not as the payments they make to factors of production.
c. can be computed as either the revenue firms receive from the sales of goods and
services or the payments they make to factors of production.
d. can be computed as payments firms make to factors of production but not as revenues
they receive from the sales of goods and services.
Question 12
Which of the following is a way to compute GDP?
Select one:
a. total income earned.
b. total expenditures on final goods.
c. add up the market values of all final goods and services.
d. All of the above are correct.
Question 13
Angus the sheep farmer sells wool to Barnaby the knitter for $20. Barnaby makes two sweaters,
each of which has a market price of $40. Collette buys one of them, while the other remains on
the shelf of Barna by’s store to be sold later. What is GDP here?
Select one:
a. $60
b. $80
c. $40
d. $100
Question 14
The table below contains data for the country of Togogo. The base year is 1974.
 Year Nominal GDP GDP Deflator
1974 $ 2000 100
1975 $ 3000 120
1976 $ 3750 150
1977 $ 6000 200

From 1976 to 1977,

Select one:
a. inflation was 50% and output grew at a rate of 20%.
b. inflation was 50% and output grew at a rate of 60%.
c. inflation was 33.3% and output grew at a rate of 20%.
d. inflation was 33.3% and output grew at a rate of 60%.
Question 15
A country produces only ice cream and pie. Quantities and prices of these goods for the last
several years are shown below. The base year is 2008.
Year Price of ice cream Quantity of ice cream Price of pie Quantity of pie
2008 $ 2.50 40 $ 5.00 20
2009 $ 3.00 50 $ 6.00 25
2010 $ 4.00 40 $ 6.00 30

In 2009, this country’s

Select one:
a. real GDP was $240, and the GDP deflator was 120.
b. real GDP was $250, and the GDP deflator was 125.
c. real GDP was $240, and the GDP deflator was 125.
d. real GDP was $250, and the GDP deflator was 120.
Question 16
If all quantities produced rise by 10 percent and all prices fall by 10 percent, which of the
following occurs?
Select one:
a. Real GDP rises by 10 percent, while nominal GDP is unchanged.
b. Real GDP rises by 10 percent, while nominal GDP falls by 10 percent.
c. Real GDP is unchanged, while nominal GDP falls by 10 percent.
d. Real GDP is unchanged, while nominal GDP rises by 10 percent.
Question 17
A recession has traditionally been defined as a period during which
Select one:
a. real GDP declines for four consecutive quarters.
b. nominal GDP declines for four consecutive quarters.
c. real GDP declines for two consecutive quarters.
d. nominal GDP declines for two consecutive quarters.
Question 18
GDP is not a perfect measure of well-being; for example,
Select one:
a. GDP excludes the value of volunteer work.
b. GDP does not address the distribution of income.
c. All of the above are correct.
d. GDP does not address environmental quality.
Question 19
GDP does not reflect
Select one:
a. the value of leisure.
b. the value of goods and services produced at home.
c. the quality of the environment.
d. All of the above are correct.
Question 20
Suppose that twenty five years ago a country had nominal GDP of $1,000, a GDP deflator of
200, and a population of 100. Today it has nominal GDP of $3,000, a GDP deflator of 400, and
population of 150.
What happened to the real GDP per person?
Select one:
a. It more than doubled.
b. It decreased.
c. It was unchanged.
d. It increased, but it less than doubled.