Principles of Economics

Economics 110

Mr. Beck

SUNY College at Oneonta

Review Questions for Chapter 23

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Review Questions for Economics 110

1. 1981's money (nominal) GDP was 6 times as large as 1959's. However, the price level index for 1981 was twice as large as the price level index of 1959. Between 1959 and 1981, real (constant $) GDP

  1. doubled.
  2. tripled.
  3. increased four-fold.
  4. increased eight-fold.
  5. increased twelve-fold.

    6.     Q1 answer
2. A recession occurs when
  1. money (nominal) GDP decreases.
  2. money (nominal) GDP increases, but by less than 3% per year.
  3. Real (constant $) GDP decreases.
  4. Real (constant $) GDP increases, but by less than 3% per year.

    5.     Q2 answer
3. Money (nominal) GDP is $110 billion in year 1 and $150 billion in year 2. Real (constant $) GDP is $100 billion in year 1 and $120 billion in year 2. On the basis of this information, we can say that the price level changed by (round off your answer to the nearest %)
Q3 answer
4. 1980's money (nominal) GDP was 5 times as large as 1959's. However, real (constant $) GDP for 1980 was only twice as large as 1959's real GDP. Compared to 1959's price level, 1980's price level was
  1. twice as large.
  2. Two and one half times as large.
  3. 3 times as large.
  4. 10 times as large.
  5. actually smaller.

    6.     Q4 answer
5. 1974's money (nominal) GDP was $1,400 billion while 1977's money GDP was $1,900 billion. 1974's price level index was 116 while 1977's price index was 140. From 1974 to 1977 real (constant $) GDP changed by (round off your answer to the nearest %)
    Q5 answer
6. Money (nominal) GDP was $2,250 billion in 1978. It is estimated that prices will double between 1978 and 1992 because of inflation. What would money GDP have to be in 1992 for real (constant $) GDP to double between 1978 and 1992?
    Q6 answer
7. It is discovered that from year 1 to year 2 real (constant $) GDP and the price level index both exactly doubled. It can be concluded that from year 1 to year 2 money (nominal) GDP
  1. remained constant.
  2. also doubled.
  3. was cut exactly in half.
  4. tripled.
  5. quadrupled (increased four-fold).

    6.     Q7 answer
8. From year 1 to year 2 the percentage increase in real (constant $) GDP is greater than the percentage increase in money (nominal) GDP. It can be concluded that from year 1 to year 2 the price level index
  1. increased by a larger percent than money (nominal) GDP increased.
  2. increased by a larger percent than real (constant $) GDP increased.
  3. increased, but by a smaller percent than money GDP increased.
  4. increased, but by a smaller percent than real GDP increased.
  5. actually decreased.

    6.     Q8 answer
9. 1984's money (nominal) GDP was $2,430 billion while 1985's money (nominal) GDP was $2,630 billion. 1984's price level index was 108 while 1985's price index was 111. From 1984 to 1985, real (constant $) GDP changed by (round off your answer to the nearest %)
        Q9 answer
10. Money (nominal) GDP was $1,600 billion in 1975 and $2,000 billion in 1977. Real (constant $) GDP was $2,700 billion in 1975 and $3,000 billion in 1977. On the basis of this information, we can say that from 1975 to 1977 the price level changed by (round off your answer to the nearest %)
    Q10 answer
11. 1978's real (constant $) GDP was twice as large as 1955's. However, the price level for 1978 was three times as large as 1955's price level. It can be concluded that from 1955 to 1978, money (nominal) GDP
  1. actually decreased.
  2. remained the same.
  3. doubled.
  4. increased five-fold.
  5. increased six-fold.

    6.     Q11 answer


12. From year 1 to year 2, money (nominal) GDP fell even though prices rose. It can be concluded that from year 1 to year 2,

  1. real (constant $) GDP increased by a larger percentage than prices increased.
  2. real (constant $) GDP increased, but by a smaller percentage than prices increased.
  3. real (constant $) GDP decreased by a larger percentage than money (nominal) GDP decreased.
  4. real (constant $) GDP decreased, but by a smaller percentage than money (nominal) GDP decreased.
  5. None of the above can be concluded.

    6.     Q12 answer
13. If, from year 1 to year 2, real GDP increases despite the fact that prices increased, then it can be concluded that money (nominal) GDP
  1. increased, but by a smaller percentage than real GDP increased.
  2. increased by a greater percentage than real GDP increased.
  3. decreased by a greater percentage than real GDP increased.
  4. decreased, but by a smaller percentage than real GDP increased.
  5. None of the above can be concluded.

    6. Q13 answer
14. 1992's money (nominal) GDP was 12 times as large as 1960's. However, real (constant $) GDP for 1992 was only 4 times as large as 1960's real GDP. Compared to 1960's price level, 1992's price level was how many times larger?
Q14 answer
15. 1981's real GDP was 3 times as large as 1959's. However, the price level index for 1981 was twice as large as the price level index of 1959. In 1981, money (nominal) GDP was how many times larger than in 1959?
Q15 answer
16. Money (nominal) GDP was $2,000 billion in 1976. Assume it is estimated that prices will triple (increase three-fold) between 1976 and 1999 because of inflation. What would money GDP have to be in 1999 for real (constant $) GDP to double between 1976 and 1999?
Q16 answer
17. If, from year 1 to year 2, money (nominal) GDP increases despite the fact that prices decreased, then it can be concluded that real (constant $) GDP
  1. increased by a greater percentage than money GDP increased.
  2. increased, but by a smaller percentage than money GDP increased.
  3. decreased by a greater percentage than money GDP increased.
  4. decreased, but by a smaller percentage than money GDP increased.
  5. None of the above can be concluded.

    6. Q17 answer
18. Which one of the following, if any, is not considered part of a country's gross domestic product (GDP)?
  1. The production of steel which heavily pollutes and damages the environment.
  2. The production of a missile which fails to deploy in an anti-missile defense experiment.
  3. A father taking a leave of absence from his job to care full time for his child.
  4. The production of a new automobile which is not sold by the end of the year.
  5. A patient's 1 hour visit to his psychiatrist.
  6. None of the above answers is correct. They all are considered part of a country's GDP.

    7. Q18 answer
Review Questions from Last Year's Exams

19. It is discovered that from year 1 to year 2 money (nominal) GDP and the price level index both exactly decrease by 50%. It can be concluded that from year 1 to year 2 real (constant $) GDP

  1. remained constant.
  2. decreased by 50%.
  3. doubled.
  4. quadrupled (increased four-fold).
  5. None of the above answers is correct.

    6. Q19 answer
20.  Which one of the following, if any, is not considered part of a country's gross domestic product (GDP)?
  1. A patient chooses to have elective surgery which is not covered by insurance.
  2. The production of electricity in a potentially hazardous nuclear power plant.
  3. The repair of an old Xerox machine which is no longer under warranty.
  4. A mother taking care of her twin children at home.
  5. The production of a new automobile which is not sold by the end of the year.
  6. None of the above answers is correct. They all are considered part of a country's GDP.

    7. Q20 answer
21.  1993's money (nominal) GDP was $6,520 billion while 1999's money (nominal) GDP was $9,000 billion. 1993's price level index was 102.6 while 1999's price index was 114.2. From 1993 to 1999, real (constant $) GDP increased by what percent? (You may round off your answer to the nearest whole percent, if necessary.)
Q21 answer
22.  From year 1 to year 2, money GDP increased by a smaller percent than prices increased. It can be concluded that from year 1 to year 2,
  1. real (constant $) GDP increased by a larger percentage than money (nominal) GDP increased.
  2. real (constant $) GDP increased, but by a smaller percentage than money (nominal) GDP increased.
  3. real (constant $) GDP increased by a larger percentage than prices increased.
  4. real (constant $) GDP increased, but by a smaller percentage than prices increased.
  5. real (constant $) GDP actually decreased.

    6. Q22 answer
23.  Money (nominal) GDP was $1,630 billion in 1975. It is estimated that prices will triple between 1975 and 2002 because of inflation. What would money (nominal) GDP have to be in 2002 for real (constant $) GDP to exactly double between 1975 and 2002?
Q23 answer
24.  From year 1 to year 2, the price of all goods and services exactly doubles, and the quantities produced of all goods and services also exactly doubles. It can be concluded that from year 1 to year 2,
  1. both money (nominal) GDP and real (constant $) GDP doubled.
  2. both money (nominal) GDP and real (constant $) GDP remained constant.
  3. both money (nominal) GDP and real (constant $) GDP quadrupled (increased four-fold).
  4. money (nominal) GDP doubled, but real (constant $) GDP remained constant.
  5. money (nominal) GDP remained constant, but real (constant $) GDP doubled,.
  6. money (nominal) GDP quadrupled (increased four-fold), but real (constant $) GDP doubled.

    7. Q24 answer
25. From year 1 to year 2, all three of the following variables increased: Money (nominal) GDP, the price level index, and real (constant $) GDP.
 Which one of the three variables must have increased by the greatest percent?
  1. Money (nominal) GDP.
  2. The price level index.
  3. Real (constant $) GDP.
  4. Insufficient information is provided to determine which one of the three variables increased by the greatest percent.

    5. Q25 answer
26. 1994’s real (constant $) GDP was $6,600 billion while 1998’s real (constant $) GDP was $7,553 billion. 1994's price level index was 105.0 while 1998’s price level index was 112.8. From 1994 to 1998, money (nominal) GDP increased by what percent? (Round off your answer to the nearest percent, if necessary.)
Q26 answer

27.  Which one of the following is not considered part of a country's gross domestic product (GDP)?
  1. The commission paid your broker for the purchase of a share of stock.
  2. The production of a cruise missile which is used by the U.S. armed forces in Afghanistan.
  3. A son takes care of his elderly mother at home.
  4. The production of steel which seriously damages the environment.
  5. Government spending on anti-pollution devices designed to clean up the environment.

    6. Q27 answer

28. 1994's money (nominal) GDP was $6,699 billion while 2000's money (nominal) GDP was $9,500 billion. 1994's price level index was 105.0 while 2000's price index was 117.3. From 1994 to 2000, real (constant $) GDP increased by what percent? (You should round off your answer to the nearest whole percent, if necessary.)
Q28 answer

29.  From year 1 to year 2, money (nominal) GDP increased by a larger percent than prices increased. It can be concluded that from year 1 to year 2,
  1. real (constant $) GDP increased by a larger percent than money (nominal) GDP increased.
  2. real (constant $) GDP increased, but by a smaller percent than money (nominal) GDP increased.
  3. real (constant $) GDP increased by a larger percent than prices increased.
  4. real (constant $) GDP increased, but by a smaller percent than prices increased.
  5. real (constant $) GDP actually decreased.

    6. Q29 answer

30.  From year 1 to year 2, the price of all goods and services exactly doubles, and the quantities produced of all goods and services is exactly cut in half. It can be concluded that from year 1 to year 2,
  1. money (nominal) GDP doubled and real (constant $) GDP was cut in half.
  2. both money (nominal) GDP and real (constant $) GDP remained constant.
  3. money (nominal) GDP remained constant and real (constant $) GDP was cut in half.
  4. money (nominal) GDP doubled and real (constant $) GDP remained constant.
  5. money (nominal) GDP remained constant and real (constant $) GDP doubled,.
  6. money (nominal) GDP was cut in half and real (constant $) GDP remained constant.

    7. Q30 answer

31. Money (nominal) GDP was $4,200 billion in 1985. It is estimated that prices will double between 1985 and 2005 because of inflation. What would money (nominal) GDP have to be in 2005 for real (constant $) GDP to exactly double between 1985 and 2005?
Q31 answer

32. If, from year 1 to year 2, real (constant $) GDP increases despite the fact that prices increased, then it can be concluded that money (nominal) GDP
  1. increased by a greater percentage than both real (constant $) GDP increased and prices increased.
  2. increased by a smaller percentage than both real (constant $) GDP increased and prices increased.
  3. increased by a greater percentage than real (constant $) GDP increased, but increased by a smaller percentage than prices increased.
  4. increased by a smaller percentage than real (constant $) GDP increased, but increased by a greater percentage than prices increased.
  5. actually decreased.

    6. Q32 answer

33. Real (constant $) GDP is $6,200 billion in 1993. From 1993 to 2001, money (nominal) GDP triples and the price level index doubles. What is real (constant $) GDP in 2001?
Q33 answer

34. A simplified consumer price index is based on a budget which contains only 2 goods, X and Y.
 In 1992 the consumer purchases 10 units of good X at a price of $5.20 per unit and purchases 5 units of good Y at a price of $12.60 per unit.
 In 2000 the price of good X is $6.00 per unit and the price of good Y is $14.00 per unit.
 If 1992’s (the base year) price index is assigned a value of 100, what would be the price index for 2000?
 (Round off your answer to the nearest whole number [integer] if necessary.)
Q34 answer

 

Formulas


Real (Constant $) GDP = (Money GDP/Price Level Index)  x 100
 

% D =  [(New Value - Original Value)/Original Value]  x 100         (D = change)

GDP = C + I + G +  (X-IM)
C is consumption, I is investment, G is government spending, (X-IM) is net exports (exports - imports).
 

Price index for year X = (Cost of budget in year X/Cost of budget in base year) x 100
 
 

Answers



 

1. b  Return to Q1
Solution to Q1

 

2. c  Return to Q2
Solution to Q2

 

3. 14%  Return to Q3
Solution to Q3

 

4. b  Return to Q4
Solution to Q4

 

5. 12%  Return to Q5
Solution to Q5

 

6. $9,000 billion  Return to Q6
Solution to Q6

 

7. e  Return to Q7
Solution to Q7

 

8. e  Return to Q8
Solution to Q8

 

9. 5%  Return to Q9
Solution to Q9

 

10. 13%  Return to Q10
Solution to Q10

 

11. e  Return to Q11
Solution to Q11

 

12. c  Return to Q12
Solution to Q12

 

13. b  Return to Q13
Solution to Q13

 

14. 3  Return to Q14
Solution to Q14

 

15. 6  Return to Q15
Solution to Q15

 

16. $12,000 billion  Return to Q16
Solution to Q16

 

17. a  Return to Q17
Solution to Q17

 

18. c  Return to Q18
Solution to Q18

 

19. a  Return to Q19
Solution to Q19

 

20. d  Return to Q20
Solution to Q20

 

21. 24%  Return to Q21
Solution to Q21

 

22. e  Return to Q22
Solution to Q22

 

23. $9,780 billion  Return to Q23
Solution to Q23

 

24.  f  Return to Q24
Solution to Q24

 

25.  a  Return to Q25
Solution to Q25

 

26. 23%  Return to Q26
Solution to Q26

 

27. c  Return to Q27
Solution to Q27

 

28. 27%  Return to Q28
Solution to Q28

 

29. b  Return to Q29
Solution to Q29

 

30. c  Return to Q30
Solution to Q30

 

31. $16,800 billion  Return to Q31
Solution to Q31

 

32.  a  Return to Q32
Solution to Q32

 

33.  $9,300 billion  Return to Q33
Solution to Q33

 

34. 113  Return to Q34
Solution to Q34

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