Name: 
 

Chapter 23                                   Mankiw/Taylor, Economics


True/False
Indicate whether the sentence or statement is true or false.
 

 1. 
For an economy as a whole, income equals expenditure because the income of the seller must be equal to the expenditure of the buyer.
 

 2. 
The production of an apple contributes more to GDP than the production of a gold
ring because food is necessary for life itself.
 

 3. 
If a timber yard sells €1,000 of timber to a carpenter and the carpenter uses the timber to build a garage which he sells for €5,000, the contribution to GDP is €6,000.
 

 4. 
A country with a larger GDP per person generally has a greater standard of living or quality of life than a country with a smaller GDP per person.
 

 5. 
If nominal GDP in 2005 exceeds nominal GDP in 2004, real output must have risen.
 

 6. 
If UK GDP exceeds UK GNP, then foreigners produce more in the UK than UK citizens produce in the rest of the world.
 

 7. 
Wages are an example of a transfer payment because there is a transfer of payment from the firm to the worker.
 

 8. 
In the UK, investment is the largest component of GDP.
 

 9. 
Nominal GDP employs current prices to value output while real GDP employs constant base-year prices to value output.
 

 10. 
A new car produced in 2004, but first sold in 2005, should be counted in 2005 GDP because that is when it was first sold as a final good.
 

 11. 
When the city council of Southampton purchases a new school building, the investment component of GDP increases.
 

 12. 
A recession occurs when real GDP declines.
 

 13. 
Depreciation is the value of the wear and tear on the economy's equipment and structures.
 

 14. 
Cigarettes should be valued in GDP at €7.50 per pack even though €5.00 of that price is tax because the buyers paid €7.50 per pack.
 

 15. 
Net National Product always exceeds a nation's total income because of depreciation and taxes.
 

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

 16. 
An example of a transfer payment is
a.
profit.
b.
rent.
c.
unemployment benefits.
d.
government purchases.
e.
wages.
 

 17. 
The value of plant and equipment worn out in the process of manufacturing goods and services is measured by
a.
intermediate production.
b.
Net National Product.
c.
investment.
d.
depreciation.
e.
consumption.
 

 18. 
Which of the following would be excluded from UK GDP for 2005? The sale of
a.
a haircut.
b.
the value of a lawyer’s services.
c.
a 2005 Honda made in Swindon.
d.
All of things mentioned in these answers should be counted in 2005 GDP.
e.
a home built in 2004 and first sold in 2005.
 

 19. 
Gross Domestic Product can be measured as the sum of
a.
final goods and services, intermediate goods, transfer payments, and rent.
b.
consumption, investment, government purchases, and net exports.
c.
consumption, transfer payments, wages, and profits.
d.
Net National Product, Gross National Product, and Disposable personal income.
e.
investment, wages, profits, and intermediate production.
 

 20. 
UK Gross Domestic Product (in contrast to Gross National Product) measures the production and income of
a.
British-owned firms no matter where they are located in the world.
b.
none of these answers.
c.
the domestic service sector only.
d.
people and factories located within the borders of the UK.
e.
the domestic manufacturing sector only.
 

 21. 
Gross Domestic Product is the sum of the market value of the
a.
intermediate goods.
b.
final goods and services.
c.
manufactured goods.
d.
inferior goods and services.
e.
normal goods and services.
 

 22. 
If nominal GDP in 2005 exceeds nominal GDP in 2004, then the production of output
a.
must have fallen.
b.
must have risen.
c.
must have stayed the same.
d.
may have risen, fallen, or stayed the same because there is not enough information to determine what happened to real output.
 

 23. 
If a cobbler buys leather for €100 and thread for €50 and uses them to produce and sell €500 worth of shoes to consumers, the contribution to GDP is
a.
€50.
b.
€100.
c.
€650.
d.
€500.
e.
€600.
 

 24. 
GDP would include which of the following?
a.
the value of taking a day off from work
b.
consulting services
c.
intermediate sales
d.
illegal drug sales
e.
housework
 

 25. 
Real GDP is measured in ________ prices while nominal GDP is measured in ________ prices.
a.
foreign; domestic
b.
current year; base year
c.
domestic; foreign
d.
base year; current year
e.
intermediate; final
 

 26. 
Figure 23-1
 
The following table contains information about an economy that produces only pens and books. The base year is 2003.
YearPrice of pensQuantity of pensPrice of booksQuantity of books
2003€3100€1050
2004  3120  1270
2005  4120  1470

a.
none of these answers
b.
€800
c.
€1,200
d.
€1,460
e.
€1,060
 

 27. 
Figure 23-1
 
The following table contains information about an economy that produces only pens and books. The base year is 2003.
YearPrice of pensQuantity of pensPrice of booksQuantity of books
2003€3100€1050
2004  3120  1270
2005  4120  1470

Refer to Figure 23-1. What is the value of real GDP for 2004?
a.
€800
b.
€1,060
c.
€1,460
d.
€1,200
e.
none of these answers
 

 28. 
Figure 23-1
 
The following table contains information about an economy that produces only pens and books. The base year is 2003.
YearPrice of pensQuantity of pensPrice of booksQuantity of books
2003€3100€1050
2004  3120  1270
2005  4120  1470

Refer to Figure 23-1. What is the value of the GDP deflator in 2004?
a.
119
b.
138
c.
116
d.
113
e.
100
 

 29. 
Figure 23-1
 
The following table contains information about an economy that produces only pens and books. The base year is 2003.
YearPrice of pensQuantity of pensPrice of booksQuantity of books
2003€3100€1050
2004  3120  1270
2005  4120  1470

Refer to Figure 23-1. What is the percentage increase in prices from 2003 to 2004?
a.
16 percent
b.
22 percent
c.
13 percent
d.
0 percent
e.
38 percent
 

 30. 
Figure 23-1
 
The following table contains information about an economy that produces only pens and books. The base year is 2003.
YearPrice of pensQuantity of pensPrice of booksQuantity of books
2003€3100€1050
2004  3120  1270
2005  4120  1470

Refer to Figure 23-1. What is the approximate percentage increase in prices from 2004 to 2005?
a.
13 percent
b.
0 percent
c.
16 percent
d.
38 percent
e.
22 percent
 

 31. 
Figure 23-1
 
The following table contains information about an economy that produces only pens and books. The base year is 2003.
YearPrice of pensQuantity of pensPrice of booksQuantity of books
2003€3100€1050
2004  3120  1270
2005  4120  1470

Refer to Figure 23-1. What is the percentage increase in real GDP from 2004 to 2005?
a.
27 percent
b.
7 percent
c.
32 percent
d.
0 percent
e.
22 percent
 

 32. 
If UK GDP exceeds UK GNP, then
a.
intermediate production exceeds final production.
b.
foreigners are producing more in the UK than Britons are producing in foreign countries.
c.
real GNP exceeds nominal GNP.
d.
real GDP exceeds nominal GDP.
e.
Britons are producing more in foreign countries than foreigners are producing in the UK.
 

 33. 
UK GDP would exclude which of the following?
a.
Lawyer services purchased by a home buyer.
b.
The purchase of a new Nissan produced in Sunderland.
c.
Copper purchased by tap manufacturer Bristan.
d.
A new art gallery purchased by the city of Newcastle.
e.
Lawn care services purchased by a home owner.
 

 34. 
How is your purchase of a €40,000 BMW automobile that was produced entirely in Germany recorded in the UK GDP accounts?
a.
Consumption increases by €40,000 and net exports decreases by €40,000.
b.
Net exports increases by €40,000.
c.
There is no impact because this transaction does not involve domestic production.
d.
Investment increases by €40,000 and net exports increases by €40,000.
e.
Net exports decreases by €40,000.
 

 35. 
If your grandparents buy a newly built retirement home, this transaction would affect
a.
investment.
b.
net exports.
c.
government purchases.
d.
consumption.
e.
none of these answers.
 



 
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