Deck 5: National Income Accounting

Question 1

A nation's GDP is

A)C + I + G + (X - M).
B)The sum of value added at some stages of the production process.
C)The total market value of all intermediate goods and services.
D)The total amount of money in circulation.

Answer 1

A

Question 2

GDP can be calculated by all of the following methods except

A)Adding up the spending on goods and services by business,government,households,and foreigners,and subtracting imports.
B)Adding up the "value added" at every stage of production in the economy.
C)Adding up all of the receipts of households,government,and business.
D)Adding up all income and expenses by consumers and businesses.

Answer 2

D

Question 3

DVD players can be added to bicycles to compute the GDP by

A)Multiplying output by price and adding the resulting dollar values.
B)Dividing output by price and adding the resulting dollar values.
C)Multiplying dollar values of output by price and adding the result.
D)Dividing dollar values of output by price and adding the result.

Answer 3

A

Question 4

National income accounting is defined as the

A)Use of economic theory to predict future income.
B)Measurement of aggregate economic activity.
C)Accounting cost associated with economic choices.
D)Assessment of the distribution of output.

Question 5

Suppose iPhones cost consumers $200 and USB cables cost consumers $25.What contribution does the production of 2,000 iPhones and 1,200 USB cables make to GDP?

A)$1,200,000.
B)$430,000.
C)$200,000.
D)$580,000.

Question 6

A nation's GDP can be calculated as

A)The sum of value added and intermediate goods.
B)The total value added at all stages of production.
C)NI plus depreciation.
D)PI plus depreciation.

Question 7

Which of the following would be included in U.S.GNP but not in U.S.GDP?

A)The tips received by a waiter in New Jersey.
B)Auto parts produced by a Japanese-owned firm operating in North Carolina.
C)Sales of used cars in the United States.
D)Chipsets produced by U.S.-owned firms operating in China.

Question 8

If GDP grows more rapidly than population for a particular country over a period of time,then we can determine that

A)Real GDP has decreased.
B)All citizens of this country are better off.
C)GDP per capita has increased.
D)GDP must rise at a slower rate in the future.

Question 9

GDP per capita

A)Is equal to a nation's GDP divided by its population.
B)Does not permit comparisons of the economic welfare of different nations.
C)Is real GDP corrected for price level changes.
D)Indicates the most efficient use of resources.

Question 10

Suppose you volunteer to help clean up your neighborhood,and the only payment you receive is the sense of goodwill that develops with your neighbors.Your efforts cause the GDP of the economy to

A)Remain unchanged.
B)Fall by the opportunity cost of the time you spend doing volunteer work.
C)Rise by the opportunity cost of the time spent by all of the people in the neighborhood on the volunteer project.
D)Rise by the value of increased cleanliness of the neighborhooD.GDP will not increase if production is not a reported market activity.

Question 11

If GDP per capita was $500 in 2002 and the population was 25,000,the GDP would have been approximately

A)$5,000,000.
B)$7,500,000.
C)$125,000,000.
D)None of the choices are correct.

Question 12

Prices are used in national income accounting for all of the following reasons except to

A)Add the values of output from different sectors of the economy.
B)Compare the value of output of one period with that of another.
C)Provide an index to measure the rate of inflation.
D)Provide an index to measure unemployment.

Question 13

Suppose a friend claims he is helping the economy by throwing trash on the street rather than in trash cans because the extra expenditures necessary to clean up the streets will increase GDP.Your friend is

A)Wrong.GDP will not be affected because nothing new is being produced.
B)Right.GDP will increase,ceteris paribus.
C)Wrong.GDP will not be affected because this is not a socially desirable use of resources and will therefore not be included in GDP.
D)Wrong.GDP will decline because the neighborhood will be less clean.

Question 14

Which of the following statements is correct concerning GDP and GNP?

A)GDP measures output within the nation's borders only.
B)GNP measures output within the nation's borders only.
C)GDP measures output produced by a nation's factors even if they are outside the nation's borders.
D)GNP measures output outside a nation's borders,but not inside it.

Question 15

Which of the following is excluded from calculations of GDP?

A)Goods that are produced but not sold during the time period.
B)Income received by managers of corporations.
C)The value of lawn mowing provided by a teenager for his own family.
D)Goods that bring little value to society.

Question 16

Which of the following is treated differently in computations of GNP as compared with GDP?

A)Sales in the underground economy.
B)Goods produced by U.S.firms located in foreign countries.
C)Intermediate goods.
D)The value of services performed by housewives.

Question 17

Suppose Blu-Ray players cost consumers $300 and Blu-Ray disks cost consumers $30.What contribution does the production of 250 Blu-Ray players and 3,000 Blu-Ray disks make to the GDP?

A)$75,000.
B)$165,000.
C)$90,000.
D)$125,000.

Question 18

The GDP per capita is the most practical way to

A)Measure how much income households receive.
B)Measure how much output can be consumed on a sustainable basis.
C)Make international comparisons of the standard of living.
D)Analyze the growth rate of the economy through time.

Question 19

National income accounts assist

A)Market investors in making more profitable investments.
B)Individuals in maximizing their incomes.
C)Economic policy makers in formulating policies and evaluating performance.
D)Analysts in measuring the performance of the stock market.

Question 20

If a nation has GDP of $12,500 billion and GDP per capita of $62,500,what is the nation's population?

A)180 million.
B)200 million.
C)625 million.
D)230 million.

Question 21

Suppose the total market value of all the final goods and services produced in the country of Cannedada was $4 billion in 2008 (measured in 2008 prices)and $5 billion in 2009 (measured in 2009 prices).Which of the following statements is definitely correct?

A)Production increased in Cannedada between 2008 and 2009.
B)Average price levels increased in Cannedada between 2008 and 2009.
C)Nominal GDP decreased in Cannedada between 2008 and 2009.
D)Changes in real GDP cannot be determined without more information.

Question 22

Which of the following is not a final good or service?

A)A refrigerator purchased by a home owner.
B)Paper purchased by a textbook company.
C)A computer purchased by a local middle school.
D)A flu shot purchased by a teacher.

Question 23

If a farmer grows a head of cabbage with fertilizer costs of $0.10 and seed costs of $0.15 and sells it to a wholesaler for $0.55,the total value added by the farmer is

A)$0.30.
B)$0.25.
C)$0.55.
D)$0.35.

Question 24

If one added up the value of all intermediate goods that went into the production of real GDP,the total value of intermediate goods would be

A)Less than the GDP.
B)Equal to the GDP.
C)Greater than the GDP.
D)None of the choices are correct.

Question 25

All of the following count as unreported income except

A)A waiter's tips that are not reported to the IRS.
B)The $5 you pay your friend to help you study for a test.
C)International trade in cocaine.
D)The money you pay a private tutor who works for Tutors Inc.

Question 26

When an individual makes repairs to her own home instead of hiring a company to make the repairs,the activity is

A)Included in GDP because it represents production.
B)Productive but excluded from GDP because it is a nonmarket activity.
C)Excluded from GDP because it is an intermediate good.
D)Included in GDP but not included in GNP.

Question 27

The value of final output produced in a given period,measured in current prices,is

A)Real GDP.
B)Nominal GDP.
C)NDP.
D)GNP.

Question 28

A furniture factory produces dining room sets.The lumber it purchases from the lumberyard is a/an

A)Intermediate service.
B)Final good.
C)Intermediate good.
D)Final service.

Question 29

A convenience store pays a farmer $1.25 per pineapple.If it costs the farmer $0.15 in seeds,$0.25 in fertilizer,and $0.25 in forgone output to grow each pineapple,the value added by the farmer to each pineapple is

A)$0.40.
B)$1.25.
C)$0.85.
D)$0.60.

Question 30

To avoid counting the same output more than once,the calculation of GDP includes

A)Intermediate goods plus final goods.
B)Only the value of final goods.
C)The value added at each stage of production plus intermediate goods.
D)Only the output produced by U.S.factors of production.

Question 31

Real GDP is more accurate than nominal GDP in making comparisons of output over time because

A)Nominal GDP can increase simply because of price increases over time.
B)Real GDP is not affected by output changes.
C)Nominal GDP is the hypothetical output that would be produced at full employment.
D)Real GDP is not affected by changes in productivity or the size of the labor force.

Question 32

Real GDP is used most effectively to

A)Measure how much income households receive.
B)Measure how much output can be consumed on a sustainable basis.
C)Make international comparisons of the standard of living.
D)Analyze the growth rate of the economy over time.

Question 33

Value added is the

A)Addition to GDP because nonmarket activities are captured.
B)Increase in market value of a product that takes place at each stage of the production process.
C)Difference between nominal GDP and real GDP.
D)Impact on third parties caused by market activities.

Question 34

Suppose the total market value of all the final goods and services produced in the country of Rushya was $8 billion in 2008 (measured in 2008 prices)and $9 billion in 2009 (measured in 2009 prices).Which of the following statements is definitely correct?

A)Production increased in Rushya between 2008 and 2009.
B)Real GDP increased in Rushya between 2008 and 2009.
C)Average price levels increased in Rushya between 2008 and 2009.
D)Whether real GDP increased cannot be determined with the information given.

Question 35

Which of the following would not be included in the calculation of GDP?

A)Income earned by an attorney.
B)Income earned by a CPA.
C)Contract work performed by an electrician.
D)Tips earned by a bartender who does not report them to the IRS.

Question 36

Which of the following items is definitely part of the underground economy?

A)Payments to family members for performing household tasks.
B)Income from legal pursuits.
C)Unreported income.
D)Child care services provided by a legitimate company.

Question 37

Which of the following is directly included in the calculation of GDP?

A)The final sale of a brand new Cadillac.
B)The appreciation in value of shares of stock.
C)The sales of sand to a glassmaker.
D)The sales of land to a builder.

Question 38

The sum of value added

A)Measures the intangible quality of goods and services produced in the economy.
B)Equals the sum of the value of intermediate goods.
C)Is one way to compute the GDP.
D)Equals net domestic product.

Question 39

A computer manufacturer sells laptops to retail stores for $450 each.If the manufacturer pays $200 for the components in each laptop and $75 in wages,the value added to each computer by manufacturing is

A)$450.
B)$250.
C)$175.
D)$75.

Question 40

Real GDP is the

A)Value of output produced,including the nonmarket activities that are not counted in nominal GDP.
B)Value of final output produced in a given period measured in constant prices.
C)Value of final output produced in a given period measured in current prices.
D)Intangible quality of goods and services produced in the economy.

Question 41

The purpose of chain-weighted price adjustments in the calculation of GDP is to

A)Adjust for changes in relative prices.
B)Adjust for changes in average prices.
C)Adjust for changes in production.
D)Convert NDP to GDP.

Question 42

Inflation is

A)The increase in the market value of a product that takes place at each stage of the production process.
B)Included in the calculation of real GDP.
C)An increase in the average level of prices of goods and services.
D)A decrease in the price of all goods and services.

Question 43

According to the hypothetical economy in Figure 5.2,real GDP differs from nominal GDP from 1980 to 2000 because

A)Price level increases caused real GDP to increase.
B)Population growth exceeded output growth.
C)Inflation caused the dollar value of output to decrease.
D)Inflation caused the dollar value of output to increase.

Question 44

In periods of rising prices,percentage increases in nominal GDP will

A)Exceed percentage increases in real GDP.
B)Equal percentage increases in real GDP.
C)Be less than percentage increases in real GDP.
D)Not change in relationship to real GDP.

Question 45

If the price level is 100 for 2005 and the price level is 106.5 in 2007,a nominal GDP in 2007 of $15,600 billion would mean that real GDP in 2007 (in 2005 prices)would be closest to

A)$14,647.9 billion.
B)$15,600.0 billion.
C)$14,751.3 billion.
D)$13,971.2 billion.

Question 46

In Figure 5.1,during the period between the early 1970s and 1980,real GDP grew at a faster rate than nominal GDP.This is an indication that

A)Average price levels decreased.
B)Production increased at a faster rate than average price increased.
C)Production increased at a slower rate than average price increased.
D)Average price levels increaseD.Nominal GDP can grow more slowly than real GDP if the prices are falling and production is rising; the economy is actually doing well,but nominal GDP suggests it is not.

Question 47

Net domestic product is

A)Equal to GDP minus indirect business taxes.
B)The total market value of all goods produced in the period.
C)Equal to national income minus depreciation.
D)The market value of all final goods and services produced in the economy after adjusting for depreciation.

Question 48

According to the hypothetical economy in Figure 5.1,between 1960 and 1970 real GDP declined but nominal GDP continued to rise.The increase in nominal GDP was due to

A)An increase in the price level greater than the decrease in output,causing the nominal dollar value of output produced to increase.
B)An increase in the quantity of output produced.
C)A decrease in the price level.
D)An increase in the standard of living.

Question 49

In Figure 5.1,during the 1980-1990 time periods,real GDP was relatively constant but nominal GDP increased.This can be explained by

A)Lower average price levels.
B)Inflation.
C)Higher levels of production.
D)A decrease in production per capita.

Question 50

Net domestic product (NDP)is determined by

A)Subtracting depreciation from GDP.
B)Adding consumption,investment,government expenditures,and net exports.
C)Adding appreciation to GDP.
D)Subtracting consumption from GDP.

Question 51

In Figure 5.2,the fact that real GDP is greater than nominal GDP during the 1960-1980 periods implies that

A)Average price levels during this period must have been lower than during the base period.
B)Per capita GDP must have increased.
C)Average price levels must have decreased during this period.
D)Production must have decreased during this perioD.Nominal GDP will differ from real GDP because nominal GDP does not control for changes in the price level.

Question 52

If nominal GDP was $11,500 billion in 2003 and the price level in 2003 was 111.6,then real GDP would have been approximately

A)$9,795 billion.
B)$10,305 billion.
C)$10,485 billion.
D)$9,750 billion.

Question 53

If real GDP in 2005 is $8,000 billion and the price level is 125,what is nominal GDP in 2005?

A)$10,000.0 billion
B)$9,200.5 billion
C)$6,830.6 billion
D)$5,000.0 billion

Question 54

Assume nominal GDP is $10,000 billion in period 1 and $15,000 billion in period 2.If prices in period 2 are twice as high as in period 1,real GDP in period 2 is

A)$10,000 measured in period 1 prices.
B)$12,500 measured in period 1 prices.
C)$15,000 measured in period 1 prices.
D)$7,500 measured in period 1 prices.

Question 55

The wearing out of plants and equipment is known as

A)Net domestic product.
B)Depreciation.
C)Inflation.
D)Chain-weighted adjustment.

Question 56

Depreciation represents

A)The consumption of capital in the production process.
B)A loss of productive capability as a result of the inefficient use of resources.
C)Wasted capital.
D)Gross investment plus net investment.

Question 57

If real GDP falls from one period to another and the price level stays the same,we can conclude that

A)Nominal GDP increased.
B)Inflation increased.
C)Nominal GDP decreased.
D)NDP decreaseD.Production must have fallen and so must have nominal GDP because the price level remained constant.

Question 58

The base year for the calculation of real GDP for the hypothetical economy in Figure 5.2 is closest to

A)1960.
B)1980.
C)1990.
D)

Question 59

The alternative combinations of final goods and services that can be produced with all available resources and technology are the

A)Real GDP.
B)Nominal GDP.
C)Production possibilities.
D)Net domestic product.

Question 60

An economy's production possibilities curve indicates

A)The rate of economic growth.
B)The prices of any two goods.
C)The rate of investment.
D)How much the economy can produce.

Question 61

The stock of capital in the United States can grow only if

A)Depreciation is positive.
B)Gross investment minus depreciation is positive.
C)GDP minus depreciation is negative.
D)The production possibilities curve shifts inward toward the origin.

Question 62

The national income aggregate calculated by subtracting depreciation from GDP is known as

A)Net investment.
B)Net domestic product.
C)Gross investment.
D)Value addeD.NDP indicates how much the economy is producing after adjusting for all capital that is wearing out.

Question 63

Which of the following is investment,according to an economist?

A)The purchase of U.S.savings bonds.
B)A collection of rare coins.
C)An increase in business inventories.
D)The purchase of a new family car.

Question 64

When we calculate GDP,government spending on goods and services makes up approximately

A)One-fifth of total output.
B)One-half of total output.
C)One-tenth of total output.
D)One-third of total output.

Question 65

The account that gives the most accurate understanding of the economy's potential for growth over the long term is

A)GDP.
B)NDP.
C)NI.
D)GNP.

Question 66

A nation's capital stock will decline,ceteris paribus,for all of the following reasons except

A)The population increases faster than the capital stock.
B)Net investment is negative.
C)Depreciation exceeds gross investment.
D)None of the choices are correct.

Question 67

An increase in business inventories during a time period,ceteris paribus,will

A)Decrease GDP during that period.
B)Increase GDP during that period.
C)Not affect GDP during that period but will increase GDP in later periods when the inventory is sold.
D)Never affect GDP because changes in inventories are not included in the calculation of GDP.

Question 68

An economy's production possibilities are most likely to expand if

A)Net investment is negative.
B)Net investment is zero.
C)Gross investment is greater than depreciation.
D)Depreciation is greater than gross investment.

Question 69

A nation's production possibilities curve should,ceteris paribus,shift

A)Inward if gross investment exceeds depreciation.
B)Inward if net investment is zero.
C)Outward if net investment is positive.
D)Outward if gross investment is positive.

Question 70

Gross investment is the

A)Expenditure on new plants,equipment,and residential construction,plus changes in business inventories.
B)Consumption of capital in the production process.
C)Wearing out of plant and equipment.
D)Alternative combinations of final goods and services that can be produced with all available resources and technology.

Question 71

If for a given year gross investment is $300 billion and depreciation is $75 billion,then,for that year,the capital stock __________ and net investment was ________.

A)Increased by $250 billion; $225 billion
B)Increased by $225 billion; $225 billion
C)Decreased by $225 billion;$300 billion
D)Decreased by $300 billion; $300 billion

Question 72

Exports are

A)Goods and services sold to foreigners.
B)Not included in GDP.
C)Goods and services produced by the public sector.
D)Goods and services purchased from foreign sources.

Question 73

Which of the following expenditures are included in consumption?

A)Police services.
B)Medical services.
C)Public highways.
D)Public parks.

Question 74

If depreciation is smaller than gross investment,

A)Net investment exceeds depreciation.
B)Gross investment is negative.
C)Net investment is positive.
D)The nation's capital stock is getting smaller.

Question 75

The addition to the economy's capital stock can be found by

A)Subtracting NDP from GDP.
B)Subtracting depreciation from GDP.
C)Subtracting depreciation from gross investment.
D)Subtracting net income from gross investment.

Question 76

Which of the following typically purchases the most goods and services in the U.S.economy?

A)Foreigners.
B)Households.
C)Federal,state and local governments combined.
D)Businesses.

Question 77

Which of the following types of government spending is included in the calculation of GDP?

A)Federal spending only.
B)Federal,state,and local government spending for any purpose.
C)Federal,state,and local government spending on goods and services only.
D)Federal,state,and local spending on transfer payments only.

Question 78

When calculating GDP,consumption makes up approximately

A)One-fifth of total output.
B)One-half of total output.
C)Two-thirds of total output.
D)One-third of total output.

Question 79

The economic definition of investment includes all of the following except

A)Residential construction.
B)Net changes in business inventory.
C)Spending for plants and capital equipment.
D)A retirement portfolio of stocks and bonds.

Question 80

If depreciation exceeds gross investment,

A)Net investment exceeds depreciation.
B)Gross investment is negative.
C)The difference between GDP and NDP is smaller than gross investment.
D)The nation's capital stock is being depleteD.Gross investment is positive as long as some new plants and equipment are being produced.But the stock of capital-the total collection of plants and equipment-won't grow unless gross investment exceeds depreciation.That is,the flow of new capital must exceed depreciation,or our stock of capital will decline.