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GDP is defined as

the market value of all final goods and services produced within a country in a given period of time

To compute GDP, we

add up the market values of all final goods and services

Suppose an apartment complex converts to a condominium, so that the former renters are now owners of their housing units. Suppose further that a current estimate of the value of the condominium owners' housing services is the same as the rent they previously paid. What happens to GDP as a result of this conversion?

GDP is unaffected because previously the rent payments were included in GDP, and now the rent payments are replaced in GDP by the estimate of the value of housing services

The total sales of all firms in the economy for a year

is larger than GDP for the year

Which of the following items is included in GDP?

all of the above are included in GDP

NAtional income is defined as

the total income earned by a nation's residents in the production of goods ad services

If a U.S. citizen buys a television made in Korea by a Korean firm,

U.S. net exports are unaffected and U.S. GDP is unaffected

The consumer price index is used to

measure the quantity of goods and services that the economy produces

The term inflation is used to describe a situation in which

the overall level of prices in the economy is increasing

Economists use the term inflation to describe a situation in which

the economy's overall price level is rising

The inflation rate is defined as the

percentage change in the price level from the previous period

What basket of goods is used to construct the CPI?

the goods and services that are typically bought by consumers as determined by government surveys

Using 2006 as the base year, the consumer price index is

100 in 2006, 135 in 2007, and 155 in 2008

Using 2007 as the base year, the consumer price index is

74.07 in 2006, 100 in 2007, and 114.81 in 2008

Using 2008 as the base year, the consumer price index is

64.52 in 2006, 87.10 in 2007, and 100 in 2008

Let 2004 be the base year; then

inflation rate in 2005 = ((CPI in 2005 - CPI in 2004) / CPI in 2004) * 100

A nation's standard of living is measured by its

real GDP per person

Which of the following is not correct?

Countries that have had higher output growth per person have typically done so without higher productivity growth

Human capital is the

knowledge and skills that workers acquire through education, training, and experience

In a market economy, scarcity of resources is most clearly reflected in

market prices

If there are constant returns to scale, the production function can be written as

xY = 2xAF(L,K,H,N)

If a production function has constant returns to scale, output can be doubled if

all of the inputs double

Using the notation and production function in the text, Y/L is


Which of the following would increase productivity?

all of the above are correct

A bond is a

certificate of indebtedness

The length of time until a bond matures is called the


The identity that shows that GDP is both total income and total expenditure is represented by

Y = C + I + G + NX

Y = C + I + G + NX is an identity because

the equality holds due to the way the variables are defined

Which of the following equations will always represent GDP in an open economy?

Y = C + I + G + NX

Which of the following equations represents national saving in a closed economy?

Y - C - G

The natural rate of unemployment is the

amount of unemployment that the economy normally experiences

Cyclical unemployment refers to

year-to-year fluctuations of unemployment around its natural rate

The labour force

equals the number of people employed plus the number of people unemployed

A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a


Compared to long-term bonds, other things the same, short-term bonds generally have

less risk and so pay lower interest

Stock represents

all of the above

Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?

gross domestic product

For an economy as a whole,

income is equal to expenditure

In order to include many different goods and services in an aggregate measure, GDP is computed using, primarily,

market prices

Which of the following transactions adds to U.S. GDP for 2006?

all of the above transactions adds to GDP for 2006

Estimates of the values of which the following non-market goods or services are included in GDP?

the estimated rental value of owner-occupied homes

Darla, a Canadian citizen, works only in the United States. The value that her labor contributes to U.S. output is

included in the U.S. GDP, but it is not included in U.S. GNP

Suppose there are only two firms in an economy: Cowhide, Inc. produces leather and sells it to Couches, Inc., which produces and sells leather furniture. With each $1,000 of leather that it buys from Cowhide, Inc., Couches, Inc. produces a couch and sells it for $2,000. Neither firm had any inventory at the beginning of 2006. During this year, Cowhide produced enough leather for 20 couches. Couches, Inc. produced 16 couches during 2006 and sold each one during that year for $2,000. What was the economy's GDP for the year?


In Italian company operates a pasta restaurant in the U.S. The profits from this pasta restaurant are included in

U.S. GDP and Italian GNP

U.S. GDP and U.S. GNP are related as follows:

GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad

How is Net National Product (NNP) calculated?

Depreciation losses are subtracted from the total income of a nation's permanent residents

National income differs from net national product in that it includes business subsidies and excludes

indirect business taxes

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