Deck 5: Measuring the Economys Performance

Question 1

In the simple circular flow model the money received by a car maker when it sells a car goes to

A)the workers who helped build the car.
B)the owners of firms who sold materials to the car maker,and the rest stays with the firm.
C)only the owners of the car maker.
D)the owners of all of the resources used to make the car.

Answer 1

the owners of all of the resources used to make the car.

Question 2

One of the principles behind the concept of the circular flow is that

A)in every economic exchange,the seller receives exactly the same amount that the buyer spends.
B)in every economic exchange,the seller receives less than the amount that the buyer spends.
C)the seller of goods receives exactly the same amount that the buyer spends,but the seller of resources receives less than the buyer spends.
D)in exchange involving products,the seller receives less than the amount the buyer spends,but in resource markets the seller receives more than the buyer spends.

Answer 2

in every economic exchange,the seller receives exactly the same amount that the buyer spends.

Question 3

Households receive a total income of $5 million.Of this,$3.5 million are wages received for labour services,$1 million are rental payments,and $250,000 are interest payments received.What are the costs of production and profits equal to respectively?

A)$5 million;$500,000
B)$5 million;$250,000
C)$4.75 million;$250,000
D)$4.75 million;0

Answer 3

$5 million;$250,000

Question 4

Social Security payments are

A)included in GDP.
B)not included in GDP,but are included in Gross Domestic Income accounts.
C)not included in GDP.
D)not included in GDP,but are included in Net Domestic Product.

Question 5

The annual cost of producing the entire output of final goods and services in an economy is

A)equal to the quantity of total output produced.
B)greater than the total income of households in the economy.
C)equal to total income.
D)equal to the total income of households in the economy only if profits are zero.

Question 6

Which of the following is included in determining GDP?

A)the purchase of a new car
B)the purchase of a used car
C)a housewife preparing breakfast
D)a gardener cans vegetables for consumption during the winter

Question 7

Economists consider profit to be

A)a cost of producing goods and services.
B)the same as a salary.
C)a reward for incurring losses.
D)something that should be eliminated by anticompetition laws.

Question 8

Which of the following is a final good?

A)seed used for corn
B)wheat used for bread
C)electricity used for producing automobiles
D)a lawn mower purchased by a household

Question 9

Which of the following would most likely be sold in the product market?

A)a new car
B)stocks and bonds
C)iron ore
D)entrepreneurial ability

Question 10

Goods that are used up entirely in the production of final goods are known as

A)durable goods.
B)value added goods.
C)intermediate goods.
D)consumer goods.

Question 11

The total market value of final goods and services produced in an economy during a one-year period is

A)gross domestic product.
B)net national product.
C)profit.
D)personal income.

Question 12

A firm produces a good and generates $5 million in receipts.Wages are $3 million,rent is $500,000,and interest payments are $1 million.Then

A)profits are $500,000,the cost of production is $4.5 million,and households receive income equal to $4.5 million.
B)profits are $500,000,the cost of production is $5 million,and households receive income equal to $4.5 million.
C)profits are $500,000,the cost of production is $5 million,and households receive income equal to $5 million.
D)profits are $500,000,the cost of production is $5 million,and households receive income equal to $3.5 million.

Question 13

Which of the following is included when measuring GDP?

A)the value of services of durable goods purchased in previous years
B)the value of leisure time
C)the value of services provided by housewives and househusbands
D)the rental income received by a landlord

Question 14

In the simple circular flow model,

A)households spend the money they receive from labour services but save the money they receive from selling the other factors of production.
B)businesses buy labour services from households,but supply other factors of production themselves.
C)households spend their entire income immediately on consumer products.
D)profits are a type of income that is not received by households.

Question 15

Which of the following transactions would be included in the calculation of GDP?

A)the purchase of legal services
B)the purchase of a share of stock in General Motors
C)the purchase of wheat to make bread
D)the purchase of a second-hand lawnmower from your friend

Question 16

The observation that goods and services flow in one direction and money payments flow in another direction is the principle behind

A)the double coincidence of wants.
B)a barter economy.
C)a pure command economy.
D)the circular flow of income.

Question 17

According to the circular flow,total output produced and total income

A)should differ by the value of intermediate goods.
B)should be increased by the unanticipated rate of inflation.
C)will always be increasing in a capitalist economy.
D)will be equal.

Question 18

The circular flow model shows that consumer goods and services produced by business firms are sold through

A)the product market.
B)the factor market.
C)the labour market.
D)the resource market.

Question 19

Total output and total income in the simple circular flow model

A)are measures of the economy's level of savings.
B)include only intermediate goods.
C)are equal to each other.
D)are related in the sense that national income is less than national product.

Question 20

According to the circular flow,the dollar value of a nation's output is equal to

A)profits.
B)total income.
C)net income minus taxes.
D)wages.

Question 21

Wheat used for producing bread is

A)a final good.
B)not going to generate any employment.
C)an intermediate good.
D)a durable good.

Question 22

Which of the following is an example of the gross private domestic investment component of GDP?

A)You buy a share of GM stock.
B)GM buys a new drill press.
C)You put money into your savings account.
D)You put money into your checking account.

Question 23

The purchase of a share of stock is excluded in the calculation of GDP because it

A)is an intermediate good.
B)produces value added.
C)only represents the transfer of ownership rights.
D)is a final service and not a good.

Question 24

An example of an increase in gross private domestic investment spending that also increases GDP is when

A)a family sells its home because of a transfer.
B)a farmer buys a used tractor.
C)inventories of new cars accumulate on the lots of car dealers.
D)government increases spending on infrastructure.

Question 25

When the total quantity of unsold new Chevrolets increases from 50,000 to 75,000

A)the economy experiences a period of disinvestment.
B)the economy's level of competition increases.
C)there is an increase in the rate of aggregate output.
D)the producer undergoes an inventory investment.

Question 26

A farmer buys seed for 15 cents that is used to grow wheat.The farmer sells the wheat to the miller for 30 cents,who makes flour.The flour is sold to the baker for 60 cents and the baker makes bread,which is sold to the grocer for 90 cents.The grocer sells the bread for $1.25.What is the value added for the miller?

A)60 cents
B)45 cents
C)30 cents
D)90 cents

Question 27

Which of the following is part of gross private domestic investment?

A)purchases of stocks and bonds
B)a decline in consumer debt
C)purchases of hamburgers for a family dinner
D)a positive change in business inventories

Question 28

The owner of an oil well in Alberta sells 1,000 barrels of oil to a refinery in the U.S.for $12,000.This transaction

A)increases GDP by $12,000.
B)has no effect on GDP because the refinery is in the U.S.
C)decreases GDP because oil reserves have fallen by 1,000 barrels.
D)has no effect on GDP because this is the sale of an intermediate product.

Question 29

Inventory investment occurs when

A)grocers sell stocks of canned goods off their shelves.
B)individuals invest in an invention.
C)shopkeepers check their inventories.
D)automobile dealers add to their stocks of unsold cars.

Question 30

A family sells the house they have lived in for two years to a friend.They received $150,000 and paid $120,000 two years ago.This transaction

A)Increases GDP by $150,000.
B)Increases GDP by $30,000.
C)Has no effect on GDP because the house was not made this year.
D)Has no effect on GDP because the house is an intermediate good.

Question 31

Which of the following transactions would be included in GDP?

A)The purchase of 100 shares of Microsoft stock
B)The purchase of a government bond
C)The purchase of a litre of gasoline to run a lawn mower
D)The purchase of a stolen television set

Question 32

An increase in investment spending that increases GDP occurs when

A)a family purchases a new car.
B)a business buys a new computer.
C)inventories of new cars are drawn down on the lots of car dealers.
D)the government builds a new office building.

Question 33

Calculating GDP by the expenditure approach requires summing the value of

A)all income paid to individuals.
B)all transactions in the economy.
C)all final goods and services produced in the economy.
D)all expenditures by individuals.

Question 34

The term "value added" refers to the dollar value of

A)an industry's sales plus profits.
B)the intermediate goods purchased by an industry.
C)an industry's sales less the dollar value of the intermediate goods purchased by the industry.
D)the intermediate goods purchased by an industry plus the profits of the industry.

Question 35

Which of the following is included in GDP?

A)the buying and selling of securities
B)government transfer payments
C)private transfer payments
D)none of the above

Question 36

Which of the following is included in GDP?

A)total exports
B)total imports minus total exports
C)total imports
D)total exports minus total imports

Question 37

When we use the term fixed investment,we include in investment

A)the purchase of stocks and bonds.
B)the purchase of consumer goods.
C)the purchase of private bonds,but not government bonds.
D)the purchase of equipment and other capital goods.

Question 38

Which one of the following is a durable consumer good?

A)furniture
B)gasoline
C)food
D)office supplies that will be used up this year

Question 39

The two principle methods of measuring GDP are

A)the flow approach and the stock approach.
B)the expenditures approach and the income approach.
C)the intermediate approach and the value-added approach.
D)the domestic approach and the international approach.

Question 40

GDP figures may understate the value of goods and services due to

A)the exclusion of the underground economy.
B)the inclusion of household production.
C)the inclusion of legal non-reported,non-taxed income.
D)the exclusion of the value of stocks.

Question 41

If consumption expenditures are $100 million,net investment is $50 million,imports are $20 million,exports are $10 million,government spending on goods and services is $40 million,social security spending is $15 million,and sales of existing homes equals $40 million,then what is the measure of GDP?

A)GDP = $225 million
B)GDP = $180 million
C)GDP = $295 million
D)GDP = $195 million

Question 42

Suppose the government changed the law so that the employer had to pay the entire amount of the social security tax.Furthermore,government interest payments increased and other changes in the law induced many sole proprietorships to incorporate.The net effect of these changes on gross domestic income would be

A)zero because none of the changes affect the measure of gross domestic income.
B)zero because the changes with positive effects exactly offset the changes with negative effects.
C)positive because of the change in interest payments.
D)positive because profits are part of gross domestic investment while proprietors' income is not;and the social security tax paid by employers is part of gross domestic income while the part paid by employees is not.

Question 43

Depreciation is

A)added to GDP to reach NDP.
B)the reduction in the value of capital goods due to physical wear and tear.
C)not included in GDP from the income side.
D)always higher than the capital consumption allowance.

Question 44

If C = consumption,G = government expenditures,and I = investment expenditures,the mathematical representation of GDP using the expenditure approach is

A)GDP = C + I + G + Transfers.
B)GDP = C + I + G + Imports.
C)GDP = C + Imports.
D)GDP = C + I + G + Net exports.

Question 45

If consumption expenditures are $500 million,spending on fixed investment is $100 million,the increase in inventories equals $5 million,imports are $50 million,exports are $55 million,government spending on goods and services is $200 million,than GDP is

A)$790 million.
B)$800 million.
C)$810 million.
D)$830 million.

Question 46

Because of terrible winter storms,gross domestic product for the first quarter of the calendar year falls by 10 percent.As a result,gross domestic income

A)falls by less than 10 percent.
B)also falls by 10 percent because they always have to be equal.
C)falls by more than 10 percent because incomes always vary more than GDP.
D)would not change since the time span is less than a year.

Question 47

A capital good is

A)one produced by the government.
B)part of investment spending when purchased by either private businesses or by the federal government.
C)one that is purchased in order to make other goods and services.
D)not part of GDP because it is an intermediate product.

Question 48

non-income expense items included in the GDP calculation include

A)depreciation and indirect business taxes.
B)depreciation and corporate profits.
C)corporate profits tax and indirect business taxes.
D)indirect business taxes and corporate profits.

Question 49

In calculating wages for gross domestic income

A)social security taxes paid by the employee are also included,but not the portion of the tax paid by the employer.
B)social security taxes paid by the employer are also included,but not the portion of the tax paid by the employee.
C)social security taxes paid by the employee are subtracted from the social security taxes paid by the employer and the net figure is included.
D)social security taxes paid by both the employer and the employee are included.

Question 50

An indirect business tax

A)is levied on the corporate profits.
B)is excluded from gross domestic income.
C)includes all business taxes except taxes on corporate profits.
D)lowers the market price of goods.

Question 51

GDP exceeds net domestic product by an amount equal to

A)indirect business taxes.
B)corporate profits plus personal taxes.
C)the capital consumption allowance (depreciation).
D)transfer payments minus personal taxes.

Question 52

If households pay $100 in interest payments and receive $120 in interest,wages equal $400,rental receipts on land are $100 and royalties are $100,profits are $150,depreciation is $50,and indirect business taxes are $50,then gross domestic income is

A)$1,070.
B)$870.
C)$820.
D)$770.

Question 53

If imports are $100 million less than exports,government spending is $500 million,consumer expenditures are $1 billion,and investment spending is $500 million,then GDP is

A)$1 billion.
B)$1.9 billion.
C)$2 billion.
D)$2.1 billion.

Question 54

Because of improved productivity,wages increase 10 percent.As a result,gross domestic income increases.What happens to gross domestic product?

A)Gross domestic product also increases since consumption expenditures would increase.
B)Gross domestic product decreases as people pay more taxes on their higher incomes.
C)Gross domestic product would not change since consumption expenditures would rise but investment spending would fall.
D)Gross domestic product would decrease because businesses are spending more on wages.

Question 55

Net domestic product (NDP)is

A)GDP minus depreciation.
B)GDP minus private investment.
C)GDP minus the foreign sector.
D)GDP minus government transfers.

Question 56

The value of GDP,when estimated by the income approach,is the sum of

A)consumption expenditures,investment spending,and profits.
B)consumption,wages,rents,interest,and profits.
C)income earned by all factors of production.
D)depreciation,indirect business taxes,and income earned by the factors of production.

Question 57

If all other factors are held constant,an increase in imports

A)causes an increase in exports of the same size.
B)causes GDP to increase.
C)causes GDP to decrease.
D)can cause GDP to increase or decrease,depending on whether the imports are purchased by consumers or by business firms.

Question 58

If consumption expenditures are $500,spending on fixed investment is $100,imports are $40,exports are $75,the capital consumption allowance is $25,government spending is $50,and inventories have fallen by $5,then GDP is

A)$25 greater than NDP.
B)$20 greater than NDP.
C)$50 greater than NDP.
D)the same as NDP.

Question 59

If households receive $100 in interest payments and pay out $110,wages equal $500,rental receipts are $200,royalties are $100,profits are $200,depreciation is $50,and indirect business taxes are $50,then gross domestic income is

A)$1,090.
B)$1,110.
C)$1,180.
D)$1,280.

Question 60

If GDP equals $1 billion,investment expenditures are $200 million,exports equal imports,and government spending is $400 million,then

A)consumption expenditures are $200 million.
B)consumption expenditures are $400 million.
C)spending on consumer durables must be $400 billion.
D)we cannot determine what expenditures on consumption are without more information.

Question 61

If nominal GDP in 1987 was $500 billion with a price index of 100,what would be the real GDP in 1995 if the 1995 nominal GDP was $900 billion and the 1995 price index was 140?

A)$900 billion
B)$540 billion
C)$800 billion
D)$643 billion

Question 62

Which of the following is a component of net domestic product,but NOT of national income?

A)capital consumption allowance
B)indirect business taxes
C)corporate taxes
D)personal taxes

Question 63

Personal income is equal to

A)NDP minus national income.
B)disposable personal income plus personal income taxes.
C)disposable personal income plus personal and corporate income taxes.
D)national income minus corporate income taxes and social security.

Question 64

If GDP and other national income accounts are expressed in nominal values,then they

A)are measured in real values.
B)are measured in market prices at which goods actually sold.
C)are measured in constant prices instead of actual market prices.
D)are readily comparable to GDP figures for other years.

Question 65

The difference between net domestic product and national income is that

A)net domestic product includes depreciation.
B)national income includes government and business transfer payments.
C)net domestic product includes indirect business taxes.
D)net domestic product doesn't include social security taxes or corporate retained earnings.

Question 66

Suppose net domestic product is $4.8 million,government and business transfer payments are $0.7 million,indirect business taxes are $0.4 million,and personal income taxes are $0.8 million.Then,national income equals

A)$2.9 million.
B)$3.6 million.
C)$4.4 million.
D)$5.1 million.

Question 67

To determine how well an economy is doing,it is better to use

A)nominal GDP figures.
B)real GDP figures.
C)GDP figures measured by the expenditure approach.
D)GDP figures measured by the income approach.

Question 68

National income is $500,corporate taxes are $20,social security contributions are $60,retained earnings are $10,personal taxes are $100,and transfer payments are $80.Disposable income is

A)$510.
B)$450.
C)$410.
D)$390.

Question 69

Suppose the total value of all assets in Canada is $10 billion.In 1993,the total value of all final services produced in Canada was $100 million,the total value of all final goods produced in Canada was $300 million,and the total value of all final goods and services produced by Canadian firms in other countries was $100 million.In this situation,gross domestic product for 1993 was

A)$600 million.
B)$500 million.
C)$400 million.
D)$10.4 billion.

Question 70

Suppose gross domestic product is $5 billion,government business transfer payments are $1 billion,indirect business taxes are $0.5 billion,and depreciation is $0.5 billion.Then national income equals

A)$5 billion.
B)$4 billion.
C)$3 billion.
D)$2.7 billion.

Question 71

Disposable personal income is found by taking

A)personal income taxes minus personal income.
B)personal income minus personal income taxes.
C)personal income taxes plus personal income.
D)personal income times personal income taxes.

Question 72

When economists discuss the nominal value of an economic variable,the variable is

A)expressed in current dollars.
B)expressed as an index figure.
C)adjusted for a changing price level.
D)expressed as a percentage.

Question 73

Adjusting nominal GDP for price changes from a base year yields

A)current GDP.
B)real GDP.
C)constant disposable income.
D)GDP net of relative price changes.

Question 74

The amount of income received by households prior to the payment of personal income taxes is called

A)disposable wages.
B)personal income.
C)national income.
D)net domestic product.

Question 75

If NDP is $50 less than GDP,we know that

A)inventories increased over the year.
B)inventories decreased over the year.
C)net investment equals $50.
D)depreciation equals $50.

Question 76

The difference between personal income and disposable personal income is

A)disposable personal income includes only the funds available to spend on non-necessities.
B)personal income taxes are not included in disposable personal income.
C)personal income includes personal income taxes and indirect business taxes,which are not included in disposable personal income.
D)personal income does not include transfer payments such as social security payments or welfare payments and disposable personal income includes them.

Question 77

If deflation is occurring and nominal GDP is increasing over time,then real GDP is

A)decreasing.
B)increasing at the same rate as nominal GDP.
C)increasing more slowly than nominal GDP.
D)increasing faster than nominal GDP.

Question 78

The difference between nominal and real values is that real values take into account

A)depreciation.
B)changes in the composition of output.
C)changes in prices between years.
D)the presence of durable goods.

Question 79

The total factor payments to all resource owners is

A)net domestic product.
B)personal income.
C)national income at factor cost.
D)gross domestic income.

Question 80

Constant dollar GDP

A)is the same as nominal GDP.
B)is nominal GDP adjusted for price changes from the base year.
C)is more than constant dollar NDP.
D)all of these.