Question 1

Government purchases include spending on goods and services by

Accepted Answer

Government purchases refer to spending on goods and services by all levels of government, including local, state, and federal governments. It does not include household spending by government employees. Therefore, option C is the best choice as it includes all levels of government in the definition.

Question 2

Double counting in the resource cost-income approach to GDP refers to

Accepted Answer

Double counting in the resource cost-income approach to GDP refers to counting the total value of a final output in addition to the value of the inputs used to make it, which results in an overestimation of GDP. This is because the value of the inputs is already included in the value of the final output. Therefore, to avoid double counting, only the value of the final output should be included in the calculation of GDP.

Question 3

If U.S. net exports are negative,

Accepted Answer

When U.S. net exports are negative, it means that the value of imports exceeds the value of exports, indicating that U.S. consumers are spending more on foreign goods than foreign consumers are spending on U.S. goods.

Question 4

Which of the following is a deficiency of the regular (or traditional) consumer price index  (CPI) as a measure of the cost of living?

Accepted Answer

The CPI does not account for substitution bias, where consumers change their purchasing habits in response to changes in relative prices, which can lead to an overestimation of the cost of living.

Question 5

The amount of U.S. exports purchased by the rest of the world is primarily determined by

Accepted Answer

The amount of U.S. exports purchased by the rest of the world is primarily determined by real disposable income in other nations. When people in other countries have more income, they are able to purchase more U.S. goods and services, leading to an increase in U.S. exports.

Question 6

Double counting in the resource cost-income approach to GDP statistics is avoided by

Accepted Answer

Double counting in the resource cost-income approach to GDP statistics is avoided by counting only the value added at each stage of a good's production process. This means that the value of intermediate goods and services is not counted, only the value added by each production stage.

Question 7

Suppose a country had $3.5 billion of net exports and bought $6.8 billion of goods and services from foreign countries. This country would have

Accepted Answer

Net exports are calculated as exports minus imports. If net exports are $3.5 billion and imports are $6.8 billion, then exports must be $10.3 billion (since $10.3 billion - $6.8 billion = $3.5 billion).

Question 8

Gross private domestic investment

Accepted Answer

Gross private domestic investment includes business expenditures on new factories, tools, and machinery, as well as other types of investment in the United States. It does not include investment by foreign firms, and it is limited to domestic investment, rather than including all capital in the United States. Net additions to the capital stock and issuance of new corporate stocks and bonds may be included in gross private domestic investment, but these are not the only components.

Question 9

Which of the following would count as an investment expenditure in national income accounting?

Accepted Answer

Investment expenditure includes purchases of physical capital goods such as machinery, equipment, and buildings that are used to produce other goods and services. Therefore, Boeing's purchase of a new metal stretching machine would be considered an investment expenditure. The other options do not involve the purchase of physical capital goods and would not be considered investment expenditures.

Question 10

Madison, a U.S. citizen, works only in Germany. The value she adds to production in Germany is included

Accepted Answer

Madison's contribution to production in Germany would be included in German GDP, as it is generated within the borders of Germany. It would not be included in U.S. GDP, as she is not producing within the borders of the United States.

Question 11

Suppose a country had net exports of $7.5 billion and sold $44.6 billion of goods and services abroad. This country had

Accepted Answer

The net exports of $7.5 billion indicate that the value of exports ($44.6 billion) is greater than the value of imports. To calculate the value of imports, we must subtract the net exports from the value of exports:

$44.6 billion - $7.5 billion = $37.1 billion

Therefore, the country had $44.6 billion of exports and $37.1 billion of imports, which corresponds to choice D.

Question 12

U.S. exports are

Accepted Answer

U.S. exports are included in U.S. GDP because they are produced domestically. GDP measures the total market value of all final goods and services produced within a country's borders, regardless of whether they are consumed domestically or abroad. Therefore, exports contribute to the overall economic activity and are included in the calculation of GDP.

Question 13

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

Accepted Answer

Gross National Product (GNP) is calculated by taking the Gross Domestic Product (GDP) and adding the income earned by U.S. citizens abroad, then subtracting the income earned by foreigners within the U.S.

Question 14

A Minnesota farmer buys a new tractor made in Iowa by a German company. As a result,

Accepted Answer

The purchase of the tractor is an investment in the U.S., increasing U.S. GDP. However, since the tractor is produced in the U.S. (Iowa), it does not affect German GDP.

Question 15

What does gross private domestic investment include?

Accepted Answer

Gross private domestic investment includes business purchases of capital goods (such as machinery and equipment), all new construction (both residential and commercial), and inventory investment (the value of the goods that businesses hold in storage in order to meet future demand). Choice A is incorrect because it includes purchases of consumer durable goods, which are not included in gross private domestic investment. Choice C is incorrect because it limits the definition of new construction to commercial construction, excluding residential construction. Choice D is incorrect because it limits the definition of new construction to residential construction, excluding commercial construction. And choice E is incorrect because it includes purchases of all types of durable goods, which is too broad a category and includes consumer durables that are not part of gross private domestic investment.

Question 16

U.S. imports are

Accepted Answer

Imports are subtracted from GDP calculations because they are not produced domestically, thus not contributing to the domestic economy's output.

Question 17

New residential housing is counted in GDP as

Accepted Answer

New residential housing is considered an investment good as it contributes to the economy's capital stock and can generate income through rent, lease, or sale. It is not considered a durable consumption good because it is not consumed as a final good for immediate satisfaction, nor is it a household durable good as it is not owned by households for personal use. It is also not an inventory expansion or a long-term durable good.

Question 18

Assume that between 1999 and 2009 nominal GDP increased from $7 trillion to $12 trillion and that the GDP deflator rose from 100 to 150. Which of the following expresses GDP for 2009 in terms of 1999 prices?

Accepted Answer

To calculate real GDP in 2009 using 1999 prices, we need to divide nominal GDP in 2009 by the GDP deflator in 2009 and then multiply it by the GDP deflator in 1999:
Real GDP in 2009 = (Nominal GDP in 2009/GDP deflator in 2009) x GDP deflator in 1999
= ($12 trillion/150) x 100
= $8 trillion.

Question 19

If the GDP deflator in 2009 was 120 compared to a value of 100 during the 2004 base year, this would indicate that

Accepted Answer

The GDP deflator measures the change in the general level of prices in an economy over time. If the GDP deflator in 2009 was 120 compared to a value of 100 during the 2004 base year, then the general level of prices during 2009 was 20 percent higher than during 2004 (100 to 120 is a 20% increase). Option A is incorrect as it suggests that the inflation rate during 2009 was 20%, whereas the GDP deflator tells us about the overall change in prices, not the inflation rate over a specific period. Option C is incorrect because the inflation rate cannot be 120%. Option D is incorrect because the GDP deflator measures the nominal value of output, which includes the effects of inflation. In order to determine the real value of output, we need to adjust for changes in the level of prices over time, which is done using the GDP deflator.

Question 20

Jayden, a U.S. citizen, works only in Canada. The value that his labor contributes to U.S. output is

Accepted Answer

U.S. GNP includes the value of goods and services produced by U.S. citizens, regardless of where they work, while GDP includes only domestic production.

Quiz 7: Taking the Nations Economic Pulse