Question 1

National income

Accepted Answer

National income may be greater than or less than personal income depending on various factors such as taxes, subsidies, and transfer payments. National income includes all income earned within a country's borders, while personal income is the income received by individuals from various sources such as wages, salaries, and investments. Therefore, it is possible for one to be greater or less than the other.

Question 2

Related to the Economics in Practice on p. 107: If a Harley Davidson dealer in Chicago sells a newly manufactured Harley motorcycle on eBay to a customer in Tokyo, Japan, the value of the motorcycle is

Accepted Answer

The value of the motorcycle is counted in U.S. GDP because GDP measures the total market value of all final goods and services produced within a country in a given period, regardless of where they are sold.

Question 3

GNP minus depreciation is

Accepted Answer

GNP minus depreciation is NNP (Net National Product), which measures the value of goods and services produced by a country's citizens, regardless of their location, minus the depreciation of capital goods.

Question 4

Saving rates tend to rise during ________ and fall during ________.

Accepted Answer

During recessions, individuals and businesses are more likely to save as a precaution against economic uncertainty, whereas during expansions, confidence is higher, leading to increased spending and lower saving rates.

Question 5

The percentage of disposable personal income that is saved is the

Accepted Answer

The percentage of disposable personal income that is saved is known as the personal saving rate. The other choices, MPS (marginal propensity to save), personal investment rate, and MPC (marginal propensity to consume), are related concepts but do not specifically refer to the percentage of income actually saved.

Question 6

National income minus the amount of national income not going to households is

Accepted Answer

Personal income refers to the total amount of income going to the households or individuals before direct taxes. It includes all the income received by individuals from all sources, minus the earnings not received by them (such as retained earnings of corporations).

Question 7

If personal saving is -$40 billion and disposable personal income is $430 billion, then personal consumption spending is

Accepted Answer

Personal consumption spending is calculated as disposable personal income minus personal saving. Since personal saving is negative, it means consumption exceeds income by $40 billion. Therefore, $430 billion (income) + $40 billion (negative saving) = $470 billion (consumption).

Question 8

Related to the Economics in Practice on p. 112: The National Income and Product Accounts (NIPAs) were originally developed for the Commerce Department

Accepted Answer

The National Income and Product Accounts (NIPAs) were developed in the 1930s during the era of the Great Depression, as part of the New Deal program. The purpose was to track and measure economic activity in the country and inform policy decisions related to economic growth and stability.

Question 9

The total income of the country is

Accepted Answer

National income is the total sum of all the incomes earned by individuals and businesses in a country during a specific period of time, usually a year. It includes wages, interest, rent, and profits. It represents the total economic output of the country, and is used as an important indicator of economic growth and development.

Question 10

If investment is larger than depreciation, the capital stock decreases.

Accepted Answer

If the investment is larger than depreciation, the capital stock increases.

Question 11

Related to the Economics in Practice on p. 112: The economist most closely associated with the development of the National Income and Product Accounts (NIPAs) is

Accepted Answer

Simon Kuznets is most closely associated with the development of the National Income and Product Accounts (NIPAs) as he was commissioned by the US government to develop a system for measuring national income during the Great Depression.

Question 12

If GNP is $625 billion and depreciation is $125 billion, then net national product is

Accepted Answer

Net national product (NNP) = Gross national product (GNP) - Depreciation
NNP = $625 billion - $125 billion
NNP = $500 billion

Question 13

If national income is $400 billion, personal income is $350 billion, personal taxes are $100 billion, then disposable income equals

Accepted Answer

Disposable income is calculated by subtracting personal taxes from personal income. Therefore, $350 billion - $100 billion = $250 billion.

Question 14

If the personal saving rate is 20% and personal saving is $20 billion, the value of personal disposable income is

Accepted Answer

The personal saving rate is the percentage of personal disposable income that is saved. If the saving rate is 20% and personal saving is $20 billion, then the disposable income can be calculated as $20 billion / 20% = $100 billion.

Question 15

Which of the following is added to personal income to get national income?

Accepted Answer

Retained earnings are added back to personal income to calculate national income because they represent income that has been earned by corporations but not distributed to households. This adjustment ensures that all income generated within the economy is accounted for, regardless of its distribution.

Question 16

Transfer payments are subtracted from national income to get to personal income.

Accepted Answer

Transfer payments are added to national income to calculate personal income, as they represent income received by individuals that is not earned through work or investment.

Question 17

If depreciation equals zero and retained earnings equal $25 billion, then

Accepted Answer

When depreciation equals zero, there is no difference between Gross National Product (GNP) and Net National Product (NNP), as depreciation is the adjustment needed to go from GNP to NNP. Retained earnings do not affect this relationship.

Question 18

If personal income is $700 billion and personal income taxes are $140 billion, the value of disposable personal income is

Accepted Answer

Disposable personal income is calculated by subtracting personal income taxes from personal income. Therefore, $700 billion - $140 billion = $560 billion.

Question 19

Related to the Economics in Practice on p. 107: The value of the fees charged by eBay to sellers who use eBay is

Accepted Answer

The fees charged by eBay to sellers who use eBay are considered a service provided by eBay, and therefore are counted in U.S. GDP as a part of the value added by eBay to the economy. The location of the seller or the nature of the product being sold is irrelevant in this case.

Question 20

If disposable personal income is $500 billion and personal saving is $15 billion, the personal saving rate is

Accepted Answer

To calculate the personal saving rate, we divide personal saving by disposable personal income:

Personal saving rate = Personal saving / Disposable personal income

Personal saving rate = $15 billion / $500 billion

Personal saving rate = 0.03 or 3%

Therefore, the answer is B) 3%.

Quiz 6: Measuring National Output and National Income