Question

1. Which of the following statements is true?

a.Macroeconomic policies are always effective in the short-run because output is at its potential level.

b. Macroeconomic policies are always effective in the short-run because they affect output through AD, but not prices.

c. Macroeconomics policies are always effective in the long-run because output is at its potential level.

d. Macroeconomic policies are effective in the short-run as well as in the long-run because both output and price are at their potential levels.

2. Output gap is given by:

a. Actual Price – Real Price.

b. Nominal GDP – Real GDP.

c. Actual Output – Potential Output.

d. Nominal Price – Real Price.

3. To avoid multiple counting while calculating GDP,

a. Primary, intermediate and final goods should be counted.

b. Only intermediate goods should be counted.

c. Only final goods should be counted.

d. Both final and intermediate goods should be counted.

4. Which of the following would be considered as an investment expenditure?

a. The government hires new workers to build a freeway.

b. Kim’s Boat Storage buys a new boat lift.

c. Frank purchases a few shares of Microsoft.

d. The Jones buy a house which was built in 1980

5. GDP will NOT include:

a. Barnes & Nobles adds $5000 worth of books to its inventory.

b. Bonson hires a babysitter for $10 an hour to take care of his kids.

c. Carolyn offers pedicure services and makes $5 tips daily, which are reported on her income tax.

d. Raj has a job of washing dishes at his parents’ diner who provide him with room and board instead of a salary.

6. Which of the following components will not be included while measuring GDP using expenditures approach:

a. The army buying new tanks.

b. Ben’s purchase of a burger at the “In n’ Out” in Reno.

c. Tesla buying new Dell Computers for use in its marketing department in Sparks, Nevada.

d. A senator from Nevada being paid the monthly salary.

Answer 1

1. b. Macroeconomic policies are always effective in the short-run because they affect output through AD, but not prices.

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2. c. Actual Output – Potential Output.

Output gap is given by: Actual Output – Potential Output.

The output gap of an economy is the difference between the potential level of output and the actual level of output. The potential level of output is the highest level of output or the gross domestic product, an economy can potentially produce by using all of its available resources efficiently. The actual output level is the real level of output that the economy actually produces.

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3. c. Only final goods should be counted.

To avoid multiple counting while calculating GDP, only final goods should be counted.

The cost of a final good includes the costs of all the primary and intermediate goods and services that are required to produce that final good. So, in times of calculating GDP, if the vale of primary, intermediate and final goods , all are counted, it will lead to double counting that will give a wrong GDP measure. Thus, to avoid multiple counting while calculating GDP, only final goods should be counted.

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4. b. Kim’s Boat Storage buys a new boat lift.

The investment expenditure is an expenditure made on machinery, infrastructure. land, etc. for future production. When Kim’s Boat Storage buys a new boat lift, it is an investment expenditure on new boat lift amchine.

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5. d. Raj has a job of washing dishes at his parents’ diner who provide him with room and board instead of a salary.

GDP will NOT include Raj has a job of washing dishes at his parents’ diner who provide him with room and board instead of a salary, because it has no market transactions.

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