Deck 12: GDP: Measuring Total Production and Income

Question 1

In 2016,Ford Motor Company's sales were rising.These events were caused by

A) an economic recession.
B) an economic expansion.
C) an increase in advertising.
D) improving quality of service.

Answer 1

an economic expansion.

Question 2

In calculating gross domestic product,the Bureau of Economic Analysis uses the sum of the market value of final goods and services produced.This means that the BEA

A) simply counts the total number of goods produced in the market place and then adds them up.
B) values goods at their market prices, multiplies them by the quantity produced, and then adds them up.
C) simply counts the total number of goods and services produced in the marketplace and then adds them up.
D) values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.

Answer 2

values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.

Question 3

Macroeconomics seeks to understand

A) economic growth, business cycles, and inflation.
B) industry sales, marketing strategies, and corporate growth.
C) product demand, product cost, and profit maximization.
D) public choices, private choices, and consumer maximization.

Answer 3

economic growth, business cycles, and inflation.

Question 4

The nominal GDP of the U.S.in 2016 was approximately $18.6 trillion.This means that

A) the value of output in 2016 was around $18.6 trillion.
B) total income in 2016 was around $18.6 trillion.
C) total spending in 2016 was around $18.6 trillion.
D) all of the above are true.

Question 5

Which of the following transactions represents the purchase of a final good?

A) Starbucks purchases coffee beans.
B) Delta buys a new European-made jetliner.
C) Apple computer buys computer processors from Intel.
D) Your father buys a new John Deere riding lawn mower.

Question 6

Macroeconomics,as opposed to microeconomics,includes the study of what determines the level of

A) employment in a specific industry.
B) employment in the economy.
C) output of a specific firm.
D) output of a specific industry.

Question 7

Value added equals the market price of the firm's product minus

A) wages and salaries.
B) the price of intermediate goods.
C) the price of all factors of production.
D) depreciation on plant and equipment.

Question 8

Which of the following headlines would be more closely related to what macroeconomists study than what microeconomists study?

A) Avocado prices rise due to a late frost in California.
B) The United Auto Workers sign a contract raising wages and benefits 7% over the next 3 years.
C) Real GDP grows by 2.3% in the second quarter.
D) Airlines raise ticket prices in response to rising fuel costs.

Question 9

Table 12-1
$\begin{array}{|l|c|c|}\hline {\text { Product }} & \text { Quantity } & \text { Price } \\\hline \text { Sweatshirts } & 50 & \$ 35.00 \\\hline \text { Dental examinations } & 40 & 75.00 \\\hline \text { Coffee drinks } & 1,000 & 4.00 \\\hline \text { Coffee beans } & 2,000 & 0.50 \\\hline\end{array}$

-Refer to Table 12-1.Suppose that a simple economy produces only four goods and services: sweatshirts,dental examinations,coffee drinks,and coffee beans.Assume all of the coffee beans are used in the production of the coffee drinks.Using the information in the above table,nominal GDP for this simple economy equals

A) 3,090 units.
B) $7,250.
C) $8,750.
D) $9,750.

Question 10

Table 12-2
$\begin{array}{|c|c|r|}\hline \text { Product } & \text { Quantity } & \text { Price } \\\hline \text { Shoes } & 40 & \$ 60.00 \\\hline \text { DVDs } & 100 & 18.00 \\\hline \text { Tomatoes } & 2,000 & 1.00 \\\hline \text { Ketchup } & 300 & 4.00 \\\hline\end{array}$

-Refer to Table 12-2.Suppose that a simple economy produces only four goods and services: shoes,DVDs,tomatoes,and ketchup.Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households.Using the information in the above table,nominal GDP for this simple economy equals

A) $7,400.
B) $6,400.
C) $5,800.
D) 2,440 units.

Question 11

In 2016,Ford's sales were rising,but in early 2017,Ford's sales declined.Ford and the U.S.automobile industry were experiencing the effects of

A) inflation.
B) the underground economy.
C) the business cycle.
D) depreciation.

Question 12

During a business cycle expansion,total production ________ and total employment ________.

A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question 13

Macroeconomics,as opposed to microeconomics,includes the study of what determines the

A) average price levels of goods and services in the economy.
B) price charged for laptop computers by Dell.
C) wages paid to employees by Dell.
D) quantity of Dell employees.

Question 14

Which of the following goods is directly counted in GDP?

A) the lettuce that Subway purchases for its sandwiches
B) the bread that Subway purchases for its sandwiches
C) a 12-inch Subway sandwich purchased by a student
D) the plastic bags that Subway purchases to wrap its sandwiches

Question 15

Which of the following would be directly counted in GDP in 2018?

A) kitchen cabinets purchased from Home Depot in 2018 to be installed in a house built in 1997
B) kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a brand new country-style home
C) kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a farm house built in 1950
D) none of the above

Question 16

Gross domestic product is calculated by summing up

A) the total quantity of goods and services in the economy.
B) the total quantity of goods and services produced in the economy during a period of time.
C) the total market value of goods and services in the economy.
D) the total market value of final goods and services produced in the economy during a period of time.

Question 17

In the circular flow model,the value of total income for an economy ________ the value of total production.

A) equals
B) is greater than
C) is less than
D) may be greater than or less than

Question 18

Suppose in 2018,you purchase a house built in 2003.Which of the following would be included in the gross domestic product for 2018?

A) the value of the house in 2018
B) the value of the house in 2003
C) the value of the house in 2018 minus depreciation
D) the value of the services of the real estate agent

Question 19

Which of the following is not directly counted in GDP?

A) investment expenditures
B) government purchases
C) intermediate goods
D) consumer goods

Question 20

In the circular flow model,the value of total production for an economy ________ the value of total expenditures on final goods and services.

A) equals
B) is greater than
C) is less than
D) may be greater than or less than

Question 21

Table 12-3
$\begin{array}{|l|c|}\hline \text { Consumption expenditures } & \$ 800 \\\hline \text { Investment expenditures } & 200 \\\hline \text { Government purchases } & 300 \\\hline \text { Exports } & 100 \\\hline \text { Imports } & 200 \\\hline \text { Wages } & 800\\\hline\end{array}$

-Refer to Table 12-3.Consider the data above (in billions of dollars)for an economy: Gross domestic product (in billions of dollars)for this economy equals

A) $2,200.
B) $1,600.
C) $1,400.
D) $1,200.

Question 22

The purchase by a household in China of a CD produced in the United States is included in U.S.

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

Question 23

What is the largest component of spending in the United States?

A) consumption spending
B) investment spending
C) government purchases
D) net investment spending

Question 24

Investment,as defined by economists,would include the purchase of a

A) corporate bond.
B) government bond.
C) share of stock in ExxonMobil.
D) computer by an accounting firm.

Question 25

Which of the following is not an example of a transfer payment?

A) unemployment insurance payments
B) health insurance payments to an army private
C) social security payments to retirees
D) social security payments to disabled persons

Question 26

Which of the following is not a durable good?

A) furniture
B) automobile
C) clothing
D) refrigerator

Question 27

Table 12-4
$\begin{array}{|l|c|}\hline \text { Consumption expenditures } & \$ 800 \\\hline \text { Investment expenditures } & 300 \\\hline \text { Government purchases } & 300 \\\hline \text { Govermment transfer payments } & 400 \\\hline \text { Exports } & 300 \\\hline \text { Imports } & 100 \\\hline\end{array}$

-Refer to Table 12-4.Consider the data above (in billions of dollars)for an economy: Gross domestic product (in billions of dollars)for this economy equals

A) $2,200.
B) $2,100.
C) $1,600.
D) $1,400.

Question 28

The purchase of a new house is included in

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

Question 29

The factors of production include

A) wages.
B) capital.
C) investment.
D) transfers.

Question 30

Steve Ballmer organized government spending data on the basis of four "missions" for government that he identified in the preamble to the U.S.Constitution.Which of the four "missions" had the highest level of spending at all levels of government?

A) Establish justice and ensure domestic tranquility.
B) Provide for the common defense.
C) Promote the general welfare.
D) Secure the blessings of liberty to ourselves and our posterity.

Question 31

To calculate GDP by the expenditure method,one must add

A) wages, rents, interest, and profits.
B) consumption spending, investment spending, government purchases, and net exports.
C) consumption spending, investment spending, government purchases, and exports.
D) labor, natural resources, entrepreneurship, and capital.

Question 32

The purchase by a foreign government of an airplane produced in the United States is included in U.S.

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

Question 33

Steve Ballmer organized government spending data on the basis of four "missions" for government that he identified in the preamble to the U.S.Constitution.The data

A) reinforces previously gathered data that most of the basic activities of government are conducted at the state and local levels rather than at the federal level.
B) reinforces previously gathered data that most of the basic activities of government are conducted at the federal level rather than at state and local levels.
C) contradicts previously gathered data that most of the basic activities of government are conducted at the state and local levels rather than at the federal level.
D) contradicts previously gathered data that most of the basic activities of government are conducted at the federal level rather than at state and local levels.

Question 34

An example of business fixed investment spending is

A) a purchase of a home by a household.
B) a purchase of a computer by an accounting firm.
C) a purchase of a bond by General Electric Corporation.
D) $200 million of unsold cars at a car dealership.

Question 35

In 2018,Kendall Ford,an automobile dealership,spent $20,000 on a new car lift for its repair shop,$2,000 on a new copy machine for its sales division,and $600,000 on Ford Motor company stock.Unsold cars and trucks were valued at $400,000 on January 1,2018 and unsold cars and trucks were valued at $900,000 on December 31,2018.What is Kendall Ford's total investment spending in 2018?

A) $22,000
B) $322,000
C) $522,000
D) $1,022,000

Question 36

The purchase of a new automobile is included in

A) consumption expenditures on services.
B) consumption expenditures on nondurable goods.
C) consumption expenditures on durable goods.
D) investment expenditures.

Question 37

In the first half of 2017,automobile sales in the United States were lower than they were in the first half of 2016.The decrease in auto sales impacts GDP because new automobiles are counted as ________ when purchased by households and ________ when purchased by businesses.

A) nondurable goods; durable goods
B) consumption; investment
C) investment; consumption
D) durable goods; nondurable goods

Question 38

When consumers are less confident about their jobs or incomes,they are more likely to

A) reduce purchases of durable goods than nondurable goods.
B) reduce purchases of nondurable goods and increase purchases of durable goods.
C) increase investment spending and decrease consumption spending.
D) increase consumption spending and decrease investment spending.

Question 39

Investment,as defined by economists,would not include which of the following? Ford

A) buys a new robotic machine (from a plant in Ohio) to assemble cars.
B) adds 1,000 new cars to inventories.
C) builds another assembly plant in the United States.
D) buys U.S. government bonds.

Question 40

In 2016,which component of GDP had a negative value?

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

Question 41

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 42

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

Question 43

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 44

Which of the following is not true about the composition of GDP in 2016?

A) The majority of consumer spending is on durable goods.
B) Purchases made by state and local governments are greater than purchases made by the federal government.
C) Imports are greater than exports.
D) Business fixed investment is the largest component of investment.

Question 45

A car that is produced in 2018 is not sold until 2019.According to the definition of GDP,in which year's GDP should it be counted?

A) 2018
B) 2019
C) Half of the sales price will count as part of 2018 GDP and half will count as part of 2019 GDP.
D) The production cost will count as part of 2018 GDP while the sales price will count as part of 2019 GDP.

Question 46

Table 12-5
$\begin{array}{|c|c|c|c|}\hline \text { Stage of Production } & \text { Seller } & \text { Buyer } & \text { Price } \\\hline 1 & \text { Steelmill } & \text { Auto manufacturer } & \$ 10,000 \\\hline 2 & \text { Auto manufacturer } & \text { Auto dealer } & 18,000 \\\hline 3 & \text { Auto dealer } & \text { Consumer } & 25,000 \\\hline\end{array}$ Consider the table above showing three stages of production of an automobile.

-Refer to Table 12-5.The value of each automobile in gross domestic product equals

A) $7,000.
B) $15,000.
C) $18,000.
D) $25,000.

Question 47

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 48

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 49

Scenario 12-1
CANOES-R-US makes canoes. It buys the shell of the canoe from another local firm for $300 and uses its labor and intermediate goods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoe to a consumer for $1,200.
Refer to Scenario 12-1.The value of each canoe in gross domestic product equals

A) $1,200.
B) $800.
C) $500.
D) $400.

Question 50

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 51

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 52

Scenario 12-1
CANOES-R-US makes canoes. It buys the shell of the canoe from another local firm for $300 and uses its labor and intermediate goods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoe to a consumer for $1,200.
Refer to Scenario 12-1.The value added of CANOES-R-US for each canoe equals

A) $1,200.
B) $800.
C) $500.
D) $400.

Question 53

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 54

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 55

Relative to Canada,China has a ________ growth rate in GDP and a ________ level of real GDP.

A) higher; lower
B) higher; higher
C) lower; lower
D) lower; higher

Question 56

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 57

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 58

The sum of the value added of every firm involved in producing all final goods and services ________ gross domestic product.

A) equals
B) is greater than
C) is less than
D) is sometimes greater than and other times less than

Question 59

Table 12-5
$\begin{array}{|c|c|c|c|}\hline \text { Stage of Production } & \text { Seller } & \text { Buyer } & \text { Price } \\\hline 1 & \text { Steelmill } & \text { Auto manufacturer } & \$ 10,000 \\\hline 2 & \text { Auto manufacturer } & \text { Auto dealer } & 18,000 \\\hline 3 & \text { Auto dealer } & \text { Consumer } & 25,000 \\\hline\end{array}$ Consider the table above showing three stages of production of an automobile.

-Refer to Table 12-5.The value added by the automobile dealer equals

A) $7,000.
B) $15,000.
C) $18,000.
D) $25,000.

Question 60

Which of the following is 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 61

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

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

Question 62

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

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

Question 63

Consumption expenditures do not include household purchases of

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

Question 64

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

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

Question 65

Which of the following is considered a durable good?

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

Question 66

The largest component of spending in GDP is

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

Question 67

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 68

Between 2017 and 2018,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 69

Consumption spending is $4.5 billion,gross private domestic investment is $3 billion,and government purchases 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 70

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 71

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 72

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

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

Question 73

Investment spending includes spending on

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

Question 74

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 75

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 76

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 77

Table 12-6
$\begin{array}{|l|r|c|}\hline {\text { Product }} & \text { Quantity }& \text { Price per Unit } \\\hline \text { Coke } & 10,000 &\$2\\\hline \text { iPhones } & 2,000&150 \\\hline \text { Backpack.s } & 4,000 &25\\\hline \text { Hershey bars } & 8,000&1\\\hline\end{array}$

-Refer to Table 12-6.Consider the table of production and price statistics for a small economy in 2018.If the economy only produces the four goods listed below,what is GDP for 2018?

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

Question 78

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

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

Question 79

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 80

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