Deck 8: Gdp: Measuring Total Production and Income

Question 1

Home Depot sells new and used doors to contractors who build new homes.Home Depot also sells new and used doors to homeowners.Which of the following would be counted in GDP?

A) the sale of a used door to a homeowner
B) the sale of a new door to homeowner
C) the sale of a used door to TapKon construction for installation into a new home
D) the sale of a new door to TapKon construction for installation into a new home

Answer 1

the sale of a new door to homeowner

Question 2

Which of the following are not considered part of government purchases?

A) welfare benefits
B) teacher's salaries paid by a local government
C) a tank purchased by the federal government
D) a bridge purchased by the state government

Answer 2

welfare benefits

Question 3

Investment spending includes spending on

A) stocks.
B) food.
C) changes in business inventories.
D) transfer payments.

Answer 3

changes in business inventories.

Question 4

In the circular flow diagram,________ supply the factors of production,and ________ goods and services.

A) households; sell
B) households; buy
C) firms; sell
D) firms; buy

Question 5

Consumption expenditures do not include household purchases of

A) medical care.
B) education.
C) new houses.
D) durable goods.

Question 6

Which of the following transactions would be included in the official calculation of GDP?

A) A student buys a used textbook at the bookstore.
B) Firestone sells $2 million worth of tires to General Motors.
C) You wash and wax your father's car as a favor to him.
D) You buy a new iPod.
E) You illegally download music off the Internet to put on your new iPod.

Question 7

Which of the following are included in gross domestic product for an economy in a given year?

A) the value of intermediate goods produced in that year
B) the value of used goods sold in that year
C) the value of final goods produced in that year
D) All of the above would be included in gross domestic product for an economy in a given year.

Question 8

A car that is produced in 2012 is not sold until 2013.According to the definition of GDP,in which year's GDP should it be counted?

A) 2012
B) 2013
C) Half of the sales price will count as part of 2012 GDP and half will count as part of 2013 GDP.
D) The production cost will count as part of 2012 GDP while the sales price will count as part of 2013 GDP.

Question 9

An example of an intermediate good would be

A) a new car.
B) a used car.
C) the rims on a new car.
D) new rims to replace old rims on a used car.

Question 10

An example of a transfer payment is

A) a teacher's paycheck.
B) a paycheck for a member of the National Guard.
C) a welfare payment.
D) a purchase of a new bridge in Alaska.

Question 11

A final good is one that

A) is used in the production of another good.
B) is a natural resource used to produce a good.
C) is purchased as an input in the production process.
D) is purchased by its final user.

Question 12

One study found that college students who graduate during a recession have to search longer for a job and end up accepting jobs that,on average,pay ________ that jobs accepted by students who graduate during expansions.

A) 50 percent less
B) 10 percent less
C) roughly the same
D) 7 percent more

Question 13

Which of the following is considered a durable good?

A) medical care
B) clothing
C) food
D) a washing machine

Question 14

How are intermediate goods treated in the calculation of GDP?

A) Their value is not counted separately, but included as part of the value of the final good for which they are an input.
B) Their value is counted separately, and their value is also included as part of the value of the final good for which they are an input.
C) Their value is counted separately, but is not included as part of the value of the final good for which they are an input.
D) They are included only if they are imported.

Question 15

A transfer payment is a payment by the government to an individual

A) for a service.
B) for an investment good.
C) for a consumption good.
D) for which the government does not receive a good or service in return.
E) for a debt owed.

Question 16

An example of an intermediate good would be

A) the bread that goes into a sub sandwich that is sold by Quiznos.
B) the soda pop sold by Quiznos.
C) a sub sandwich sold by Quiznos.
D) the potato chips sold by Quiznos.

Question 17

________ is/are the payment for the factor of production ________.

A) Wages; capital
B) Interest; labor
C) Profit; entrepreneurship
D) Rent; capital

Question 18

Gross domestic product in the economy is measured by the

A) total number of goods and services produced in the economy.
B) dollar value of all final goods and services produced in the economy.
C) total number of goods produced in the economy.
D) total number of services produced in the economy.

Question 19

An example of a final good would be

A) the soy milk sold to Starbucks.
B) the whipped cream sold to Starbucks.
C) a soy latte sold by Starbucks to a student.
D) the coffee beans sold to Starbucks.

Question 20

In comparing China to Canada,China's relatively ________ growth rate in GDP would make you more likely to take a job in China,and China's relatively ________ level of GDP would make you less likely to take a job in China.

A) high; low
B) high; high
C) low; low
D) low; high

Question 21

To calculate GDP using the value-added method,one would add up

A) the market value of final goods and services produced during a particular period.
B) only the value added by the underground economy.
C) the value added by each firm involved in the production of final goods and services.
D) the market value of intermediate goods and services produced during a particular period.

Question 22

Which component of consumption spending is the greatest in a typical economy?

A) services
B) durable goods
C) nondurable goods
D) new housing

Question 23

The circular flow diagram shows that

A) the value of total income is equal to the total value of expenditures on final goods and services.
B) firms pay households wages, and households receive transfer payments from firms.
C) household spend all their income on goods and services.
D) GDP will be less than the total value of expenditures on final goods and services in the economy.

Question 24

The largest component of spending in GDP is

A) consumption spending.
B) investment spending.
C) government spending.
D) net export spending.

Question 25

In a small economy,consumption spending in 2012 is $6,000,government spending is $1,200,gross investment is $1,500,exports are $2,000,and imports are $1,000.What is gross domestic product in 2012?

A) $9,700
B) $9,800
C) $10,800
D) $11,700

Question 26

Which of the following would result in GDP for an economy equal to $10 trillion?

A) C = $6 trillion I = $2 trillion
G = $1.5 trillion
NX = -$2 trillion
B) C = $7 trillion I = $2 trillion
G = $4 trillion
NX = $3 trillion
C) C = $5 trillion I = $5 trillion
G = $2 trillion
NX = -$2 trillion
D) C = $4 trillion I = $3 trillion
G = $2 trillion
NX = -$1 trillion

Question 27

Export growth in Canada will help increase Canadian GDP because

A) an increase in exports will increase net exports, assuming no change in imports.
B) growth in exports indicates a decline in imports.
C) exports are added to imports when calculating GDP, causing GDP to increase.
D) exports are subtracted from imports when calculating GDP.

Question 28

Consumption spending is $4.5 billion,gross private domestic investment is $3 billion,and government expenditures are $2 billion.If GDP is $14 billion,which of the following could be true regarding exports and imports in the economy?

A) Exports are $4.5 billion, and imports are $2 billion.
B) Exports are $6 billion, and imports are $8.5 billion.
C) Exports are $9 billion, and imports are $6 billion.
D) Exports are $15 billion, and imports are $10.5 billion.

Question 29

The change in consumption as a percentage of GDP in the United States from the mid-1980s to the early 2000s was due in part to households

A) increasing both saving and borrowing.
B) reducing saving and increasing borrowing.
C) reducing both saving and borrowing.
D) increasing saving and reducing borrowing.

Question 30

Total income in an economy is equal to

A) GDP minus net exports.
B) income minus taxes.
C) the sum of wages, interest, rent, and profit.
D) firm revenues.

Question 31

Which of the following would not be included in the expenditure category called investment expenditures?

A) spending on new houses
B) a purchase of shares of preferred stock
C) a purchase of a copy machine by FedEx Office
D) the cars held in inventory on a local Ford dealer's lot

Question 32

Assuming that the United States is the domestic economy,________ are goods and services produced by ________ and purchased by ________.

A) exports; foreign countries; the United States
B) exports; the United States; the United States
C) imports; foreign countries; foreign countries
D) imports; foreign countries; the United States

Question 33

Which of the following equations correctly measures GDP in an economy?

A) GDP = C + I + G + X
B) GDP = C + net I + G + NX
C) GDP = C + I + G + NX
D) GDP = C + G + I - taxes

Question 34

Between 2011 and 2012,if an economy's exports rise by $8 billion and its imports fall by $8 billion,by how much will GDP change between the two years,all else equal?

A) Net exports will increase GDP by $8 billion.
B) The increase in exports is offset by the decrease in imports, so there is no change in net exports and no effect on GDP.
C) Net exports will increase GDP by $16 billion.
D) Net exports will decrease GDP by $8 billion.

Question 35

Government spending ________ is included in gross domestic product.

A) at federal, state, and local levels of government
B) at the federal level of government only
C) at state and local levels of government only
D) on defense goods only

Question 36

Which of the following would increase gross private domestic investment in an economy?

A) an increase in the shares of Apple stock households own
B) an increase in the number of workers Apple hires
C) an increase in the level of Apple's inventory
D) an increase in the number of highway construction projects the government is funding

Question 37

Caroline is an artist.She purchases canvas,paints,brushes,and accessories for $75.She sells one of her original paintings to an art gallery for $1,500,even though an art lover would pay $4,500 for that painting.How much value does Caroline add?

A) $75
B) $1,425
C) $1,500
D) $4,425

Question 38

In a small economy,gross investment in 2012 is $1,500,consumption spending is $6,000,net investment is $200,government spending is $1,500,exports are $2,000 and imports are $1,000.What is GDP for this economy in 2012?

A) $10,700
B) $10,300
C) $10,200
D) $10,000

Question 39

Through the mid-1980s,consumption in the United States was ________ of GDP,and by the early 2000s,consumption was ________ of GDP.

A) greater than 90 percent; less than 60 percent
B) less than 50 percent; greater than 75 percent
C) approximately 80 percent; less than 55 percent
D) less than 65 percent; approximately 70 percent

Question 40

Table 19-1

Refer to Table 19-1.Consider the table of production and price statistics for a small economy in 2011.If the economy only produces the four goods listed below,what is GDP for 2011?

A) $428,000
B) $267,000
C) $24,000
D) $1,424

Question 41

Emily is a writer.She buys pens and paper for $20 and writes a 500-page novel that she sells to a publishing company for $500,000.If the publisher prints 1 million copies that sell for $25 each,what is the contribution to GDP of Emily's novel?

A) $25 million
B) $20 million
C) $500,000
D) $50,000

Question 42

Marla is an architect who is designing a home for Chuck.Chuck is paying Marla $150 per hour to design his new home.When Chuck and Marla get married,Marla continues to work on designing the home,but she no longer charges Chuck for her work.As a result,GDP ________ because ________.

A) falls; Marla's work takes place in the underground economy once she's married
B) falls; Marla's work becomes less valuable once she's married
C) falls; Marla's architectural design services are no longer bought by Chuck once they're married
D) rises; Marla becomes more productive once she's married

Question 43

In an "underground economy",the production of goods and services

A) are not measured nor included in GDP.
B) are not measured but are included in GDP.
C) are measured and included in GDP.
D) are usually too insignificant to be included in GDP.

Question 44

"Household production" refers to

A) the manufacturing of durable household products.
B) the home building sector of the economy.
C) home-based craft businesses.
D) goods and services people produce for themselves.

Question 45

Describe briefly how the final value of an iPhone must be equal to the sum of incomes generated by the production of the iPhone.

Question 46

The Bureau of Economic Analysis divides it's statistics on GDP into four major categories.List the categories of expenditures and define each.

Question 47

Government spending on transfer payments is included in government purchases when calculating GDP because it results in the production of new goods and services.

Question 48

GDP is not a perfect measure of well-being because

A) the value of leisure is included in GDP.
B) GDP is not adjusted for pollution.
C) GDP is adjusted for changes in crime rates.
D) GDP is adjusted for increases in drug addiction.

Question 49

Why do we subtract import spending from total expenditures?

Question 50

Which of the following is counted in GDP?

A) the value of goods and services produced in the underground economy
B) the cost of a speed boat purchased by drug smugglers
C) the value of do-it-yourself work
D) the value of leisure

Question 51

The table below describes the value added in the production of a gallon of gasoline by each stage of production.(The values are hypothetical.)
Table 19-3

a.What is the value added by each stage of production?
b.What is the total value added?
For simplicity,you can ignore the cost of the inputs for oil drilling.

Question 52

The circular flow of income shows that GDP can be measured as the sum of wages,interest,rent,and profits received by households or total expenditures on goods and services by households,firms,government,and the rest of the world.

Question 53

Debbie makes porcelain plates in her home and sells them to the Opus gallery.She spent $400 last month on supplies and made 50 plates.She sold the plates to the gallery at $25 per plate.The gallery sells all the plates for $40 each.For all of the 50 plates,what is Debbie's total value added? For all the 50 plates,what is the gallery's total value added?

Question 54

Table 19-2

Refer to Table 19-2.Suppose that the above table represents the goods and services produced in a very simple economy in 2011.Assume that steel is used as an input in the production of autos.Using that information,calculate GDP for the year 2011.

Question 55

If Gladys sells her 1998 Jeep Cherokee for $3,500 in 2012,the sale of her car contributes $3,500 to 2012 GDP.

Question 56

The underground economy can be described as

A) production of intermediate goods and services.
B) economic production that includes mining.
C) economic activity that is hidden from the government to avoid taxes or because the activity is illegal.
D) production of infrastructure that spurs growth in the rest of the economy.

Question 57

Caroline is an artist.She purchases canvas,paints,brushes,and accessories for $75.She sells one of her original paintings to an art gallery for $1,500,which,in turn,sells it to an art lover for $4,500.How much value does the gallery add?

A) $1,425
B) $1,500
C) $3,000
D) $4,500

Question 58

Which of the following accurately describes an effect of hurricane Katrina on GDP?

A) GDP would decrease reflecting the costs of cleanup.
B) GDP would increase reflecting the costs of cleanup.
C) GDP would increase reflecting the decrease in production that occurred during the storm and the productive capacity lost in the storm.
D) GDP would increase well-being.

Question 59

The "underground economy" is also referred to as

A) the informal sector.
B) the formal sector.
C) the halfway economy.
D) the net domestic product economy.

Question 60

Scott is a woodworker and charges $125 an hour for his time manufacturing custom-made wood products.For his wife's birthday,he designs and creates an intricate birdseye maple jewelry box that takes him 15 hours to complete.By how much and in what direction does GDP change as a result of his efforts?

A) GDP rises by $1,875.
B) GDP is not affected by Scott's production of the jewelry box.
C) GDP rises by $125.
D) GDP falls by $1,875.

Question 61

The size of the underground economy as a percent of GDP is larger in the United States as compared to poorer countries such as Zimbabwe.

Question 62

The drawback to calculating real GDP using base-year prices is that

A) real GDP in one year is not comparable to real GDP in another year.
B) relative prices change over time and these are not reflected in base-year prices, and this distorts GDP.
C) relative prices change over time and these changes are reflected in base-year prices.
D) quality changes are reflected in base-year prices.

Question 63

If an increase in crime causes households to spend money on police and security systems,GDP will rise.

Question 64

The ________ is a measure of the price level and is calculated by dividing ________ by ________ and multiplying by 100.

A) CPI; real GDP; nominal GDP
B) GDP deflator; real GDP; nominal GDP
C) GDP deflator; nominal GDP; real GDP
D) PPI; nominal GDP; real GDP
E) PPI; real GDP; nominal GDP

Question 65

Which of the following transactions would take place in the "underground economy"?

A) Elizabeth tells her mother she's going to work but really goes to see a movie.
B) Paul buys 15 gallons of gasoline for $3.29 a gallon, not realizing that $1.50 per gallon of that price goes to the government as tax revenue.
C) John makes chain-link belts and necklaces and sells them at a local flea market for cash to avoid paying taxes.
D) Matt bought an iPad for $499 but decided to sell it on eBay instead of keeping it.

Question 66

GDP is not a complete measure of well-being.

Question 67

The "underground economy" refers to

A) the buying and selling of goods that is concealed from the government.
B) the production of goods and services used by the government for covert spy operations.
C) the sector of the economy that earns profits that are higher than average.
D) the formal sector of the economy in developing countries.

Question 68

Give two reasons why GDP does not reflect total production in an economy.

Question 69

The measure of production that values output using base-year prices is called

A) real GDP.
B) nominal GDP.
C) value-added GDP.
D) underground GDP.

Question 70

Economist Robert Higgs showed that World War II brought great increase in the number of consumer goods available to the typical person.

Question 71

The measure of production that values production using current prices is called

A) value-added GDP.
B) nominal GDP.
C) real GDP.
D) underground GDP.

Question 72

Which of the following is a true statement about the impact of World War II on the U.S.economy?

A) U.S. GDP decreased dramatically from 1941 to 1945.
B) The war time years were a period of prosperity for U.S. consumers.
C) Less than 10% of the labor force was in the military or producing war goods.
D) Increased production of tanks, ships, planes, and munitions accounted for most of the increase in GDP.

Question 73

Because workers in the United States work fewer hours per week,on average,than they did over 100 years ago,

A) workers in the United States are worse off than they were over 100 years ago.
B) workers in the United States earn less income than they did over 100 years ago.
C) GDP is lower than it would be if U.S. workers worked the same workweek they had 100 years ago.
D) GDP is higher than it would be if U.S. workers worked the same workweek they had 100 years ago.

Question 74

Table 19-4

In periods when prices are falling,on average,

A) real GDP will grow slower than nominal GDP.
B) real GDP will grow faster than nominal GDP.
C) real GDP will grow as fast as nominal GDP.
D) one cannot calculate real GDP.

Question 75

What is the underground economy and how could it hurt an economy? How does it hurt developing economies?

Question 76

If a country passes a labor law limiting the number of hours of work per week,GDP would ________ and leisure would ________.

A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease

Question 77

Nominal GDP is another term for

A) inflation-adjusted GDP.
B) real GDP.
C) constant-dollar GDP.
D) current-dollar GDP.

Question 78

If China decides to enact laws to clean up the environment,what would be the effect on GDP?

A) GDP would increase reflecting the fact that the environment would be cleaner.
B) GDP would decrease if the pollution controls reduce productivity by more than the cost of the controls.
C) GDP would increase as the citizens of China were made happier as the environment was cleaned up.
D) GDP would increase as the environmental costs of pollution were not included in the calculation of GDP.

Question 79

Table 19-4

Refer to Table 19-4.Given the information above,what can we say has happened in the economy from 2011 to 2012?

A) The price level has fallen.
B) The price level has risen.
C) The price level has remained constant.
D) Not enough information is available to determine what has happened to prices.

Question 80

China's current rate of GDP growth is quite rapid.Its current growth rate is probably three times that of the United States.However,the levels of pollution are much higher in China.Would you consider China to be better off than the United States given this information? Why or why not?