1. Which of the following does Not add to U.S. GDP?

a. Boeing manufactures and sells a plane to Air France.

b. General motors builds a new auto factory in North Carolina.
c. the city of New York pays a salary to a policeman.
d. the federal government sends a Social Security check to your grandmother.
2. An American buys a pair of shoes made in Italy. How do the U.S. national income accounts treat
the transaction?
a. Net exports and GDP both rise.
b. Net exports and GDP both fall.
c. Net exports fall, while GDP does not change.
d. Net exports do not change, while GDP rises.
3. 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 Barnaby’s store to be sold later. What is GDP here?
a. $40
b. $60
c. $80
d. $100
4. if Mr. John quits his job as a teacher to home school his own children, GDP
a. stays the same because he is engaged in the same activity.
b. rises because he now pays lower income taxes.
c. falls because his market income decreases.
d. could rise or fall, depending on the value of home schooling.

5. After graduation, Jane, an American college student moves to Japan to teach English. her salary is
included
a. only in U.S. GDP.
b. only in Japan’s GDP.
c. in both U.S. GDP and Japan’s GDP.
d. in neither U.S. GDP nor Japan’s GDP
e. Ambiguous.
6. Which is the largest component of GDP?
a. consumption
b. investment
c. government purchases
d. net exports
7. An economy produces 10 cookies in year 1 at a price of $2 per cookie and 12 cookies in year 2 at
a price of $3 per cookie. From year 1 to year 2, real GDP increases by
a. 20 percent.
b. 50 percent.
c. 70 percent.
d. 80 percent.

8. if all quantities produced rise by 5 percent and all prices fall by 5 percent, which of the following
best describes what occurs?
a. real GDP rises by 5 percent, while nominal GDP falls by 5 percent.
b. real GDP rises by 5 percent, while nominal GDP is unchanged.
c. real GDP is unchanged, while nominal GDP rises by 5 percent.
d. real GDP is unchanged, while nominal GDP falls by 5 percent.
e. None of the above.

9. GDP is an imperfect measure of well-being because it

a. includes physical goods produced but not intangible services.
b. excludes goods and services provided by the government.
c. ignores the environmental degradation from economic activity.
d. is not correlated with other measures of the quality of life.

10. Choose the correct answer(s):

Year Quantity of A (unit) Price of B ($) Quantity of B Price of B
1 (base) 3 4 2 3
2 4 5 3 4
3 5 6 4 5
a. real GDP is 25$ in year 2 and 41$ in year 3
b. GDP deflator is 120 in year 2 and 125 in year 3
c. The percentage growth rate of real GDP from year 2 to year 3 is 4%
d. The inflation rate measured by GDP deflator from year 2 to year 3 is 5%.
e. None of these above is correct.
11. Choose the correct answer
Year Real GDP (2000 = base) Nominal GDP GDP deflator
1990 A 6000 100
2000 B 8000 C
2020 10000 D 300
2030 20000 50000 E
a. A=8000
b. D=24000
c. E= 1000
d. No correct answer.
12. Choose the correct answer(s):
The residents of a country spend all of their income on cauliflower, broccoli, and carrots. In 2020
(Base year), they spend a total of $200 for 100 heads of cauliflower, $75 for 50 bunches of broccoli,
and $50 for 500 carrots. In 2021, they spend a total of $225 for 75 heads of cauliflower, $120 for 80
bunches of broccoli, and $100 for 500 carrots.
a. Real GDP in 2021 fell by 1.54%
b. The inflation rate in 2021 using CPI method is 2.5%
c. The inflation rate in 2021 using GDP deflator is different from that using CPI method.
d. No correct answer.
13. if the CPI is 2000 for the year 200 and 300 today, then _________ in 2000 has the same
purchasing power as $600 has today.
a. $400
b. $500
c. $700
d. $900
14. you deposit $2,000 in a savings account, and a year later you have $2,100. Meanwhile, the CPI
rises from 200 to 204. in this case, the nominal interest rate is _________ percent, and the real
interest rate is _________ percent.
a. 1; 5
b. 3; 5
c. 5; 1
d. 5; 3
15. the main reason the cost of living varies across regions of the USA is differences in the price of
a. food and beverages.
b. clothing.
c. housing.
d. medical care.
e. Transportation.
f. Education and communication.

16. the main policy goal of unemployment insurance is to reduce the

a. search effort of the unemployed.
b. income insecurity that workers face.
c. role of unions in wage setting.
d. amount of frictional unemployment.
e. amount of structural unemployment.
f. amount of actual unemployment

17. According to the theory of efficiency wages,

a. firms may find it profitable to pay above equilibrium wages.
b. an excess supply of labor puts downward pressure on wages.
c. sectoral shifts are the main source of frictional unemployment.
d. right-to-work laws raise the bargaining power of unions.
18. When a firm pays an efficiency wage, it may
a. have trouble attracting enough workers.
b. have to monitor its workers more closely.
c. experience declines in worker quality.
d. find that its workers quit less frequently.
19. Over the past century, _________ has experienced particularly strong growth, and _________
has experienced particularly weak growth.
a. Japan; the United kingdom
b. Japan; Canada
c. the United kingdom; Canada
d. Canada; Japan
20. Increases in the amount of human capital in the economy tend to _________ real incomes
because they increase the _________ of labor.
a. increase; bargaining power
b. increase; productivity
c. decrease; bargaining power
d. decrease; productivity
21. Which of the following statements are correct based on the theory of diminishing returns to
capital investment:
a. Though capital is subject to diminishing returns, higher saving and investment can lead to higher
growth in the long run.
b. The return to capital is particularly higher in poorer countries, other things being equal.
c. Poor countries always grow at a faster rate than rich countries because of the catch-up effect.
d. The benefit of an extra unit of capital is lower than the cost of that increased investment.

22. Sub-Saharan Africa is known as the poorest region of the world NOT because of:
a. Poor health
b. High population growth
c. Poor natural resources
d. Low educational attainment
e. The legacy of colonization
23. Thomas Robert Malthus believed that population growth would
a. put stress on the economy’s ability to produce food, dooming humans to remain in poverty.
b. spread the capital stock too thinly across the labor force, lowering each worker’s productivity.
c. promote technological progress, because there would be more scientists and inventors.
d. eventually decline to sustainable levels, as birth control improved and people had smaller
families.
24. the population of a country is 100 people: 40 work full-time, 20 work half-time but would prefer
to work full-time, 10 are looking for a job, 10 would like to work but are so discouraged that they
have given up looking, 10 are not interested in working because they are full-time students, and 10
are retired. Choose the correct statements (could be more than one):
a. the number of unemployed is 10
b. the number of unemployed is 20
c. the size of the labor force is 60
d. the size of the labor force is 80
e. The unemployment rate is around 14%
f.. The labor force participation rate is 80%
25. Choose the correct statements (could be more than one)
a. The CPI measures approximately the same economic phenomenon as the unemployment rate.
b. the largest component in the basket of goods and services used to compute the CPI is food and
beverages.
c. if a Pennsylvania gun manufacturer raises the price of rifles it sells to the U.S. army, its price
hikes will increase both the CPI and the GDP deflator.
d. Because consumers can sometimes substitute cheaper goods for those that have risen in price, the
CPI and GDP deflator both overstate inflation.
e. CPI is a more typical tool to measure inflation than GDP deflator as the former better accounts for
the goods and services consumed by households.
f. CPI is a more typical tool to measure inflation than GDP deflator as the CPI sampling method is
more reliable.
26. Which of the following events increases the unemployment rate (could be more than one):
a. After a long search, Jon finds a job.
b. Tyron, a full-time college student, graduates and is immediately employed.
c. Numerous students graduate from college but cannot find work.
d. After an unsuccessful job search, Arya gives up looking and retires.
e. Jane quits her job to become a stay-at-home mom.
f. Sansa has a birthday, becomes an adult, but has no interest in working.
g. Jaime has a birthday, becomes an adult, and starts looking for a job.
h. An auto company goes bankrupt and lays off its workers, who immediately start looking for new
jobs.
k. A stock market boom induces newly enriched 60-year-old workers to take early retirement
27. Choose the correct statements (could be more than one):
a. one unintended consequence of unemployment insurance is that it reduces the search effort of the
unemployed.
b. one unintended consequence of unemployment insurance is that it reduces the role of unions in
wage setting.
c. Frictional unemployment is inevitable in a typical economy simply because the economy is
always changing.
d. Job search would be still problematic if all workers and all jobs were the same.
e. Changing patterns of international trade are also a source of frictional unemployment.
28. These statements are TRUE/FALSE/Ambiguous:
a. By formula, there is a negative relationship between GDP and imports.
b. Three components of GDP including C, I, and G record spendings on both domestic and imported
products.
c. GDP is a good measure of economic wellbeing as it reflects the various living standards across
nations.
d. Inflation in a certain period is unchanged when changing the base year, regardless of the
measures using GDP deflator or CPI.
e. Even when an economy is doing well, the unemployment rate never falls to zero due to inevitable
reasons regardless of the business cycles.
f. In a competitive labor market, both an increase in the minimum wage and a union formation could
result in a decrease in the quantity of labor demanded and an increase in the quantity of labor
supplied.
g. While the minimum wage partly explains why unemployment exists in an economy, this policy
does not affect majority of the workers.
h. The nature of unemployment caused by minimum wage is different from the nature of
unemployment caused by the process of job search.
i. Minimum-wage workers tend to be young, working part-time, and/or mainly in leisure and
hospitality industry.
j. Workers in unions reap the benefits of collective bargaining while those not in unions bear some
of the cost.
k. Although economic prosperity or living standard varies substantially around the world, the
various growth rates in real GDP could affect the relative positions of countries over time.
l. Allowing free trade, maintaining property rights and political stability, fighting corruption, and
promoting research and development all can contribute to higher living standards due to their
positive impacts on investment.
m. Population growth has ambiguous effects on economic growth and living standards.
n. Most economists are not concerned that natural resources will eventually limit economic growth.