Deck 23: Measuring a Nations Income

Question 1

In a simple circular-flow diagram,total income and total expenditure are

A)never equal because total income always exceeds total expenditure.
B)seldom equal because of the ongoing changes in an economy's unemployment rate.
C)equal only when the government purchases no goods or services.
D)always equal because every transaction has a buyer and a seller.

Answer 1

D

Question 2

Which of the following topics are more likely to be studied by a macroeconomist than by a microeconomist?

A)the effect of taxes on the prices of airline tickets,and the profitability of automobile-manufacturing firms
B)the price of beef,and wage differences between genders
C)how consumers maximize utility,and how prices are established in markets for agricultural products
D)the percentage of the labor force that is out of work,and differences in average income from country to country

Answer 2

D

Question 3

Because every transaction has a buyer and a seller,

A)GDP is more closely associated with an economy's income than it is with an economy's expenditure.
B)every transaction contributes equally to an economy's income and to its expenditure.
C)the number of firms must be equal to the number of households in a simple circular-flow diagram.
D)firms' profits are necessarily zero in a simple circular-flow diagram.

Answer 3

B

Question 4

Transactions involving items produced in the past,such as the sale of a 5-year-old automobile by a used car dealership or the purchase of an antique rocking chair by a person at a yard sale,are

A)included in current GDP because GDP measures the value of all goods and services sold in the current year.
B)included in current GDP but valued at their original prices.
C)not included in current GDP because it is difficult to determine their value.
D)not included in current GDP because GDP only measures the value of goods and services produced in the current year.

Question 5

According to the circular-flow diagram GDP

A)can be computed as either the revenue firms receive from the sales of goods and services or the payments they make to factors of production.
B)can be computed as the revenue firms receive from the sales of goods and services but not as the payments they make to factors of production.
C)can be computed as payments firms make to factors of production but not as revenues they receive from the sales of goods and services.
D)cannot be computed as either the revenue firms receive or the payments they make to factors of production.

Question 6

In the actual economy,households

A)spend all of their income.
B)divide their income among spending,taxes,and saving.
C)buy all goods and services produced in the economy.
D)Both (a)and (c)are correct.

Question 7

Grapes are considered intermediate goods

A)whether the purchaser uses them to make wine to sell or eats them.
B)If the purchaser uses them to make wine to sell others but not if the purchaser eats them.
C)If the purchaser eats them,but not if the purchaser uses to them to make wine to sell.
D)None of the above is correct.

Question 8

Janet bought flour and used it to bake bread she ate.ABC Bakery bought flour that it used to bake bread that customers purchased.In which case will the flour be counted as a final good?

A)Janet's purchase and ABC Bakery's purchase.
B)ABC Bakery's purchase but not Janet's purchase.
C)Janet's purchase but not ABC Bakery's purchase.
D)Neither Janet's purchase nor ABC Bakery's purchase.

Question 9

Expenditures on a nation's domestic production

A)are less than its domestic production.
B)are equal to its domestic production.
C)are greater than its domestic production.
D)could be less than,equal to,or greater than its domestic production.

Question 10

In the actual economy,goods and services are purchased by

A)households,but not firms or the government.
B)households and firms,but not the government.
C)households and the government,but not firms.
D)households,firms,and the government.

Question 11

In order to include many different goods and services in an aggregate measure,GDP is computed using,primarily,

A)values of goods and services based on surveys of consumers.
B)market prices.
C)quantities purchased by a typical urban household.
D)profits from producing goods and services.

Question 12

Which of the following statements about GDP is correct?

A)GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services.
B)Money continuously flows from households to firms and then back to households,and GDP measures this flow of money.
C)GDP is generally regarded as the best single measure of a society's economic well-being.
D)All of the above are correct.

Question 13

GDP is defined as the

A)value of all goods and services produced within a country in a given period of time.
B)value of all goods and services produced by the citizens of a country,regardless of where they are living,in a given period of time.
C)value of all final goods and services produced within a country in a given period of time.
D)value of all final goods and services produced by the citizens of a country,regardless of where they are living,in a given period of time.

Question 14

A newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter.Based on this information GDP likely

A)increased.
B)decreased.
C)stayed the same.
D)may have increased,decreased,or stayed the same.

Question 15

Which of the following questions is more likely to be studied by a microeconomist than a macroeconomist?

A)Why do prices in general rise by more in some countries than in others?
B)Why do wages differ across industries?
C)Why do national production and income increase in some periods and not in others?
D)How rapidly is GDP currently increasing?

Question 16

Which of the following is not included in GDP?

A)carrots grown in your garden and eaten by your family
B)carrots purchased at a farmer's market and eaten by your family
C)carrots purchased at a grocery store and eaten by your family
D)None of the above are included in GDP.

Question 17

Total income from the domestic production of final goods and services equals

A)only household expenditures for these goods.
B)only household and business expenditures for these goods.
C)only household and government expenditures for these goods.
D)the expenditures for these goods whoever buys them.

Question 18

Which of the following is included in GDP?

A)the market value of rental housing services,but not the market value of owner-occupied housing services.
B)the market value of owner-occupied housing services,but not the market value of rental housing services
C)both the market value of rental housing services and the market value of owner-occupied housing services
D)neither the market value of owner-occupied housing services nor the market value of rental housing services.

Question 19

If an economy's GDP rises,then it must be the case that the economy's

A)income rises and saving falls.
B)income and saving both rise.
C)income rises and expenditure falls.
D)income and expenditure both rise.

Question 20

GDP excludes most items that are produced and sold illegally and most items that are produced and consumed at home because

A)the quality of these items is not high enough to contribute value to GDP.
B)measuring them is so difficult.
C)the government wants to discourage the production and consumption of these items.
D)these items are not reported on income tax forms.

Question 21

In the equation Y = C + I + G + NX,

A)Y represents the economy's total expenditure.
B)C represents household expenditures on services and durable goods.
C)all of the variables are always positive numbers.
D)All of the above are correct.

Question 22

Sally purchases a classic 1964 car she saw for sale on someone's lawn.She then purchases some new parts and spends 120 hours refurbishing the car which she keeps.Which of the following is included in GDP?

A)the amount she paid to buy the car
B)the amount she paid to buy new parts
C)the value of her time repairing the car
D)All of the above are included.

Question 23

Table 10-1
The table below contains data for country A for the year 2010. $$\begin{array} { | l | l | } \hline \text { Household purchases of durable goods } & \$ 1293 \\\hline \text { Household purchases of nondurable goods } & \$ 1717 \\\hline \text { Household purchases of services } & \$ 301 \\\hline \text { Household purchases of new housing } & \$ 704 \\\hline \text { Purchases of capital equipment } & \$ 310 \\\hline \text { Inventory changes } & \$ 374 \\\hline \text { Purchases of new structures } & \$ 611 \\\hline \text { Depreciation } & \$ 117 \\\hline \text { Sal aries of government workers } & \$ 1422 \\\hline \text { Government expenditures on public works } & \$ 553 \\\hline \text { Transfer payments } & \$ 777 \\\hline \text { Foreign purchases of domestically produced goods } & \$ 88 \\\hline \text { Domestic purchases of foreign goods } & \$ 120 \\\hline\end{array}$$

-Refer to Table 10-1.What were country A's net exports in 2010?

A)-$32
B)$32
C)$88
D)$120

Question 24

How is net national product (NNP)calculated?

A)Saving is subtracted from the total income of a nation's citizens.
B)Saving is added to the total income of a nation's citizens
C)Depreciation losses are subtracted from the total income of a nation's citizens.
D)Depreciation losses are added to the total income of a nation's citizens.

Question 25

The value of goods added to a firm's inventory in a certain year is treated as

A)consumption,since the goods will be sold to consumers in another period.
B)intermediate goods,and so is not included in that year's GDP.
C)investment,since GDP aims to measure the value of the economy's production that year.
D)spending on durable goods,since the goods could not be inventoried unless they were durable.

Question 26

U.S.GDP and U.S.GNP are related as follows:

A)GNP = GDP + Value of exported goods - Value of imported goods.
B)GNP = GDP - Value of exported goods + Value of imported goods.
C)GNP = GDP + Income earned by foreigners in the U.S.- Income earned by U.S.citizens abroad.
D)GNP = GDP - Income earned by foreigners in the U.S.+ Income earned by U.S.citizens abroad.

Question 27

Which of the following examples of household spending is categorized as investment rather than consumption?

A)expenditures on durable goods such as automobiles and refrigerators
B)expenditures on intangibles items such as medical care
C)expenditures on new housing
D)All of the above are correct.

Question 28

When an Egyptian firm purchases a cement mixer from Slovakia,

A)Egyptian investment does not change,Egyptian net exports decrease,Egyptian GDP decreases,Slovakian net exports increase,and Slovakian GDP increases.
B)Egyptian investment increases,Egyptian net exports decrease,Egyptian GDP is unaffected,Slovakian net exports increase,and Slovakian GDP increases.
C)Egyptian investment decreases,Egyptian net exports increase,Egyptian GDP is unaffected,Slovakian net exports decrease,and Slovakian GDP decreases.
D)Egyptian investment increases,Egyptian net exports do not change,Egyptian GDP increases,Slovakian net exports do not change,and Slovakian GDP is unaffected.

Question 29

Which of the following is included in the investment component of GDP?

A)spending on new business equipment such as power tools and spending on stocks and bonds
B)spending on new business equipment such as power tools but not spending on stocks and bonds
C)spending on stocks and bonds but not spending on new business equipment such as power tools
D)neither spending on new business equipment such as power tools nor spending on stocks and bonds

Question 30

Table 10-1
The table below contains data for country A for the year 2010. $$\begin{array} { | l | l | } \hline \text { Household purchases of durable goods } & \$ 1293 \\\hline \text { Household purchases of nondurable goods } & \$ 1717 \\\hline \text { Household purchases of services } & \$ 301 \\\hline \text { Household purchases of new housing } & \$ 704 \\\hline \text { Purchases of capital equipment } & \$ 310 \\\hline \text { Inventory changes } & \$ 374 \\\hline \text { Purchases of new structures } & \$ 611 \\\hline \text { Depreciation } & \$ 117 \\\hline \text { Sal aries of government workers } & \$ 1422 \\\hline \text { Government expenditures on public works } & \$ 553 \\\hline \text { Transfer payments } & \$ 777 \\\hline \text { Foreign purchases of domestically produced goods } & \$ 88 \\\hline \text { Domestic purchases of foreign goods } & \$ 120 \\\hline\end{array}$$

-Refer to Table 10-1.What was country A's GDP in 2010?

A)$6359
B)$7136
C)$7253
D)$8147

Question 31

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

A)a refrigerator
B)a quart of motor oil
C)a business suit
D)a can of soup

Question 32

A German citizen buys an automobile produced in the United States by a Japanese company.As a result,

A)U.S.net exports increase,U.S.GDP is unaffected,Japanese GNP increases,German net exports decrease,and German GNP and GDP are unaffected.
B)U.S.net exports and GDP increase,Japanese GNP increases,German net exports decrease,German GNP is unaffected,and German GDP decreases.
C)U.S.net exports and GDP increase,Japanese GNP increases,German net exports decrease,and German GNP and GDP are unaffected.
D)U.S.net exports and GDP are unaffected,Japanese GNP increases,and German net exports,GNP,and GDP decrease.

Question 33

An identity is an equation that

A)describes an equilibrium.
B)pertains to macroeconomics,not to microeconomics.
C)must be true because of how the variables in the equation are defined.
D)involves final goods,not intermediate goods.

Question 34

The U.S.Air Force pays a Turkish citizen $30,000 to work on a U.S.base in Turkey.As a result,

A)U.S.government purchases increase by $30,000; U.S.net exports decrease by $30,000; and U.S.GDP is unaffected.
B)U.S.government purchases increase by $30,000; U.S.net exports are unaffected; and U.S.GDP increases by $30,000.
C)U.S.government purchases,net exports,and GDP are unaffected.
D)U.S.government purchases are unaffected; U.S.net exports decrease by $30,000; and U.S.GDP decreases by $30,000.

Question 35

For the purpose of calculating GDP,investment is spending on

A)stocks,bonds,and other financial assets.
B)real estate and financial assets such as stocks and bonds.
C)capital equipment,inventories,and structures,including household purchases of new housing.
D)capital equipment,inventories,and structures,excluding household purchases of new housing.

Question 36

A transfer payment is

A)a payment for moving expenses a worker receives when he or she is transferred by an employer to a new location.
B)a payment that is automatically transferred from your bank account to pay a bill or some other obligation.
C)a form of government spending that is not made in exchange for a currently produced good or service.
D)the benefit that a person receives from an expenditure by government minus the taxes that were collected by government to fund that expenditure.

Question 37

An American company operates a fast food restaurant in Paris,France.Which of the following statements is accurate?

A)The value of the goods and services produced by the restaurant is included in both French GDP and U.S.GDP.
B)The value added by American workers and equipment in France is included in U.S.GDP and the value added by French workers and equipment is added to French GDP.
C)The value of the goods and services produced by the restaurant is included in French GDP,but not in U.S.GDP.
D)The value of the goods and services produced by the restaurant is included in U.S.GDP,but not in French GDP.

Question 38

Transfer payments are

A)included in GDP because they represent income to individuals.
B)included in GDP because they eventually will be spent on consumption.
C)not included in GDP because they are not payments for currently produced goods or services.
D)not included in GDP because taxes will have to be raised to pay for them.

Question 39

The statistical discrepancy that regularly arises in national income accounting refers to the slight difference between

A)personal income and personal disposable income.
B)estimates of GDP and actual GDP.
C)the income and expenditure approaches to the calculation of GDP.
D)the quarterly and annual approaches to the calculation of GDP.

Question 40

Foreign citizens earn more income in Ireland than Irish citizens earn in foreign countries.

A)Ireland's net factor payments from abroad are positive,and its GDP is larger than its GNP.
B)Ireland's net factor payments from abroad are positive,and its GNP is larger than its GDP.
C)Ireland's net factor payments from abroad are negative,and its GDP is larger than its GNP.
D)Ireland's net factor payments from abroad are negative,and its GNP is larger than its GDP.

Question 41

Macroeconomic statistics include GDP,the inflation rate,the unemployment rate,retail sales,and the trade deficit.

Question 42

GDP is the market value of all final goods and services produced by a country's citizens in a given period of time.

Question 43

In years of economic contraction,firms throughout the economy increase their production of goods and services,employment rises,and jobs are easy to find.

Question 44

When economists talk about growth in the economy,they measure that growth as the

A)absolute change in nominal GDP from one period to another.
B)percentage change in nominal GDP from one period to another.
C)absolute change in real GDP from one period to another.
D)percentage change in real GDP from one period to another.

Question 45

GDP excludes the value of intermediate goods because their value is included in the value of final goods.

Question 46

The goal of macroeconomics is to explain the economic changes that affect many households,firms,and markets simultaneously.

Question 47

A recession has traditionally been defined as a period during which

A)nominal GDP declines for two consecutive quarters.
B)nominal GDP declines for four consecutive quarters.
C)real GDP declines for two consecutive quarters.
D)real GDP declines for four consecutive quarters.

Question 48

Disposable personal income is the income that households and noncorporate businesses have left after satisfying all their obligations to the government.

Question 49

Which of the following statements about recessions is true?

A)An old rule of thumb defining recession is two consecutive quarters of falling nominal GDP.
B)Recessions occur at regular intervals and last standard amounts of time.
C)There is no ironclad rule for the declaration of recessions.
D)Recessions are associated with low unemployment and high income.

Question 50

Which of the following statements about nominal GDP and real GDP is correct?

A)Nominal GDP is a better gauge of economic well-being than real GDP.
B)Real GDP is a better gauge of economic well-being than nominal GDP.
C)Real GDP and nominal GDP are equally good measures of economic well-being.
D)Neither nominal nor real GDP provide a measure of economic well-being.

Question 51

The GDP deflator for years subsequent to the base year measures the change in

A)nominal GDP from the base year that cannot be attributable to a change in real GDP.
B)real GDP from the base year that cannot be attributable to a change in nominal GDP.
C)nominal GDP from the base year that cannot be attributable to a change in prices.
D)real GDP from the base year that cannot be attributable to a change in prices.

Question 52

An economy's income is the same as its expenditure because every transaction has a buyer and a seller.

Question 53

A country reported nominal GDP of $100 billion in 2010 and $75 billion in 2009.It also reported a GDP deflator of 125 in 2010 and 120 in 2009.Between 2009 and 2010,

A)real output and the price level both rose.
B)real output rose and the price level fell.
C)real output fell and the price level rose.
D)real output and the price level both fell.

Question 54

GDP is used as the basic measure of a society's economic well-being.A better measure of the economic well-being of individuals in society is

A)saving per person.
B)GDP per person.
C)government expenditures per person.
D)investment per business firm.

Question 55

GDP is not a perfect measure of well-being; for example,

A)GDP excludes the value of volunteer work.
B)GDP does not address the distribution of income.
C)GDP does not address environmental quality.
D)All of the above are correct.

Question 56

If total spending rises from one year to the next,then which of the following could not be true?

A)the economy is producing a smaller output of goods and services,and goods and services are selling at higher prices
B)the economy is producing a larger output of goods and services,and goods and services are selling at lower prices
C)the economy is producing a larger output of goods and services,and goods and services are selling at higher prices
D)the economy is producing a smaller output of goods and services,and goods and services are selling at lower prices

Question 57

International data on GDP and socioeconomic variables

A)are inconclusive about the relationship between GDP and the economic well-being of citizens.
B)suggest that poor nations actually might enjoy a higher standard of living than do rich nations.
C)leave no doubt that a nation's GDP is closely associated with its citizens' standard of living.
D)indicate that there are few real differences in living standards around the world,in spite of the large differences in GDP between nations.

Question 58

If nominal GDP is $12 trillion and real GDP is $10 trillion,then the GDP deflator is

A)83.33,and this indicates that the price level has decreased by 16.67 percent since the base year.
B)83.33,and this indicates that the price level has increased by 83.33 percent since the base year.
C)120,and this indicates that the price level has increased by 20 percent since the base year.
D)120,and this indicates that the price level has increased by 120 percent since the base year.

Question 59

Changes in real GDP reflect

A)only changes in prices.
B)only changes in the amounts being produced.
C)both changes in prices and changes in the amounts being produced.
D)neither changes in prices nor changes in the amounts being produced.

Question 60

Changes in nominal GDP reflect

A)only changes in prices.
B)only changes in the amounts being produced.
C)both changes in prices and changes in the amounts being produced.
D)neither changes in prices nor changes in the amounts being produced.

Question 61

If total spending rises from one year to the next,then the economy must be producing a larger output of goods and services.

Question 62

You find that your paycheck for the year is higher this year than last.Does that mean that your real income has increased?
Explain carefully.

Question 63

GDP does not make adjustments for leisure time,environmental quality,or volunteer work.

Question 64

Explain why it is the case that the value of intermediate goods produced and sold during the year is not included directly as part of GDP,but the value of intermediate goods produced and not sold is included directly as part of GDP.

Question 65

Expenditures by households on education are included in the consumption component of GDP.

Question 66

The term real GDP refers to a country's actual GDP as opposed to its estimated GDP.

Question 67

The GDP deflator can be used to take inflation out of nominal GDP.

Question 68

U.S.real GDP is substantially higher today than it was 60 years ago.What does this tell us,and what does it not tell us,about the well-being of U.S.residents?

Question 69

The overall effect of accounting for purchases of foreign goods in GDP reduces GDP.

Question 70

GDP is defined as the market value of all final goods and services produced within a country in a given period of time.In spite of this definition,some production is left out of GDP.Explain why some final goods and services are not included.

Question 71

Economists use the term inflation to describe a situation in which the economy's overall production level is rising.

Question 72

The investment component of GDP refers to financial investment in stocks and bonds.

Question 73

Since it is counted as investment,why doesn't the purchase of earthmoving equipment from China by a U.S.corporation increase U.S.GDP?