, TESTBANK for Macroeconomics Theory and
Applications , 1st Edition Robert Lester
Notes
1- The file is chapter after chapter.
2- We have shown you 10 or five pages.
3- The file contains all Appendix and Excel
sheet if it exists.
4- We have all what you need, we make
update at every time. There are many
new editions waiting you.
5- If you think you purchased the wrong file
You can contact us at every time, we can
replace it with true one.
Our email:
,Name: Class: Date:
Chapter 01: Defining and Measuring GDP
Multiple Choice
1. Which of the following is included in GDP?
a. A car dealership sells a new car that was produced this year.
b. A car dealership sells a used car.
c. A car dealership sells a new car out of its inventory from last year.
d. A car owner sells their used car directly to another individual.
ANSWER: a
2. A lemonade vendor spends $100 on lemons, $50 on sugar, and $25 on cups. The vendor uses these
inputs to make lemonade and their total sales equal $200. The total contribution of lemons, sugar, cups,
and lemonade sales to GDP is
a. $200.
b. $375.
c. $175.
d. $275.
ANSWER: a
Table 1.1
Category Dollar Amount
Employee compensation $500 billion
Taxes on production and imports $35 billion
Subsidies $15 billion
Consumption of fixed capital $80 billon
Net operating surplus $200 billion
Transfer payments $40 billion
Government investment $200 billion
3. Refer to Table 1.1. Calculate gross national income.
a. $800 billion
b. $830 billion
c. $815 billion
d. $750 billion
ANSWER: a
4. Refer to Table 1.1. Which categories are NOT used in calculations of gross national income?
a. Transfer payments and government investment
b. Government investment and subsidies
c. Transfer payments, government investment, and taxes on production and imports
d. Net operating surplus, subsidies, and net operating surplus
ANSWER: a
Table 1.2
Category Dollar Amount
Consumption $250 billion
Copyright Cengage Learning. Powered by Cognero. Page 1
,Name: Class: Date:
Chapter 01: Defining and Measuring GDP
Residential fixed investment $25 billion
Nonresidential fixed investment $75 billon
Change in inventories $10 billion
Government consumption $35 billion
Government investment $15 billion
Government transfers $40 billion
Net exports -$20 billion
Subsidies $15 billion
Net operating surplus $200 billion
5. Refer to Table 1.2. Calculate GDP
a. $390 billion
b. $370 billion
c. $430 billion
d. $410 billion
ANSWER: a
6. Refer to Table 1.2. Which categories are NOT used in calculations of GDP?
a. Net exports, subsidies, and net operating surplus
b. Net exports and subsidies
c. Consumption, residential fixed income, and change in inventories
d. Net operating surplus, government transfers, and nonresidential fixed income
ANSWER: a
7. Nominal GDP uses ______ prices and real GDP uses ______ prices.
a. current-year; constant-year
b. current-year; current-year
c. constant-year; constant-year
d. constant-year; current-year
ANSWER: a
Table 1.3
Coffee Chocolate
Year Quantity Price Quantity Price
2023 100 $8 125 $3
2024 125 $8.50 150 $3.25
8. Refer to Table 1.3. Using 2023 as the base year, real GDP in 2024 is _____ and inflation is ______
percent.
a. $1,450; 6.9
Copyright Cengage Learning. Powered by Cognero. Page 2
,Name: Class: Date:
Chapter 01: Defining and Measuring GDP
b. $1,450; 7.3
c. $1,550; 6.25
d. $1,550; 6.9
ANSWER: a
9. Refer to Table 1.3. Using 2024 as a base year, real GDP in 2024 is _____ and inflation is ______
percent.
a. $1,550; 6.9
b. $1,450; 6.9
c. $1,550; 6.25
d. $1,450; 7.3
ANSWER: a
10. Suppose a Starbucks cappuccino costs $5 in the United States and 420 yen in Japan. Where is the
cappuccino cheaper?
a. There is not enough information to answer this question.
b. United States
c. Japan
d. The price is the same in both countries.
ANSWER: a
11. Because goods and services tend to be cheaper in _______ countries, correcting only for market
exchange rates _______ income differences across countries.
a. developing; overstates
b. developed; overstates
c. developing; understates
d. developed; understates
ANSWER: a
12. Over the last 200 years, GDP per worker in the United States has increased by a factor of about
a. 20.
b. 2.
c. 200.
d. 2,000.
ANSWER: a
13. If the growth rate of income per capita is 3% per year, the number of years it takes for income per
capita to double is
a. 23.3.
b. 70.
c. 35.
d. 14.
ANSWER: a
Copyright Cengage Learning. Powered by Cognero. Page 3
,Name: Class: Date:
Chapter 01: Defining and Measuring GDP
14. Many of the world’s growth miracles over the last 60 years have occurred in
a. East Asia.
b. Central America.
c. North America.
d. Continental Europe.
ANSWER: a
15. GDP per capita is ______ correlated with life expectancy and ______ correlated with infant mortality.
a. positively; negatively
b. positively; positively
c. negatively; negatively
d. negatively; positively
ANSWER: a
16. GDP per capita is _______ correlated with consumption per capita and ______ correlated with CO2
emissions per capita.
a. positively; positively
b. negatively; negatively
c. negatively; positively
d. positively; negatively
ANSWER: a
Subjective Short Answer
17. Explain why each of the following are not included in the calculation of current-year U.S. GDP.
a. A brick of French cheese
b. The sale of a pre-owned car
c. The sale of a new piece of furniture out of a company’s inventory
d. Home cleaning services provided by the homeowner
ANSWER: The solutions are as follows:
a. The brick of French cheese was produced in France and is therefore included in
France’s GDP, not US GDP.
b. GDP only counts the production of new goods and services, so a used car wouldn’t
count.
c. The value of the furniture is counted in GDP in the year it is produced, not when it is
sold out of inventory.
d. There is no transaction when the homeowner cleans their own house.
18. Explain how net operating surplus is different from profit.
ANSWER: Net operating surplus does not subtract interest or rent payments and is therefore not a
measurement of pure profit.
Table 1.4
Category Amount (in billions) Category
Copyright Cengage Learning. Powered by Cognero. Page 4
,Name: Class: Date:
Chapter 01: Defining and Measuring GDP
Employee compensation $820 Consumption
Net operating surplus $300 Investment
Consumption of fixed capital $120 Government spending (excluding transfers)
Taxes on imports $45 Government transfers
Subsides ? Net exports
GNI $1,145 GDP
19. Refer to Table 1.4. Fill in the missing values of the table.
ANSWER: Employee compensation $820 Consumption $700
Net operating surplus $300 Investment $225
Consumption of fixed capital $120 Government spending (excluding transfers) $280
Taxes on imports $45 Government transfers $300
Subsides $140 Net exports -$60
GNI $1,145 GDP $1,145
Table 1.5
Category 2023 2024
Price of lemons $2 $2.10
Quantity of lemons sold to final users 10,000 11,000
Quantity of lemons sold to lemonade stands 8,000 8,025
Price of lemonade $6 $7
Gallons of lemonade 3,000 3,050
20. Refer to Table 1.5. Assume that the economy produces two goods–lemons and lemonade. Some
lemons are sold directly to consumers and the rest of the lemons go into lemonade. The data for 2023 and
2024 are given in the table.
a. Calculate nominal GDP in 2023 and 2024. Show your work.
b. Calculate real GDP in 2023 and 2024 using 2023 as the base year. Also, calculate the inflation
rate. Show your work.
ANSWER Assume that the economy produces two goods – lemons and lemonade. Some lemons are sold
: directly to consumers and the rest of the lemons go into lemonade. The data for 2023 and 2024
are shown below.
Category 2023
Price of lemons $2
Quantity of lemons sold to final users 10,000
Quantity of lemons sold to lemonade stands 8,000
Price of lemonade $6
Gallons of lemonade 3,000
a. Calculate nominal GDP in 2023 and 2024.
Copyright Cengage Learning. Powered by Cognero. Page 5
,Name: Class: Date:
Chapter 01: Defining and Measuring GDP
b. Calculate real GDP in 2023 and 2024 using 2023 as the base year. Also, calculate the
inflation rate.
The GDP deflator in 2024 is 100*$44,450/$40,300=110.30. The inflation rate between 2023
and 2024 was 10.30%.
21. Is real GDP per capita a good measure of economic welfare? Justify your answer.
ANSWER: For the most part, yes. GDP per capita is highly positively correlated with components
of economic welfare such as consumption and life expectancy. However, high GDP
countries also emit more carbon.
Copyright Cengage Learning. Powered by Cognero. Page 6
,Name: Class: Date:
Chapter 02: Production Functions
Multiple Choice
1. The inputs into the production function include
a. capital and labor.
b. capital and land.
c. land and labor.
d. capital, land, and labor.
ANSWER: a
2. Which of the following is an example of capital?
a. A warehouse
b. Money
c. A share of stock
d. US Treasury Bills
ANSWER: a
3. An economy can increase its level of production by
a. increasing its inputs or increasing TFP.
b. increasing its inputs or decreasing TFP.
c. decreasing its inputs or increasing TFP.
d. decreasing its inputs or decreasing TFP.
ANSWER: a
4. In contrast to an individual-level production function, the aggregate production function describes
a. the production of the entire economy.
b. the production of firms in an industry.
c. the production of an entire firm.
d. the production of workers with a particular level of education.
ANSWER: a
5. The function Y = AF(K, L)
a. could be either an aggregate or individual production function.
b. could be an aggregate production function but not an individual production function.
c. could be an individual production function but not an aggregate production function.
d. is not a valid aggregate or individual production function.
ANSWER: a
6. The production function Y = AK2/3L2/3 has ______ returns to scale in its inputs.
a. increasing
b. decreasing
c. constant
d. double
ANSWER: a
Copyright Cengage Learning. Powered by Cognero. Page 1
, Name: Class: Date:
Chapter 02: Production Functions
7. The production function Y = AK2/3L2/3 has a ______ marginal product of labor and a _______ marginal
product of capital.
a. positive; positive
b. negative; negative
c. negative; positive
d. positive; negative
ANSWER: a
8. Which of the following is not a standard assumption of the aggregate production function?
a. Bounded TFP
b. Constant returns to scale
c. Positive marginal products
d. Diminishing marginal products
ANSWER: a
9. The firm’s profit maximization condition equates the marginal product of _____ to the wage and the
marginal product of ______ to the rental rate.
a. labor; capital
b. capital; labor
c. labor; labor
d. capital; capital
ANSWER: a
Table 2.1
Labor, L Output, Y
4 20
5 28
6 32
7 34
10. Refer to Table 2.1. The marginal product of labor is
a. positive, but diminishing.
b. positive and increasing.
c. positive and constant.
d. negative and diminishing.
ANSWER: a
11. Refer to Table 2.1. If the wage w = 3, the profit maximizing number of workers is
a. 6.
b. 4.
c. 5.
d. 7.
Copyright Cengage Learning. Powered by Cognero. Page 2
Applications , 1st Edition Robert Lester
Notes
1- The file is chapter after chapter.
2- We have shown you 10 or five pages.
3- The file contains all Appendix and Excel
sheet if it exists.
4- We have all what you need, we make
update at every time. There are many
new editions waiting you.
5- If you think you purchased the wrong file
You can contact us at every time, we can
replace it with true one.
Our email:
,Name: Class: Date:
Chapter 01: Defining and Measuring GDP
Multiple Choice
1. Which of the following is included in GDP?
a. A car dealership sells a new car that was produced this year.
b. A car dealership sells a used car.
c. A car dealership sells a new car out of its inventory from last year.
d. A car owner sells their used car directly to another individual.
ANSWER: a
2. A lemonade vendor spends $100 on lemons, $50 on sugar, and $25 on cups. The vendor uses these
inputs to make lemonade and their total sales equal $200. The total contribution of lemons, sugar, cups,
and lemonade sales to GDP is
a. $200.
b. $375.
c. $175.
d. $275.
ANSWER: a
Table 1.1
Category Dollar Amount
Employee compensation $500 billion
Taxes on production and imports $35 billion
Subsidies $15 billion
Consumption of fixed capital $80 billon
Net operating surplus $200 billion
Transfer payments $40 billion
Government investment $200 billion
3. Refer to Table 1.1. Calculate gross national income.
a. $800 billion
b. $830 billion
c. $815 billion
d. $750 billion
ANSWER: a
4. Refer to Table 1.1. Which categories are NOT used in calculations of gross national income?
a. Transfer payments and government investment
b. Government investment and subsidies
c. Transfer payments, government investment, and taxes on production and imports
d. Net operating surplus, subsidies, and net operating surplus
ANSWER: a
Table 1.2
Category Dollar Amount
Consumption $250 billion
Copyright Cengage Learning. Powered by Cognero. Page 1
,Name: Class: Date:
Chapter 01: Defining and Measuring GDP
Residential fixed investment $25 billion
Nonresidential fixed investment $75 billon
Change in inventories $10 billion
Government consumption $35 billion
Government investment $15 billion
Government transfers $40 billion
Net exports -$20 billion
Subsidies $15 billion
Net operating surplus $200 billion
5. Refer to Table 1.2. Calculate GDP
a. $390 billion
b. $370 billion
c. $430 billion
d. $410 billion
ANSWER: a
6. Refer to Table 1.2. Which categories are NOT used in calculations of GDP?
a. Net exports, subsidies, and net operating surplus
b. Net exports and subsidies
c. Consumption, residential fixed income, and change in inventories
d. Net operating surplus, government transfers, and nonresidential fixed income
ANSWER: a
7. Nominal GDP uses ______ prices and real GDP uses ______ prices.
a. current-year; constant-year
b. current-year; current-year
c. constant-year; constant-year
d. constant-year; current-year
ANSWER: a
Table 1.3
Coffee Chocolate
Year Quantity Price Quantity Price
2023 100 $8 125 $3
2024 125 $8.50 150 $3.25
8. Refer to Table 1.3. Using 2023 as the base year, real GDP in 2024 is _____ and inflation is ______
percent.
a. $1,450; 6.9
Copyright Cengage Learning. Powered by Cognero. Page 2
,Name: Class: Date:
Chapter 01: Defining and Measuring GDP
b. $1,450; 7.3
c. $1,550; 6.25
d. $1,550; 6.9
ANSWER: a
9. Refer to Table 1.3. Using 2024 as a base year, real GDP in 2024 is _____ and inflation is ______
percent.
a. $1,550; 6.9
b. $1,450; 6.9
c. $1,550; 6.25
d. $1,450; 7.3
ANSWER: a
10. Suppose a Starbucks cappuccino costs $5 in the United States and 420 yen in Japan. Where is the
cappuccino cheaper?
a. There is not enough information to answer this question.
b. United States
c. Japan
d. The price is the same in both countries.
ANSWER: a
11. Because goods and services tend to be cheaper in _______ countries, correcting only for market
exchange rates _______ income differences across countries.
a. developing; overstates
b. developed; overstates
c. developing; understates
d. developed; understates
ANSWER: a
12. Over the last 200 years, GDP per worker in the United States has increased by a factor of about
a. 20.
b. 2.
c. 200.
d. 2,000.
ANSWER: a
13. If the growth rate of income per capita is 3% per year, the number of years it takes for income per
capita to double is
a. 23.3.
b. 70.
c. 35.
d. 14.
ANSWER: a
Copyright Cengage Learning. Powered by Cognero. Page 3
,Name: Class: Date:
Chapter 01: Defining and Measuring GDP
14. Many of the world’s growth miracles over the last 60 years have occurred in
a. East Asia.
b. Central America.
c. North America.
d. Continental Europe.
ANSWER: a
15. GDP per capita is ______ correlated with life expectancy and ______ correlated with infant mortality.
a. positively; negatively
b. positively; positively
c. negatively; negatively
d. negatively; positively
ANSWER: a
16. GDP per capita is _______ correlated with consumption per capita and ______ correlated with CO2
emissions per capita.
a. positively; positively
b. negatively; negatively
c. negatively; positively
d. positively; negatively
ANSWER: a
Subjective Short Answer
17. Explain why each of the following are not included in the calculation of current-year U.S. GDP.
a. A brick of French cheese
b. The sale of a pre-owned car
c. The sale of a new piece of furniture out of a company’s inventory
d. Home cleaning services provided by the homeowner
ANSWER: The solutions are as follows:
a. The brick of French cheese was produced in France and is therefore included in
France’s GDP, not US GDP.
b. GDP only counts the production of new goods and services, so a used car wouldn’t
count.
c. The value of the furniture is counted in GDP in the year it is produced, not when it is
sold out of inventory.
d. There is no transaction when the homeowner cleans their own house.
18. Explain how net operating surplus is different from profit.
ANSWER: Net operating surplus does not subtract interest or rent payments and is therefore not a
measurement of pure profit.
Table 1.4
Category Amount (in billions) Category
Copyright Cengage Learning. Powered by Cognero. Page 4
,Name: Class: Date:
Chapter 01: Defining and Measuring GDP
Employee compensation $820 Consumption
Net operating surplus $300 Investment
Consumption of fixed capital $120 Government spending (excluding transfers)
Taxes on imports $45 Government transfers
Subsides ? Net exports
GNI $1,145 GDP
19. Refer to Table 1.4. Fill in the missing values of the table.
ANSWER: Employee compensation $820 Consumption $700
Net operating surplus $300 Investment $225
Consumption of fixed capital $120 Government spending (excluding transfers) $280
Taxes on imports $45 Government transfers $300
Subsides $140 Net exports -$60
GNI $1,145 GDP $1,145
Table 1.5
Category 2023 2024
Price of lemons $2 $2.10
Quantity of lemons sold to final users 10,000 11,000
Quantity of lemons sold to lemonade stands 8,000 8,025
Price of lemonade $6 $7
Gallons of lemonade 3,000 3,050
20. Refer to Table 1.5. Assume that the economy produces two goods–lemons and lemonade. Some
lemons are sold directly to consumers and the rest of the lemons go into lemonade. The data for 2023 and
2024 are given in the table.
a. Calculate nominal GDP in 2023 and 2024. Show your work.
b. Calculate real GDP in 2023 and 2024 using 2023 as the base year. Also, calculate the inflation
rate. Show your work.
ANSWER Assume that the economy produces two goods – lemons and lemonade. Some lemons are sold
: directly to consumers and the rest of the lemons go into lemonade. The data for 2023 and 2024
are shown below.
Category 2023
Price of lemons $2
Quantity of lemons sold to final users 10,000
Quantity of lemons sold to lemonade stands 8,000
Price of lemonade $6
Gallons of lemonade 3,000
a. Calculate nominal GDP in 2023 and 2024.
Copyright Cengage Learning. Powered by Cognero. Page 5
,Name: Class: Date:
Chapter 01: Defining and Measuring GDP
b. Calculate real GDP in 2023 and 2024 using 2023 as the base year. Also, calculate the
inflation rate.
The GDP deflator in 2024 is 100*$44,450/$40,300=110.30. The inflation rate between 2023
and 2024 was 10.30%.
21. Is real GDP per capita a good measure of economic welfare? Justify your answer.
ANSWER: For the most part, yes. GDP per capita is highly positively correlated with components
of economic welfare such as consumption and life expectancy. However, high GDP
countries also emit more carbon.
Copyright Cengage Learning. Powered by Cognero. Page 6
,Name: Class: Date:
Chapter 02: Production Functions
Multiple Choice
1. The inputs into the production function include
a. capital and labor.
b. capital and land.
c. land and labor.
d. capital, land, and labor.
ANSWER: a
2. Which of the following is an example of capital?
a. A warehouse
b. Money
c. A share of stock
d. US Treasury Bills
ANSWER: a
3. An economy can increase its level of production by
a. increasing its inputs or increasing TFP.
b. increasing its inputs or decreasing TFP.
c. decreasing its inputs or increasing TFP.
d. decreasing its inputs or decreasing TFP.
ANSWER: a
4. In contrast to an individual-level production function, the aggregate production function describes
a. the production of the entire economy.
b. the production of firms in an industry.
c. the production of an entire firm.
d. the production of workers with a particular level of education.
ANSWER: a
5. The function Y = AF(K, L)
a. could be either an aggregate or individual production function.
b. could be an aggregate production function but not an individual production function.
c. could be an individual production function but not an aggregate production function.
d. is not a valid aggregate or individual production function.
ANSWER: a
6. The production function Y = AK2/3L2/3 has ______ returns to scale in its inputs.
a. increasing
b. decreasing
c. constant
d. double
ANSWER: a
Copyright Cengage Learning. Powered by Cognero. Page 1
, Name: Class: Date:
Chapter 02: Production Functions
7. The production function Y = AK2/3L2/3 has a ______ marginal product of labor and a _______ marginal
product of capital.
a. positive; positive
b. negative; negative
c. negative; positive
d. positive; negative
ANSWER: a
8. Which of the following is not a standard assumption of the aggregate production function?
a. Bounded TFP
b. Constant returns to scale
c. Positive marginal products
d. Diminishing marginal products
ANSWER: a
9. The firm’s profit maximization condition equates the marginal product of _____ to the wage and the
marginal product of ______ to the rental rate.
a. labor; capital
b. capital; labor
c. labor; labor
d. capital; capital
ANSWER: a
Table 2.1
Labor, L Output, Y
4 20
5 28
6 32
7 34
10. Refer to Table 2.1. The marginal product of labor is
a. positive, but diminishing.
b. positive and increasing.
c. positive and constant.
d. negative and diminishing.
ANSWER: a
11. Refer to Table 2.1. If the wage w = 3, the profit maximizing number of workers is
a. 6.
b. 4.
c. 5.
d. 7.
Copyright Cengage Learning. Powered by Cognero. Page 2
