1. Which of the following would increase GDP? a. Ford Motor Company begins to produce and sell cars in Japan.

b. Mercedes-Benz begins to produce and sell cars in Alabama. c. An American investor buys 100 shares of Ford stock. d. An American investor purchases 100 shares of Mercedes-Benz stock. 2. When the expenditure approach is used to measure GDP, the major components of GDP are a. consumption, investment, indirect business taxes, and depreciation. b. employee compensation, rents, interest, self-employment income, and corporate profits. c. employee compensation, corporate profits, depreciation, and indirect business taxes. d. consumption, investment, government consumption and gross investment, and net exports. 3. Assume that between 1990 and 1998 nominal GDP increased from $5 trillion to $8.3 trillion and that the price index rose from 100 to 140. Which of the following expresses GDP for 1990 in terms of 1998 prices? a. $5.93 trillion b. $7 trillion c. $8.3 trillion d. $11.63 trillion 4. Which of the following would not be counted as part of this year's GDP? a. the paint you buy to paint your house b. the government bond you receive as a birthday present c. the purchase of an IBM computer (produced during the year) by the U.S. government d. the purchase of wheat (produced during the year by a Kansas farmer) by the Russian government 5. The GDP deflator is designed to a. adjust nominal GDP for changes in the unemployment rate. b. adjust nominal GDP so as to include the problem of externalities. c. adjust nominal GDP for changes in the price level. d. calculate changes in the price of food and other consumer goods. 6. Which of the following best describes the difference between gross domestic product (GDP) and gross national product (GNP)? a. GDP measures output produced within domestic borders, while GNP measures output produced by domestic citizens. b. GDP measures output produced by domestic citizens within domestic borders, while GNP measures all output produced within domestic borders. c. GDP measures output produced by domestic citizens, while GNP measures output produced within domestic borders. d. GDP measures all output produced within domestic borders, while GNP measures output produced by domestic citizens within domestic borders. 7. Suppose that, in dollar terms, GDP increased by approximately 8 percent during a given year, but real GDP increased 5 percent. Which of the following best explains these events? a. The money supply decreased by approximately 8 percent. b. Prices fell by approximately 3 percent. c. Prices increased by approximately 3 percent. d. The real capacity of the economy decreased more rapidly than money output. 8. If waitresses and taxi drivers do not report all of their income to the government, GDP will be understated. This is because the unreported income a. involves the introduction of new goods. b. is part of the underground economy. c. is an example of nonmarket production. d. represents an increase in leisure time. 9. The primary value of GDP is a. its ability to reflect the output rate of a nation. b. as a measure of well-being, income inequality, and unemployment in an economy. c. to provide observers with a reasonably good index of social progress. d. limited to capitalist economies and highly developed countries. 10. National income is a. after-tax household income available for either consumption expenditures or saving during a period. b. gross national product minus depreciation. c. the total income payments to the owners of human (labor) and physical capital during a period. d. gross national product minus government expenditures. 1. During this century, the growth rate of real GDP in the United States has averaged approximately a. 1 percent. b. 3 percent.

c. 6 percent. d. 10 percent. 2. Economists use the term "business cycle" to refer to a. the growth of small businesses into major corporations. b. changes in products that occur from improved technology. c. fluctuations in economic activity, measured by GDP or unemployment. d. periods of increases and decreases in the rate of inflation. 3. The labor force participation rate of women in the United States has been a. increasing for several decades. b. decreasing for the past several decades after increasing dramatically in the early 1900s. c. approximately constant during the last three decades. d. decreasing since the early 1900s. 4. Suppose there was a country with a population of 1000, of which 200 were unemployed and 500 were employed. Which of the following is true? a. The numbers have been calculated incorrectly as there are 300 people who are neither employed nor unemployed. b. The labor force participation rate is 50 percent. c. The unemployment rate is 20 percent. d. There are 700 individuals in this country's labor force. 5. The type of unemployment caused by changes in the business cycle is a. structural unemployment. b. natural unemployment. c. frictional unemployment. d. cyclical unemployment. 6. An individual should continue to spend time searching for a job as long as a. all salary offers are below what the person expected. b. the marginal gain from additional search exceeds the marginal cost. c. job openings are available in the individual's field. d. information is available that the individual has not yet collected. 7. Suppose an economy is operating at its maximum sustainable output rate. It is not in a recession, but neither is it experiencing a boom. Which of the following would be true? a. The economy would be considered at full employment. b. Actual GDP would equal potential GDP. c. Actual unemployment would equal the natural rate of unemployment. d. All of the above are true. 8. Which of the following persons would be considered unemployed by the official government definition? a. George, a mathematician who returned to graduate school after failing to find a job the last four months b. Gwen, a medical student, who is still in college and is not working c. Morgan, who is employed part-time but desires a full-time job d. Ralph, an auto worker vacationing in Florida during a layoff at a General Motors plant due to an annual change-over in models 9. During a recession, which of the following will be true? a. The actual rate of unemployment will be lower than the natural rate. b. Actual GDP will be lower than potential GDP. c. Actual employment will exceed what is considered full employment. d. Actual inflation will be higher than was anticipated. 10. Which of the following is not a harmful effect of inflation? a. Unanticipated inflation increases the risk associated with long-term contracts. b. Inflation distorts the information delivered by market prices. c. Individuals will waste productive resources protecting themselves from the effects of inflation. d. Inflation increases the purchasing power of the dollar.