BADM 7200 ACTUAL TEST PAPER
COMPLETE QUESTIONS AND ANSWERS
FULL SOLUTION
●● What two documents were published in 1776?
Answer: Wealth of Nations (Adam Smith), Declaration of Independence
●● What does Friedman argue is the relationship between economic and
political freedom?
Answer: economic freedom is an essential requisite for political freedom
●● Who wrote 'Free to Choose'?
Answer: Milton Friedman
●● Did Adam Smith and Thomas Jefferson believe that concentrated
government power would allow policy makers to maximize utility for
citizens?
Answer: No
●● What is GDP?
Answer: the final value of all goods and services produced in a given
period of time
,●● What federal agency compiles GDP in the US?
Answer: the Bureau of Economic Analysis (BEA)
●● True or False: GDP can be calculated by either adding up the final
value of all goods and services OR adding up the value of each step in
the production process (e.g. "value added method"). Both will yield a
similar, but not exact, result.
Answer: false; they will yield the same result
●● What are the components of GDP?
Answer: Consumption (C), Investment (I), Government purchases (G),
Net exports (NX)
●● What is the difference between real and nominal GDP?
Answer: Real GDP is the total value of all final goods and services
produced in a country adjusted for inflation to reflect constant
purchasing power while nominal GDP does not adjust for inflation
●● What is the definition for Gross National Product (GNP)?
Answer: the value of final goods and services produced by residents of
the US, even if production takes place outside of the US
●● What is the definition for disposable personal income?
Answer: personal income minus personal tax payments
,●● If I mow my lawn, is that included in GDP?
Answer: No
●● If I pay a lawn service to mow my lawn, is that included in GDP?
Answer: Yes
●● If a factory is built, increasing both GDP and pollution, does that
mean that the society is better off because GDP is higher?
Answer: No because while GDP increases, GDP does not account for the
negative externalities like pollution, so society may or may not be better
off
●● If average work hours in a country fall, giving people more leisure
time but causing measured GDP to decline slightly, does that necessarily
mean society is worse off?
Answer: No because while GDP declines, GDP does not account for the
value of increased leisure, so overall welfare could be higher
●● How does Paul Krugman describe the magnitude of the Great
Recession?
Answer: a human disaster, corrosive for the present and the future, will
do enormous damage to our nation
, ●● What does Krugman argue is the impact of recession on young
people?
Answer: this will scar young people's careers for their entire lives
●● What theories does Krugman mention people have for poor
economic performance?
Answer: corporate tax rates, entitlements, shortage of very specific high
skilled workers
●● What is the problem according to Krugman?
Answer: there is not enough demand in the economy
●● According to Krugman, from an economics standpoint, is the
problem hard to fix?
Answer: No
●● Does Krugman believe the stimulus programs implemented in the
US and Europe were adequate?
Answer: No, both the US and Europe have implemented austerity
(reverse of stimulus)
●● What does Krugman believe about government spending?
Answer: Additional government spending during the great recession
would have likely reduced the severity of the recession
COMPLETE QUESTIONS AND ANSWERS
FULL SOLUTION
●● What two documents were published in 1776?
Answer: Wealth of Nations (Adam Smith), Declaration of Independence
●● What does Friedman argue is the relationship between economic and
political freedom?
Answer: economic freedom is an essential requisite for political freedom
●● Who wrote 'Free to Choose'?
Answer: Milton Friedman
●● Did Adam Smith and Thomas Jefferson believe that concentrated
government power would allow policy makers to maximize utility for
citizens?
Answer: No
●● What is GDP?
Answer: the final value of all goods and services produced in a given
period of time
,●● What federal agency compiles GDP in the US?
Answer: the Bureau of Economic Analysis (BEA)
●● True or False: GDP can be calculated by either adding up the final
value of all goods and services OR adding up the value of each step in
the production process (e.g. "value added method"). Both will yield a
similar, but not exact, result.
Answer: false; they will yield the same result
●● What are the components of GDP?
Answer: Consumption (C), Investment (I), Government purchases (G),
Net exports (NX)
●● What is the difference between real and nominal GDP?
Answer: Real GDP is the total value of all final goods and services
produced in a country adjusted for inflation to reflect constant
purchasing power while nominal GDP does not adjust for inflation
●● What is the definition for Gross National Product (GNP)?
Answer: the value of final goods and services produced by residents of
the US, even if production takes place outside of the US
●● What is the definition for disposable personal income?
Answer: personal income minus personal tax payments
,●● If I mow my lawn, is that included in GDP?
Answer: No
●● If I pay a lawn service to mow my lawn, is that included in GDP?
Answer: Yes
●● If a factory is built, increasing both GDP and pollution, does that
mean that the society is better off because GDP is higher?
Answer: No because while GDP increases, GDP does not account for the
negative externalities like pollution, so society may or may not be better
off
●● If average work hours in a country fall, giving people more leisure
time but causing measured GDP to decline slightly, does that necessarily
mean society is worse off?
Answer: No because while GDP declines, GDP does not account for the
value of increased leisure, so overall welfare could be higher
●● How does Paul Krugman describe the magnitude of the Great
Recession?
Answer: a human disaster, corrosive for the present and the future, will
do enormous damage to our nation
, ●● What does Krugman argue is the impact of recession on young
people?
Answer: this will scar young people's careers for their entire lives
●● What theories does Krugman mention people have for poor
economic performance?
Answer: corporate tax rates, entitlements, shortage of very specific high
skilled workers
●● What is the problem according to Krugman?
Answer: there is not enough demand in the economy
●● According to Krugman, from an economics standpoint, is the
problem hard to fix?
Answer: No
●● Does Krugman believe the stimulus programs implemented in the
US and Europe were adequate?
Answer: No, both the US and Europe have implemented austerity
(reverse of stimulus)
●● What does Krugman believe about government spending?
Answer: Additional government spending during the great recession
would have likely reduced the severity of the recession
