Deck 4: Spending, Income, and GDP

Question 1

A drawback of using market values to aggregate the quantities of goods and services produced in an economy is that:

A)higher-priced items count more.
B)GDP increases when not all goods are produced in greater quantities.
C)market prices generally reflect the economic benefit consumers expect to receive from an item.
D)not all economically valuable goods and services are bought and sold in markets.

Answer 1

not all economically valuable goods and services are bought and sold in markets.

Question 2

Which of the following is not classified as a final good?

A)New clothing purchased by a college student
B)Fresh vegetables purchased by a restaurant
C)A new car purchased by a family
D)A new machine purchased by a business

Answer 2

Fresh vegetables purchased by a restaurant

Question 3

Which of the following would be classified as a final good?

A)New computer software sold to a computer manufacturer for installation in new computers
B)The services provided by lawyers to a computer manufacturer
C)Computer chips sold to a computer manufacturer for installation in new computers
D)A new computer sold to a business firm.

Answer 3

A new computer sold to a business firm.

Question 4

The most commonly used measure of an economy's output is:

A)the rate of employment.
B)the rate of inflation.
C)gross domestic product.
D)the Dow Jones stock market index

Question 5

Final goods and services are ______ production and ______ counted in GDP.

A)the end products of; are
B)the end products of; are not
C)used up in the process of; are
D)used up in the process of; are not

Question 6

National defense services provided by the military are:

A)included in GDP at market prices.
B)included in GDP at cost.
C)excluded from GDP because they are not sold in markets.
D)excluded from GDP because they are intermediate goods.

Question 7

The value of unpaid childcare services provided by a stay-at-home dad ______ included in GDP; the value of daycare services purchased from a licensed childcare provider ______ included in GDP.

A)is; is not
B)is; is
C)is not; is not
D)is not; is

Question 8

Goods and services that are used up in the production of other goods and services are called ______ goods and services.

A)intermediate
B)final
C)value added
D)nominal

Question 9

Intermediate goods and services are ______ production and ______ counted in GDP.

A)the end products of; are
B)the end products of; are not
C)used up in the process of; are
D)used up in the process of; are not

Question 10

Goods and services that are consumed by the ultimate user are called ______ goods and services.

A)intermediate
B)final
C)value added
D)nominal

Question 11

Educational services provided by public schools are:

A)included in GDP at market prices.
B)included in GDP at cost.
C)excluded from GDP because they are not sold in markets.
D)excluded from GDP because they are intermediate goods.

Question 12

Gross domestic product (GDP) equals the ______ of final ______ produced within a country during a given period of time.

A)market value; goods
B)market value; services
C)market value; goods and services
D)quantity; goods and services

Question 13

Suppose that the total production of an economy consists of 10 oranges and 5 candy bars, each orange sells for $0.20, and each candy bar sells for $1.00.What is the market value of production in this economy?

A)$1.20
B)$2.00
C)$5.00
D)$7.00

Question 14

______ is/are the market value of final goods and services produced within a country during a given period of time.

A)GDP
B)Consumption
C)Value added
D)Transfer payments

Question 15

The value of unpaid work by a homemaker ______ included in GDP and the value of housekeeping services sold in amarket ______ included in GDP.

A)is; is not
B)is; is
C)is not; is not
D)is not; is

Question 16

The market value of final goods and services produced within a country during a period of time is called:

A)guaranteed direct prices.
B)general domestic productivity.
C)government documented production.
D)gross domestic product.

Question 17

Which of the following activities is most likely to be counted in GDP?

A)Fran volunteers at the local veteran's hospital twice a month.
B)Stu gave $5 to a homeless man he met in the park.
C)Gail buys paper and crayons to donate to poor children in need of school supplies.
D)Bud works hard five hours each week to make sure that his lawn always looks nice.

Question 18

GDP is a measure of an economy's:

A)domestic price level.
B)level of unemployment.
C)total output.
D)domestic productivity.

Question 19

If an automobile manufacturer pays $200 for a car windshield, $400 for four car tires, $100 for a car CD player, and sells cars made with these parts for $20,000, then each car the automobile manufacturer sells contributes how much to GDP?

A)$19,300
B)$20,000
C)$20,200
D)$20,700

Question 20

The value of intermediate goods is excluded from the measurement of GDP in order to:

A)adjust for inflation.
B)avoid double counting.
C)index economic activity.
D)measure GDP in constant prices.

Question 21

GDP equals the value added by producers of:

A)intermediate goods and services only.
B)final goods and services only.
C)intermediate goods and services, as well as final goods and services.
D)intermediate and final goods only.

Question 22

One way to avoid counting the prices of intermediate goods multiple times in computing the value of GDP is to:

A)sum the value added of only producers of final goods and services.
B)sum the value added of only producers of intermediate goods and services.
C)sum the value added of producers of both intermediate and final goods and services.
D)subtract the value added of producers of intermediate goods and services from the value added of producers of final goods and services.

Question 23

Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: What is the value added of The Corner Store?

A)$0.50
B)$1.75
C)$2.00
D)$2.50

Question 24

If a pizza maker pays $1 for tomatoes, $1 for cheese, $2 for sausage, and sells the pizza made with these ingredients for $7, then each pizza sold contributes how much to GDP?

A)$3
B)$4
C)$7
D)$11

Question 25

The value added by any firm equals the firm's ______ from selling the product minus _______.

A)revenue; labor expenses
B)revenue; the cost of inputs purchased from other firms
C)profits; labor expenses
D)profits; the cost of inputs purchased from other firms

Question 26

The sum of the value added by all firms equals total:

A)profits.
B)spending on capital goods.
C)investment spending.
D)value of final goods and services.

Question 27

The value of final goods and services equals:

A)total business profits.
B)the sum of the value added by all firms.
C)total business spending.
D)the sum of revenues from all sales.

Question 28

If Bountiful Orchard grows $100,000 worth of peaches, sells $50,000 worth of peaches to consumers and uses to rest to make jam that is sold to consumers for $100,000, Bountiful Orchard's contribution to GDP is:

A)$50,000.
B)$100,000.
C)$150,000.
D)$200,000.

Question 29

Which of the following is an example of an intermediate good?

A)A new car sold to a family
B)A metal-stamping machine used to produce cars sold to an automaker
C)A new CD player sold to an automaker for installation in a car
D)A new CD player sold to a teenager

Question 30

Which of the following is an example of a capital good?

A)A new car sold to a family
B)A metal-stamping machine used to produce cars sold to an automaker
C)A new CD player sold to an automaker for installation in a car
D)A new CD player sold to a teenager

Question 31

Capital goods are treated as ______ goods and, therefore, are ______ GDP.

A)final; included in
B)final; excluded from
C)intermediate; included in
D)intermediate; excluded from

Question 32

If the Citrus Growers Association grows $1 million worth of oranges, sells $500,000 worth of oranges to consumers, uses the rest to make orange juice that is sold to consumers for $3 million, Citrus Grower's contribution to GDP is:

A)$500,000.
B)$1,000,000.
C)$3,500,000.
D)$4,000,000.

Question 33

Summing the value added of all firms yields the value of final goods and services produced because both measures:

A)exclude the value of capital goods.
B)exclude the value of intermediate goods and services.
C)use constant prices.
D)are adjusted for population growth.

Question 34

Factories and machines are examples of:

A)consumption goods.
B)non-market goods.
C)value-added goods.
D)capital goods.

Question 35

Capital goods are

A)long-lived goods used for producing other goods and services.
B)the end products of production.
C)publicly provided.
D)excluded from GDP.

Question 36

Which of the following is NOT a capital good?

A)Batteries purchased by a car manufacturer to install in new cars
B)Machines purchased by a car manufacturer to measure metal thicknesses
C)A new house purchased by a family
D)A new apartment building purchased by a corporation

Question 37

Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: What is the value added of Florida Jam Company?

A)$0.50
B)$0.75
C)$1.25
D)$2.00

Question 38

Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: What is the value added of Citrus Growers Inc.?

A)$0.00
B)$0.50
C)$0.75
D)$1.75

Question 39

A firm's revenue from selling its product minus the cost of inputs purchased from other firms is called:

A)profits.
B)investment.
C)value added.
D)production costs.

Question 40

Long-lived goods used for producing other goods and services are called:

A)consumption goods.
B)non-market goods.
C)value-added goods.
D)capital goods.

Question 41

The four components of aggregate expenditures are:

A)consumption, imports, government spending, and net exports.
B)consumption, interest payments, government spending, and net exports.
C)consumer durables, investment, government spending, and net exports.
D)consumption, investment, government spending, and net exports.

Question 42

Consumption expenditures include spending by households on:

A)exports.
B)inventories.
C)residential housing.
D)services.

Question 43

Which of the following transactions would be included in the GDP of the United States?

A)Coca Cola produces soft drinks in England.
B)Honda produces cars in Ohio.
C)McDonalds sells hamburgers in Russia.
D)Ford Motor Company produces cars in Mexico.

Question 44

Suppose a jar of DeLux popcorn that is ultimately sold to a customer at Friendly Groceries is produced by the following production process: What is the value added of Friendly Groceries?

A)$1.50
B)$2.50
C)$3.50
D)$4.00

Question 45

Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: If the oranges were grown and the jam produced in the year 2015, but the marmalade was sold at The Corner Store in the year 2016, what is the contribution of these transactions to GDP in the year 2015?

A)$1.25
B)$2.00
C)$2.50
D)$2.75

Question 46

The total market value of production in an economy must equal total:

A)profits.
B)revenues from all transactions.
C)consumption.
D)spending on final goods and services.

Question 47

Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: What is the sum of the value added of all the firms?

A)$2.50
B)$2.75
C)$4.50
D)$5.25

Question 48

Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: If the oranges were grown and the jam produced in the year 2015, but the marmalade was sold at The Corner Store in the year 2016, what is the contribution of these transactions to GDP in the year 2016?

A)$0.00
B)$0.50
C)$2.00
D)$2.50

Question 49

Which of the following would be included in the GDP of the United States?

A)Boeing builds a plane in Seattle that is sold to Air Canada.
B)Chrysler produces a car in Germany that is sold in Michigan.
C)Nestle produces a candy bar in Switzerland that is sold in San Francisco.
D)Planet Hollywood serves customers in a restaurant in Hong Kong.

Question 50

The four categories of final users of GDP are:

A)businesses, firms, governments, and the foreign sector.
B)households, the Federal Reserve, governments, and the foreign sector.
C)businesses, corporations, firms, and farms.
D)households, firms, governments, and the foreign sector.

Question 51

In 2015, Pete Rich purchases a 1642 painting by Rembrandt for $20 million.He also pays a one percent commission to the auction house that sold the painting.What is the contribution of these transactions to GDP in the year 2015?

A)$0
B)$200,000
C)$2 million
D)$20.2 million

Question 52

The market value of all domestically produced final goods and services arealso equal to the total amount spent by ______________ less spending on imported goods and services.

A)households and firms
B)households, firms, and governments
C)households, firms, and the foreign sector
D)households, firms, governments, and the foreign sector

Question 53

Suppose a jar of DeLux popcorn that is ultimately sold to a customer at Friendly Groceries is produced by the following production process: What is the sum of the value added of all of the firms?

A)$3.00
B)$4.00
C)$6.50
D)$7.00

Question 54

Total spending on final goods and services in an economy must equal total:

A)profits.
B)production value.
C)revenues from all transactions.
D)investment.

Question 55

When the production process extends over more than one year, the value of the final product is:

A)included in GDP for the year in which production began.
B)included in GDP for the year in which production was completed.
C)allocated to GDP in each year according to the value added in that year.
D)allocated equally to GDP in each year.

Question 56

Suppose a jar of DeLux popcorn that is ultimately sold to a customer at Friendly Groceries is produced by the following production process: What is the value added of DeLux Popcorn Co.?

A)$0.50
B)$1.50
C)$2.00
D)$2.50

Question 57

Suppose a jar of DeLux popcorn that is ultimately sold to a customer at Friendly Groceries is produced by the following production process: If the corn was grown and the jar of popcorn produced in the year 2015, but the jar was sold at Friendly Groceries in the year 2016, what is the contribution of these transactions to GDP in the year 2015?

A)$0.50
B)$2.00
C)$2.50
D)$3.00

Question 58

Suppose a jar of DeLux popcorn that is ultimately sold to a customer at Friendly Groceries is produced by the following production process: If the corn was grown and the jar of popcorn produced in the year 2015, but the jar was sold at Friendly Groceries in the year 2016, what is the contribution of these transactions to GDP in the year 2016?

A)$0.00
B)$0.50
C)$1.50
D)$4.00

Question 59

Suppose a jar of DeLux popcorn that is ultimately sold to a customer at Friendly Groceries is produced by the following production process: What is the value added of Fulton Family Farm?

A)$0.00
B)$0.50
C)$1.50
D)$2.50

Question 60

In 2015, Janice Quinn sells a five-year-old car to Used Car, Inc.for $3,000.In the same year, Used Car, Inc.resells the car to Hilda Goner for $3,500.What is the contribution of these transactions to GDP in the year 2015?

A)$0
B)$500
C)$3,000
D)$6,500

Question 61

Investment spending includes spending on:

A)durables, nondurables, and services.
B)stocks, bonds, and other financial instruments.
C)capital goods, residential housing, and changes in inventories.
D)goods and services by federal, state, and local governments.

Question 62

Spending on durable goods, nondurable goods, and services is included in:

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

Question 63

Consumption spending includes spending on:

A)durables, nondurables, and services.
B)stocks, bonds, and other financial instruments.
C)capital goods, residential housing, and changes in inventories.
D)goods and services by federal, state, and local governments.

Question 64

Which of the following expenditures would increase the consumption component of U.S.GDP?

A)You buy a new house.
B)You buy a pizza.
C)You buy 1,000 shares of stock.
D)You buy a used book about finance.

Question 65

Government purchases include all of the following except:

A)social security benefits paid by the federal government.
B)the construction of a new court house built by a county government.
C)the salary paid to an elementary school teacher employed by a local public school district.
D)the purchase of new military hardware by the U.S.Army.

Question 66

Net exports equal:

A)the value added of exports.
B)exports plus imports.
C)exports minus imports.
D)exports minus depreciation.

Question 67

Which of the following would increase the government purchases component of U.S.GDP?

A)The U.S.federal government pays $3 billion in pensions to government workers.
B)The U.S.federal government pays $3 billion in interest on the national debt.
C)The U.S.federal government pays $3 billion in salaries to soldiers in the military.
D)The U.S.federal government pays $3 billion in interest to foreign holders of U.S.government bonds.Salaries of government workers are considered to be government purchases, while pensions to government workers are considered transfer payments.

Question 68

Which of the expenditure components of GDP can be negative?

A)consumption spending on durables.
B)government purchases of goods and services.
C)consumption spending on services.
D)net exports.

Question 69

The government purchases component of GDP includes:

A)purchases of final goods and services.
B)interest payments on government debt.
C)transfer payments.
D)payments made to social security recipients.

Question 70

Which of the following would increase the consumption component of U.S.GDP?

A)You purchase a vacation at Disney World in Florida.
B)A business purchases Disney World vacations as rewards for the firm's best salespeople.
C)Disney World purchases tires for the monorail from a firm in Ohio.
D)A French man purchases a vacation at a Disney theme park in France.

Question 71

Which of the following would increase the consumption component of U.S.GDP?

A)You purchase a bottle of California wine.
B)A person in Paris purchases a bottle of California wine.
C)A restaurant in Denver purchases a bottle of California wine to include on its wine list.
D)The U.S.government buys a bottle of California wine to serve at a state dinner in the White House.For national income accounting purposes, consumption is only done by households.

Question 72

If business inventories equal $40 billion at the beginning of the year and $55 billion at the end of the year, then, assuming no other changes, GDP must have:

A)decreased by $15 billion.
B)increased by $15 billion.
C)increased by $40 billion.
D)increased by $55 billion.

Question 73

Investment spending includes spending on:

A)consumer durable goods.
B)new capital goods.
C)services.
D)stocks and bonds.

Question 74

Changes in business inventories are:

A)classified as consumption expenditures.
B)classified as investment expenditures.
C)classified as government purchases.
D)excluded from GDP.

Question 75

Government purchasesinclude spending by federal, state, and local governments on:

A)consumer durables, nondurables, and services.
B)stocks, bonds, and other financial instruments.
C)capital goods, residential housing, and changes in inventories.
D)final goods and services.

Question 76

Spending on new capital goods, new homes, and the addition of unsold goods to company inventories is included in:

A)consumption expenditures.
B)investment spending.
C)government purchases.
D)service spending.

Question 77

The largest expenditure component of U.S.GDP is:

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

Question 78

Which of the following would increase the investment component of U.S.GDP?

A)You purchase a new clothes washing machine produced in the U.S.
B)You purchase a new clothes washing machine produced in France.
C)A laundry in Seattle purchases a new clothes-washing machine produced in the U.S.
D)A laundry in Mexico purchases a new clothes-washing machine produced in the U.S.Investment must be done by domestic businesses except for owner-occupied new housing.

Question 79

Which of the following would increase the investment component of U.S.GDP?

A)You purchase a vacation at Disney World in Florida.
B)You purchase shares of Disney stock.
C)Disney World purchases tires for the monorail from a firm in Ohio.
D)A French man purchases a vacation at a Disney theme park in France.

Question 80

Which of the following would increase the net export component of U.S.GDP?

A)A bottle of California wine is purchased in London.
B)A car produced in Japan is purchased in California.
C)A bottle of French wine is purchased in New York.
D)A car produced in Michigan is purchased in Louisiana.