Question 1

Which of the following is not included in National Income?
A)indirect taxes
B)wages and salaries
C)net interest
D)rental income of persons

Accepted Answer

Indirect taxes are not included in national income because they are not earned by individuals through producing goods and services. They are simply passed on to consumers as part of the price of goods and services.

Question 2

Which of the following is included in National Income?
A)indirect taxes
B)consumption of fixed capital
C)proprietors' income
D)all of the above

Accepted Answer

Proprietors' income is included in National Income as it represents the income earned by self-employed individuals and unincorporated businesses. Indirect taxes and consumption of fixed capital are not directly included in National Income.

Question 3

Which of the following problems would lead an economist to use instrument variable methods?
A)The dependent variable has an impact on the independent variable.
B)There are too few quarters of data.
C)There are too many independent variables.
D)The R² is too high.
E) The residuals are too small.

Accepted Answer

Instrument variable methods are used when the dependent variable has an impact on the independent variable, also known as endogeneity. This can lead to biased and inconsistent estimation, which requires the use of instrument variables to address this issue.

Question 4

If GDP is less than GNP,we know with certainty that
A)a budget deficit exists.
B)a trade surplus exists.
C)a trade deficit exists.
D)none of the above

Accepted Answer

GDP being less than GNP indicates that the income earned by the country's residents from abroad is greater than the income earned by foreigners within the country. This does not directly imply a budget deficit, trade surplus, or trade deficit.

Question 5

If GDP is more than GNP,we know with certainty that
A)a budget deficit exists.
B)a trade surplus exists.
C)a trade deficit exists.
D)none of the above

Accepted Answer

GDP and GNP are two different measures of the size of an economy. GDP measures the total value of goods and services produced within a country's borders, regardless of the nationality of the producers, while GNP measures the total value of goods and services produced by a country's residents, regardless of where they are located. Therefore, the relationship between GDP and GNP does not necessarily determine the presence or absence of a budget deficit or a trade surplus/deficit.

Question 6

Suppose exports are greater than imports.Given this information,we know with certainty that
A)a trade surplus exists.
B)GNP > GDP.
C)GNP < GDP.
D)the change in business inventories is positive.

Accepted Answer

When exports are greater than imports, it means that the country has a trade surplus. This indicates that the country is producing more goods and services than it is consuming, and is exporting the excess to other countries. Therefore, choice A is the best answer. The information provided does not give any indication of the relationship between GNP and GDP, or the change in business inventories, so choices B, C, and D are incorrect.

Question 7

When estimating a regression line,a high R²‚ tells us we have
A)a good fit.
B)large residuals.
C)correctly determined the direction of causation.
D)all of the above
E) none of the above

Accepted Answer

A high R² indicates a strong correlation between the predictor and response variables, meaning a good fit for the regression line. A low R² would indicate large residuals (B) and may suggest that the direction of causation (C) was not correctly determined. Therefore, the correct answer is A.

Question 8

Which of the following is not included in investment?
A)the purchase of new equipment by firms
B)nondurable goods
C)the purchase of a new home
D)none of the above

Accepted Answer

Investment refers to the purchase of physical or financial assets that are expected to provide income or increase in value over time. Nondurable goods are usually consumed within a short time period and do not provide any long-term income or increase in value, so they are not considered investment. The other options, such as the purchase of new equipment by firms and the purchase of a new home, are typically considered investment.

Question 9

"Ordinary least squares" is a technique that can be used to
A)identify the best model.
B)determine which variables in a model are endogenous and which are exogenous.
C)obtain a bar graph showing successive quarterly increases in output.
D)obtain a line describing consumption behavior in the real world.
E) determine the direction of causation between consumption and income.

Accepted Answer

Ordinary least squares (OLS) is a method used in linear regression to estimate the relationship between variables, often used to describe behaviors such as consumption in relation to other factors.

Question 10

Net national product (NNP)is equal to
A)personal income minus taxes.
B)GNP minus consumption of fixed capital.
C)GDP plus consumption of fixed capital.
D)national income plus consumption of fixed capital.

Accepted Answer

Net National Product (NNP) is calculated by subtracting the consumption of fixed capital (depreciation) from the Gross National Product (GNP). This reflects the total market value of all final goods and services produced by the residents of a country, adjusted for the loss of value of capital goods due to wear and tear, obsolescence, or age.

Question 11

Which of the following is not a component of consumption?
A)nondurable goods
B)purchase of a new condominium
C)education expenses
D)none of the above

Accepted Answer

Purchase of a new condominium is considered an investment rather than consumption. Consumption refers to goods and services that are used for immediate satisfaction of wants and needs, while investment refers to goods and services that are acquired for future income or benefits.

Question 12

Changes in business inventories will be negative when
A)production exceeds sales.
B)production is less than sales.
C)a trade surplus exists.
D)a budget surplus exists.

Accepted Answer

Changes in business inventories will be negative when production is less than sales because businesses are selling more goods than they are producing, leading to a decrease in inventory levels.

Question 13

When we estimate a regression to determine the relationship between changes in consumption and changes in current income,we find that
A)there are no residuals.
B)the R² is zero.
C)the MPC is larger than one.
D)all of the above
E) none of the above

Accepted Answer

All of the options presented are incorrect. There will always be residuals, the R² can never be zero as there will always be some relationship between the variables, and the MPC can never be larger than one as it represents a proportion of income. Therefore, the correct answer is E, none of the above.

Question 14

A large "T-statistic" tell us that
A)a tiny change in the independent variable will cause a relatively large change in the dependent variable.
B)we do not have enough data to obtain an accurate regression line.
C)we can be confident that our estimated coefficient is not zero.
D)we should have included more "lags" in our model.
E) we have incorrectly switched the dependent and independent variables in our model.

Accepted Answer

A large t-statistic indicates that the estimated coefficient of the independent variable is likely to be significantly different from zero, meaning that there is a strong relationship between the independent variable and dependent variable. Therefore, we can be confident that our estimated coefficient is not zero. Options A, B, D and E are incorrect as they do not relate to the interpretation of the t-statistic.

Question 15

Suppose exports are less than imports.Given this information,we know with certainty that
A)a trade deficit exists.
B)GNP > GDP.
C)GNP < GDP.
D)the change in business inventories is positive.

Accepted Answer

If exports are less than imports, it means that the country is spending more on foreign goods than it is earning through exports. This creates a trade deficit. Therefore, option A is the correct choice. Option B is not directly related to the given information and cannot be inferred with certainty. Option C and Option D are not relevant to the given information.

Question 16

When we use ordinary least squares to determine the relationship between changes in consumption and changes in both current and lagged income,we find that
A)only current income influences current consumption.
B)current income has no impact on current consumption.
C)consumption is not affected by income in any quarter.
D)current income, last quarter's income, and income two quarter's ago all have the same impact on current consumption.
E) current income has a greater impact on consumption than income lagged one quarter.

Accepted Answer

Ordinary least squares (OLS) regression can reveal that current income typically has a more immediate and stronger impact on consumption compared to lagged income, reflecting the immediate availability of resources to spend. This is consistent with economic theories that suggest people adjust their spending more significantly with changes in their current income levels compared to past income levels.

Question 17

If GDP exceeds GNP,we know with certainty that
A)a budget deficit exists.
B)a trade surplus exists.
C)a trade deficit exists.
D)receipts of factor income from the rest of the world exceed payments of factor income to the rest of the world.

Accepted Answer

GDP measures the total value of goods and services produced within a country's borders, while GNP measures the total income earned by a country's residents, regardless of where the production takes place. If GDP exceeds GNP, it means that the receipts of factor income from the rest of the world (income earned by the country's residents from their investments abroad, for example) exceed payments of factor income to the rest of the world (income earned by foreign residents from their investments in the country).

Question 18

A key step in using instrument variable methods is to
A)find one or more exogenous variables that influence your dependent variable.
B)decrease the number of lags in the regression equation.
C)conduct interviews to determine how accurate your data really is.
D)run the regression on two different computers to see if the results differ.
E) eliminate the dependent variable.

Accepted Answer

In using instrument variable methods, the key step is to find one or more exogenous variables that can act as instruments or proxies for the endogenous variable of interest, in order to overcome endogeneity bias.

Question 19

Changes in business inventories will be positive when
A)production exceeds sales.
B)production is less than sales.
C)a trade surplus exists.
D)a budget surplus exists.

Accepted Answer

Business inventories will be positive when production exceeds sales, meaning that more goods have been produced than have been sold and are stored as inventory.

Quiz 25: Appendix

Which of the following is not included in National Income?

Which of the following is included in National Income?

Which of the following problems would lead an economist to use instrument variable methods?

If GDP is less than GNP,we know with certainty that

If GDP is more than GNP,we know with certainty that

Suppose exports are greater than imports.Given this information,we know with certainty that

When estimating a regression line,a high R²‚ tells us we have

Which of the following is not included in investment?

"Ordinary least squares" is a technique that can be used to

Net national product (NNP) is equal to

Which of the following is not a component of consumption?

Changes in business inventories will be negative when

When we estimate a regression to determine the relationship between changes in consumption and changes in current income,we find that

A large "T-statistic" tell us that

Suppose exports are less than imports.Given this information,we know with certainty that

When we use ordinary least squares to determine the relationship between changes in consumption and changes in both current and lagged income,we find that

If GDP exceeds GNP,we know with certainty that

A key step in using instrument variable methods is to

Changes in business inventories will be positive when