Question 1

Inventory changes (that is,goods produced but not sold)are important in calculating GDP because

Accepted Answer

Inventory changes are included in GDP calculations because GDP aims to measure all goods and services produced within a country during a specific period, regardless of whether those goods have been sold. This ensures that the total output of the economy is accurately reflected.

Question 2

Which of the following is the correct formula for computing GDP?

Accepted Answer

The correct formula for computing GDP is GDP = consumption + private investment + government spending + exports - imports. This formula takes into account all components of the economy, including consumer spending, private investment, government spending, and international trade. Option B includes "public investment" instead of "private investment," which is not accurate. Option C omits exports and imports, which are essential components of the calculation. Option D includes "transfers," which are payments made by the government for social welfare programs and are not part of GDP. Option E includes "tax revenue," which is not a component of GDP calculation but rather is a source of government revenue.

Question 3

The total loss associated with the 2005 Hurricanes Katrina and Rita are estimated to be between

Accepted Answer

According to the National Hurricane Center, the total estimated losses from Hurricanes Katrina and Rita are between $69 and $130 billion.

Question 4

GDP measures the output produced by all of a country's resources.

Accepted Answer

GDP measures the total value of all goods and services produced within a country's borders; it does not account for the output produced by a country's resources in other countries.

Question 5

If consumption expenditures increased by $150 million,while GDP remained the same,which of the following could have occurred,all else equal?

Accepted Answer

If consumption expenditures increased by $150 million and GDP remained the same, it means that there was a decrease in net exports by $150 million. This is because GDP is calculated as C + I + G + NX, where NX represents net exports. If C increases by $150 million and GDP stays the same, then the only way for NX to change is to decrease by $150 million to offset the increase in C. Therefore, the correct answer is D - net exports decreased by $150 million.

Question 6

Which of the following might result in an underestimation of GDP?

Accepted Answer

As underground activity such as trade in illegal drugs is not accounted for in official economic data, it may result in an underestimation of GDP.

Question 7

If we included intermediate goods in the calculation of GDP,

Accepted Answer

Including intermediate goods would result in double counting, as these goods are already included in the GDP calculations of the final goods they are a part of. Therefore, including them would overestimate GDP.

Question 8

Assume that net exports are -$340,private investment is $1500,tax revenues are $800,government purchases are $2000,and GDP - using the expenditure approach - is $9,000.In this case,consumption expenditures must be

Accepted Answer

GDP = C + I + G + NX
substituting the given values:
9000 = C + 1500 + 2000 - 340
C = 5840

Question 9

During the current year,Jessica sold her house,built two years ago,to Kim for $175,000.Kim then sold the house to Dave for $185,000.How much does GDP increase due to these transactions?

Accepted Answer

GDP measures the value of goods and services produced within a country during a specific period. The sale of used goods, such as a house previously built and sold, does not increase GDP. Therefore, only the increase in value from Kim's sale to Dave ($185,000 - $175,000 = $10,000) could potentially be considered as contributing to GDP, assuming it reflects value added through improvements or market conditions.

Question 10

Goodyear produces tires for automobiles,50,000 in all.Suppose 40,000 go on new cars and are sold as part of each car,while the other 10,000 are produced as replacement tires and are sold individually.How many tires would be counted in current GDP?

Accepted Answer

Only the tires produced as replacement and sold individually count towards current GDP as they are considered final goods. The tires produced and sold as part of new cars are intermediate goods and are already included in the value of the new cars, so they are not counted again in current GDP.

Question 11

Which of the following is not included when using the expenditure approach to compute GDP?

Accepted Answer

Transfer payments, such as welfare or unemployment benefits, are not included in GDP calculations because they do not represent actual production of goods or services.

Question 12

Which of the following is included in GDP?

Accepted Answer

The imputed rental value of a family-owned home is included in GDP as it represents the value of housing services consumed by the homeowners. This is a way to account for the economic activity related to owner-occupied housing, even though no actual market transaction occurs.

Question 13

Using the table below,calculate GDP:

Accepted Answer

The answer of Using the table below,calculate GDP: 
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Question 14

Which of the following impacts of the terrorist attacks of September 11,2001,would not show up as a direct loss to GDP?

Accepted Answer

The loss of the World Trade Center (WTC) itself would not show up as a direct loss to GDP because GDP measures the output of goods and services in an economy, not the value of physical assets or infrastructure. Losses like jobs and income (options A, B, D, E) directly affect economic output and thus GDP, but the physical destruction of buildings does not directly reduce the measurement of economic activity or output.

Question 15

Which of the following would not be included in government purchases?

Accepted Answer

Welfare payments are not considered government purchases because they represent transfer payments from the government to individuals and are not used to acquire goods or services that directly contribute to the production of GDP.

Question 16

Economists generally conclude that because GDP rose as a result of the response to the 2005 Hurricanes,they were really a good thing.

Accepted Answer

While GDP may have temporarily increased due to the hurricane response efforts, it does not necessarily mean that the hurricanes themselves were a good thing. The destruction and loss of life caused by the hurricanes cannot be overlooked. Additionally, GDP is not always a reliable indicator of overall well-being or happiness within a society.

Question 17

Which of the following impacts of a Gulf hurricane would not show up as a direct loss to GDP?

Accepted Answer

The loss of oil production facilities would not show up as a direct loss to GDP because GDP measures the output of goods and services in an economy, not the loss of capital assets.

Question 18

Which of the following would be counted in U.S.GDP?

Accepted Answer

GDP (Gross Domestic Product) measures the value of all final goods and services produced within a country's borders in a given time period. The value of a new U.S.-produced car purchased by a French citizen counts towards U.S. GDP because it is a product made within the U.S., regardless of the buyer's nationality. Choices A, B, D, and E do not count towards U.S. GDP because they involve services or products not produced within the reporting period (B), are transactions involving foreign production (A and D), or are financial transactions not directly related to production of goods and services (E).

Question 19

Suppose a woman has an exterminator treat her house every month but she then marries the exterminator who now performs the service for free.As a result,GDP would

Accepted Answer

GDP would decrease because the woman is no longer paying for the extermination service, which means there is no longer any monetary transaction taking place. This would result in a decrease in the monetary value of goods and services produced in the economy.

Question 20

Right or wrong,using the expenditure approach to GDP will show a net increase in GDP because of the 2005 Hurricanes.

Accepted Answer

The expenditure approach to GDP includes government spending on disaster relief and rebuilding efforts, as well as increased consumer spending on goods and services related to recovery from the hurricane. Therefore, the net effect would be an increase in GDP.

Quiz 18: Production, income, and Employment

Inventory changes (that is,goods produced but not sold) are important in calculating GDP because