Deck 6: Measuring the Production, Income, and Spending of Nations

Question 1

Which of the following is most likely a final good?

A) wheat
B) crude oil
C) steel
D) cotton
E) a smartphone

Answer 1

a smartphone

Question 2

Exhibit 18-2
Exhibit 18-2 shows the cost of the components used to produce a $1,500 computer. The total value of output that would be recorded in GDP is

A) $600.
B) $1,800.
C) $1,500.
D) $900.
E) $2,400.

Answer 2

$1,500.

Question 3

When computing U.S. GDP, a good or service is weighted

A) according to corporate concerns.
B) according to the quantity of the good or service available.
C) according to the concerns of pressure groups.
D) according to government directive.
E) according to its value.

Answer 3

according to its value.

Question 4

Joe builds himself a garage that is valued at $25,000. To build the garage, he purchased new materials for a total cost of $15,000. The value of GDP in this case would

A) increase by $40,000.
B) increase by $25,000.
C) increase by $15,000.
D) increase by $10,000.
E) decrease by $10,000.

Question 5

In a simple economy, Wanda's Weavers grows cotton and weaves it into cloth. In the current year, Wanda's Weavers produces cloth valued at $1,000, half of which it sells directly to consumers for their own personal use and half of which it sells to Joe's T-shirts. Joe's T-shirts produces T-shirts valued at $1,500 for the current year. What is the value of GDP in this simple economy?

A) $2,500
B) $1,500
C) $500
D) $1,000
E) $2,000

Question 6

Simon Kuznets won a Nobel Prize in economics for his work on

A) monetary theory.
B) measuring national output.
C) real business cycle theory.
D) health-care economics.
E) growth theory.

Question 7

Sally has recently graduated from college and has bought a house that was built 50 years ago for $100,000. She used a real estate agent to help her find and purchase the house, and the real estate agent received 6 percent of the value of the sale, or $6,000, to be paid by the seller of the house. The value of GDP in this case would

A) increase by $100,000.
B) increase by $94,000.
C) increase by $106,000.
D) increase by $6,000.
E) not be affected because the house was not produced in the current time period.

Question 8

The numbers one finds when one measures the GDP of the United States are quite large, measured in trillions. How many billions constitute a trillion?

A) 10
B) 100
C) 1,000
D) 1 million
E) None of these

Question 9

The initials BEA stand for the

A) Business and Economics Association.
B) Bureau of Economic Analysis.
C) Budgetary Economic Analysis.
D) Best Economic Assumptions.
E) Branch of Economic Action.

Question 10

In the process of calculating the production of the economy of the United States, which of the following must be taken into account?

A) The fact that some of the goods that people buy are shipped to the United States from abroad
B) The fact that some of the goods produced in the economy are shipped to other countries
C) The fact that some goods are used as inputs into the production of other goods, like hamburgers
D) All of the above
E) Only a and b

Question 11

If we calculate GDP by adding the dollars of all goods that buyers pay, we make an error as a result of

A) omitting opportunity costs.
B) double counting some goods.
C) missing the spending on some goods.
D) omitting some measures of well being.
E) ignoring inflation.

Question 12

GDP can be calculated by adding the value of

A) all final goods produced in a country within a given period.
B) all intermediate and final goods produced in a country within a given period.
C) all intermediate goods produced in a country within a given period.
D) all final goods produced in a country within a given period minus the value of all intermediate goods produced.
E) all final goods or the value of all intermediate goods produced in a country within a given period, whichever is smaller.

Question 13

Exhibit 18-1
Exhibit 18-1 summarizes a certain economy's final output. According to this table, GDP equals

A) $110.
B) $1,100.
C) $1,010.
D) $11,000.
E) GDP cannot be computed with the given information.

Question 14

What was the approximate level of GDP production in the United States in 2010?

A) $14.6 trillion
B) $9.5 billion
C) $13 billion
D) $1,300 million
E) $10.8 trillion

Question 15

In dollar terms, U.S. GDP in 2010 is approximately

A) $8,600,000,000,000,000.
B) $8,600,000,000,000.
C) $14,600,000,000,000,000.
D) $14,600,000,000,000.
E) $14,600,000.

Question 16

What is the role of weights in computing GDP?

A) The weights take into account the different time periods in which the goods are produced.
B) The weights take into account the different uses of the goods and services produced.
C) The weights take into account the different locations in which the goods are produced.
D) The weights enable the adding up of different products.
E) The weights take into account whether the goods and services are for private or government use.

Question 17

An individual who purchases a computer later decides to acquire a new motherboard. In terms of computing GDP, this new motherboard would be a(n)

A) economic good.
B) final good.
C) intermediate good.
D) input.
E) double good.

Question 18

GDP is

A) a measure of the value of all newly produced final goods and services in a country during some period of time.
B) a measure of the value of all goods and services produced in a country during some period of time, corrected for inflation.
C) a measure of the value of all goods and services sold in a country during some period of time.
D) a measure of the value of all goods and services produced by the nation's citizens during some period of time.
E) a measure of the value of all goods and services produced by the nation's citizens during some period of time, corrected for inflation.

Question 19

What best describes what is included in the GDP measure?

A) Only newly produced goods
B) Only newly produced services
C) All goods and services sold
D) Only newly produced goods and services
E) Any economic interaction

Question 20

Where are the goods and services included in a country's GDP produced?

A) Within the borders of that country plus those goods produced abroad by that country's residents, less domestic goods produced by foreign residents
B) Within the borders of that country except for those goods produced in the country by nonresidents or with capital owned by foreigners
C) Anywhere that country's residents produce goods and services
D) Within that country's borders
E) Anywhere that country's businesses produce goods and services

Question 21

Investment is

A) the purchase of final goods by business firms.
B) the purchase of securities by business firms.
C) the purchase of intermediate goods by business firms.
D) the purchase of final goods by business firms and government.
E) the purchase of final goods by the government.

Question 22

You sell your used calculus book to your friend. This transaction, in most cases, will not count in GDP.

Question 23

Investment expenditures are the sum of

A) business fixed investment, residential investment, and financial investment.
B) business fixed investment and services.
C) business fixed investment plus financial investments.
D) business fixed investment plus inventories.
E) business fixed investment, inventory investment, and residential investment.

Question 24

All of the following are approaches for calculating GDP EXCEPT

A) spending.
B) income.
C) production.
D) cost.
E) None of these: All can be used to calculate GDP.

Question 25

The largest component of GDP is

A) government purchases.
B) investment.
C) exports.
D) consumption.
E) government expenditures.

Question 26

One trillion is equal to 1 million millions, or 1,000,000,000,000.

Question 27

Intermediate goods are part of final goods.

Question 28

In 2010, the United States GDP amounted to about $40 billion worth of goods and services a day, for each of the 365 days during the year.

Question 29

If a computer dealer has 20 computers at the beginning of the month, receives an additional 35 computers during the month, and sells no computers during the month, the dealer's inventory investment for that month would be

A) minus 35 computers.
B) plus 20 computers.
C) minus 20 computers.
D) plus 35 computers.
E) plus 55 computers.

Question 30

Total spending in the economy is divided into

A) consumption, investment, government purchases, and exports.
B) consumption, investment, government expenditures, and exports.
C) market spending, nongovernmental organization spending, foreign spending, and government spending.
D) consumption, investment, government expenditures, and net exports.
E) consumption, investment, government purchases, and net exports.

Question 31

Expenditure on ____ is spending that is not included in GDP.

A) used goods
B) intermediate goods
C) financial assets
D) All of these
E) None of these

Question 32

Consumption expenditures include

A) expenditures by households on goods and services produced only in the United States.
B) purchases of consumer goods produced in the United States by households, businesses, government, and other countries.
C) purchases of consumer goods produced in the United States and the rest of the world by households, businesses, government, and other countries.
D) expenditures by households on goods and services produced in the United States and the rest of the world.
E) the purchase of new homes by households.

Question 33

U.S. GDP includes the value of goods and services produced by U.S. citizens abroad.

Question 34

The number of new cars produced in a given time period in the United States is a flow measure, while the number of cars in the United States is a stock measure.

Question 35

In 2010, consumption was roughly ____ of GDP in the United States.

A) 80 percent
B) 90 percent
C) 70 percent
D) 60 percent
E) 50 percent

Question 36

It is easier to measure GDP in a centrally planned economy than in a market economy.

Question 37

If you own and operate an antique store, this does not count in GDP because you are buying and selling used goods.

Question 38

Which of the following is the correct ordering if we want to rank the four spending components, as a share of U.S. GDP in 2010, in descending (from highest to lowest) order?

A) Consumption, government purchases, investment, net exports
B) Consumption, investment, government purchases, net exports
C) Government purchases, consumption, investment, net exports
D) Consumption, government purchases, net exports, investment
E) Consumption, investment, net exports, government purchases

Question 39

GDP can be calculated only by using the ____ approach.

A) spending
B) income
C) spending, income, production, or the NIPA
D) spending, income, or production
E) production

Question 40

You buy a new bed that was produced last year. GDP will increase this year by the value of the bed because the bed was sold this year.

Question 41

If IBM manufactures a computer in the United States and sells it to a French business firm in Paris, it will cause an increase in

A) net exports.
B) imports.
C) both investment and net exports.
D) government expenditures.
E) consumption.

Question 42

Which of the following is a stock variable?

A) Wealth
B) Investment
C) GDP
D) Savings
E) Income

Question 43

You buy a shirt made in China. This causes consumption spending to increase by the value of the shirt, import spending to increase by the value of the shirt, and hence GDP to increase.

Question 44

Which of the following statements is true?

A) Inventory investment is the only component of investment spending that is not included in business fixed investment.
B) Residential investment is the only component of investment spending that is not included in business fixed investment.
C) Investment spending is the same as business fixed investment.
D) Inventory investment and residential investment are not part of business fixed investment.
E) Purchases of intermediate goods by businesses are included in business fixed investment.

Question 45

In 2010, the United States imported more than it exported. As a result,

A) the sum of consumption plus investment plus government purchases overstated what was produced in America.
B) the sum of consumption plus investment plus government purchases understated what was produced in America.
C) the sum of consumption plus investment plus government purchases equaled what was produced in America.
D) the sum of consumption minus investment minus government purchases overstated what was produced in America.

Question 46

For a hypothetical economy in a given year, consumption equaled $372, investment equaled $126, government purchases equaled $184, goods exported equaled $75, and goods imported equaled $84. What was the value of GDP?

A) $841
B) $682
C) $673
D) $691
E) Not enough information is given.

Question 47

Investment, as defined in the text, refers to

A) putting away funds for the future.
B) purchase of new capital, such as new factories or equipment.
C) purchase of stocks and bonds.
D) consumer purchases of big-ticket items.
E) All of these

Question 48

For a hypothetical economy in a given year, GDP equaled $1,171, consumption equaled $482, investment equaled $286, goods exported equaled $198, and goods imported equaled $57. What did government spending equal?

A) $403
B) Not enough information is given.
C) $544
D) $262
E) $148

Question 49

Suppose that a car dealer had an inventory of 150 cars on December 31, 2008, got 35 new cars shipped from the factory during 2009, and sold 20 cars to consumers during the year, making the dealer's inventory equal to 165 cars on December 31, 2009. What was the contribution of the car dealer to inventory investment for 2009?

A) 165 cars
B) 35 cars
C) 15 cars
D) None of these

Question 50

In which spending category would you enter the following transaction? Ford sells a Thunderbird from its inventory to an individual.

A) Consumption
B) Consumption and investment
C) Investment
D) Government purchases
E) Net exports

Question 51

Transfer payments

A) are excluded from GDP but included in government purchases.
B) are excluded from government purchases and GDP.
C) are included in government purchases and in GDP.
D) are excluded from government purchases but included in GDP.
E) are included in government purchases but excluded from GDP.

Question 52

Government purchases are defined as

A) purchases of goods and services by the federal government.
B) purchases of new goods and services and transfer payments by the federal government.
C) purchases of new goods and services and transfer payments by federal, state, and local governments.
D) purchases of new goods and services by federal, state, and local governments.
E) purchases of goods and services by federal and foreign governments.

Question 53

Inventory investment is included as a spending item when computing GDP because

A) GDP is meant to be a measure of total sales.
B) of a historical accident.
C) it is the same as plant and equipment investment.
D) not everything produced in a given time period is sold during that time period.
E) there would otherwise be double counting.

Question 54

Which of the following best explains what happens when a business firm purchases a drill press manufactured in Germany?

A) There will be an increase in exports.
B) There will be an increase in import spending.
C) There will be an increase in investment expenditures.
D) There will be an increase in both investment expenditures and import spending.
E) There will be a decline in investment expenditures and an increase in import spending.

Question 55

Which of the following statements is true about the GDP of the United States in 2010?

A) Imports exceeded exports by 600 million dollars.
B) Exports exceeded imports by 600 million dollars.
C) Exports plus imports equaled 600 billion dollars.
D) None of these are true.

Question 56

In which spending category would you enter the following transaction? A restaurant purchases fresh fish at the local fish market that it plans to sell as one of its nightly specials.

A) None of these
B) Consumption
C) Government purchases
D) Investment
E) Net exports

Question 57

A computer dealer has 20 computers at the beginning of the month and receives an additional 35 computers during the month. If the computer dealer has 15 computers in stock at the end of the month, the dealer's inventory investment for that month would be

A) minus 15 computers.
B) plus 5 computers.
C) minus 5 computers.
D) plus 15 computers.
E) plus 35 computers.

Question 58

In which spending category would you enter the following transaction if you were trying to calculate U.S. GDP? "People in France flock to see the latest Brad Pitt movie that was produced in Hollywood."

A) Net exports
B) Consumption
C) Investment
D) Government purchases

Question 59

Net exports are

A) the sum of exports and imports.
B) the difference between exports and imports.
C) exports net of services.
D) imports less exports.
E) exports earmarked for nongovernmental use.

Question 60

In which spending category would you enter the following transaction? Company A successfully launches a hostile takeover of Company B, in which it purchases all the assets of Company B.

A) Government purchases
B) Net exports
C) Investment
D) Consumption
E) None of these

Question 61

In 2010, the labor income component of GDP was equal to

A) $8 trillion.
B) $80 billion.
C) $1,700 million.
D) $8,048 trillion.
E) None of these

Question 62

In calculating GDP as income, which of the following best describes what net investment is?

A) A measure of how much new investment there is each year after depreciation is added
B) A measure of how much new investment there is each year after depreciation has been subtracted
C) A measure of how much new investment there is each year after the appropriate taxes and net exports are subtracted
D) None of these is remotely related to a correct definition of net investment.

Question 63

Which of the following statements is true?

A) Investment expenditures included in the spending approach to GDP are equal to net investment.
B) There is not much difference between gross and net investment.
C) Net investment is usually larger than gross investment.
D) Net investment is much lower than gross investment.
E) None of these

Question 64

The salary of a French manager working in the United States is

A) included in labor income.
B) payment for services produced and is not included in GDP.
C) not part of U.S. labor income.
D) included in France's GDP.
E) part of net exports.

Question 65

New homes purchased by households are part of investment expenditures.

Question 66

Which of the following statements is false?

A) Capital income is made up of profits, rental payments, and interest payments.
B) Labor income is made up of wages, salaries, and fringe benefits.
C) For purposes of measuring GDP, only net investment is counted.
D) Labor income is greater than half of GDP.
E) Net investment is the difference between gross investment and depreciation.

Question 67

When you buy some stock in Disney, it is an investment expenditure so it counts toward GDP.

Question 68

When there is a trade deficit, as a share of GDP, the sum of consumption, investment, and government purchases will be greater than 100 percent.

Question 69

If inventories increase in a given year, they should be added in when calculating GDP.

Question 70

In 2010, the United States imported more than it exported; therefore, the sum of consumption plus investment plus government purchases overstated what was produced in America.

Question 71

The imports of the United States in 2010 were $20 million higher than its exports.

Question 72

You buy a new bed that was produced last year. This causes consumption expenditure to increase for this year and investment expenditure to decrease by roughly the same amount.

Question 73

In 2010, the exports of the United States exceeded its imports.

Question 74

Investment spending, as a share of GDP, is greater than government purchases.

Question 75

Social security payments are included in government purchases.

Question 76

Intermediate goods that go directly into a manufactured product are counted as investment.

Question 77

In 2010, the imports of the United States were $516 billion higher than its exports.

Question 78

Other things being equal, a decline in imports will be associated with an increase in GDP.

Question 79

Which of the following statements is true?

A) Capital income includes sales taxes paid by businesses to the government.
B) Capital income includes indirect business taxes.
C) GDP includes indirect business taxes.
D) GDP does not include indirect business taxes.
E) None of these

Question 80

Which of the following statements is true?

A) Rental payments are part of depreciation.
B) Rental payments are part of labor income.
C) Interest payments are part of depreciation.
D) Profits are part of labor income.
E) Rental payments are part of capital income.