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.