Deck 7: Part B: Measuring the Economys Output

Question 1

Welfare payments to families with dependent children are included in GDP.

Answer 1

False

Question 2

All expenditures on new construction are included as investment in calculating GDP.

Answer 2

True

Question 3

Interest on the public debt is included as a part of government purchases in determining GDP by the expenditures method.

Answer 3

False

Question 4

Exports are subtracted from imports in calculating Canadian GDP because exports are not available for domestic consumption.

Question 5

Gross domestic product (GDP) measures and reports output:

A)as an index number.
B)in percentage terms.
C)in dollar amounts.
D)in quantities of physical units (for example, kilos, litres, and bushels).

Question 6

A nation's gross domestic product (GDP):

A)is the dollar value of the total output produced within the borders of the nation.
B)is the dollar value of the total output produced by its citizens, regardless of where they are living.
C)can be found by summing C + I_n+ S + X_n.
D)is always some amount less than its C + I_g+ G + X_n.

Question 7

In an economy, the value of inventories fell by $50 billion from Year 1 to Year 2.In calculating total investment for Year 2, national income accountants would increase it by $50 billion.

Question 8

If real GDP is 50 and nominal GDP is 100, the GDP price index is 200.

Question 9

Gross private domestic investment exceeds depreciation in an economy experiencing expanding production capacity.

Question 10

A price index is 100 times the ratio of real GDP to nominal GDP.

Question 11

Suppose the total market value of all final goods and services produced in a particular country is $600 billion and the total market value of final goods and services sold is $525 billion in 2020.We can conclude that:

A)GDP is $525 billion in 2020.
B)NDI is $525 billion in 2020.
C)GDP is $600 billion in 2020.
D)inventories fell by $75 billion in 2020.

Question 12

The current GDP price index used by Statistics Canada is referred to as the chain-weighted index, because by using both the previous year prices and current prices it links each year to the prior year.

Question 13

The purchase of Wal-Mart stock is a part of gross, but not of net, private domestic investment.

Question 14

In an economy, the value of inventories rose from $275 billion in 2020 to $300 billion in 2021.In calculating the total investment for 2021, national income accountants would increase it by $25 billion.

Question 15

To calculate the real GDP, Statistics Canada has started to consider both the quantities and prices in the base year and the following year and then average the two.

Question 16

Durable goods are products with expected lives of less than three years.

Question 17

If nominal GDP is 150 and the GDP price index is 200, real GDP is 75.

Question 18

The GDP is the:

A)monetary value of all final goods and services produced within a nation in a particular year.
B)national income minus all non-income charges against output.
C)monetary value of all economic resources used in producing a year's output.
D)monetary value of all goods and services, final and intermediate, produced in a specific year.

Question 19

The before-tax income received by resource suppliers is measured by disposable income.

Question 20

Government purchases include expenditures for social capital such as schools and highways that have long lifetimes.

Question 21

GDP includes:

A)neither intermediate nor final goods.
B)both intermediate and final goods.
C)intermediate, but not final, goods.
D)final, but not intermediate, goods.

Question 22

National income accountants can avoid multiple counting by:

A)including transfers in their calculations.
B)counting both intermediate and final goods.
C)only counting final goods.
D)only counting intermediate goods.

Question 23

The value added by firms A-E from the production of the product described below is:

A)$3,000
B)$3,800
C)$6,500
D)$10,300

Question 24

An example of a final good in national income accounts would be new:

A)lawn mowers purchased by Cut-rite Mowers.
B)flowers purchased by homeowner Lenny Davis.
C)chemicals purchased by Green Grass Lawn Care.
D)trees purchased by Wendy Lee's Garden Center.

Question 25

An example of an intermediate good or service would be:

A)bricks bought by a homeowner for constructing a patio.
B)sacks of groceries bought by a dentist for his family.
C)a car bought by a household for commuting to work.
D)a desk bought by an accountant for her office.

Question 26

A business buys $7,000 worth of resources to produce a product.The business makes 150 units of the product and each of them sells for $90.The value added by the business to these products is:

A)$13,500
B)$6,500
C)$7,000
D)$6,850

Question 27

GDP is the total market value of:

A)all expenditures on natural resources, labor, and capital goods in an economy in a given year.
B)all expenditures on consumption, investment, and net exports in an economy in a given year.
C)all intermediate goods and services produced in an economy in a given year.
D)all final goods and services produced in an economy in a given year.

Question 28

By summing the values added at each stage in the production of some good we obtain:

A)the price of that good.
B)the total income generated by that good's production.
C)the total cost (including profits) of that product.
D)all of these.

Question 29

GDP may be defined as:

A)the monetary value of all goods and services (final, intermediate, and non-market) produced in a given year.
B)total resource income less taxes, saving, and spending on exports.
C)the economic value of all economic resources used in the production of a year's output.
D)the market value of all final goods and services produced within country in a specific year.

Question 30

Value added refers to:

A)any increase in GDP which has been adjusted for adverse environmental effects.
B)the excess of gross investment over net investment.
C)the difference between the value of a firm's output and the value of the inputs it has purchased from others.
D)the portion of any increase in GDP which is caused by inflation as opposed to an increase in real output.

Question 31

A business buys $5,000 worth of resources to produce a product.The business makes 100 units of the product and each of them sells for $65.The value added by the business to these products is:

A)$5,000
B)$6,500
C)$1,000
D)$1,500

Question 32

Which is included in GDP?

A)used autos purchased by consumers
B)transfer payments
C)telephone service for a home
D)bread for a restaurant

Question 33

Assume a manufacturer of stereo speakers purchases $40 worth of components for each speaker.The completed speaker sells for $70.The value added by the manufacturer for each speaker is:

A)$110
B)$30
C)$40
D)$70

Question 34

By summing the dollar value of all market transactions in the economy we would:

A)be determining the market value of all resources used in the production process.
B)obtain a sum substantially larger than the GDP.
C)be determining value added for the economy.
D)be measuring GDP.

Question 35

Subtracting the purchase of intermediate products from the value of the sales of final products determines the amount of:

A)net investment for a business.
B)profit and cost.
C)value added from the economic activity.
D)surplus or deficit from the economic activity.

Question 36

Setup Corporation buys $100,000 of sand, rock, and cement to produce ready-mix concrete.It sells 10,000 cubic yards of concrete at $30 a cubic yard.The value added by Setup Corporation is:

A)$200,000
B)$100,000
C)$300,000
D)zero dollars.

Question 37

If all the final goods and intermediate goods and services were included in GDP:

A)the GDP would then have to be deflated for changes in the price level.
B)nominal GDP would exceed real GDP.
C)the GDP would be overstated.
D)the GDP would be understated.

Question 38

Value added is the value of a firm's output minus:

A)the value of intermediate goods purchased from other firms.
B)the compensation it pays to employees.
C)the value of its capital goods.
D)its depreciation.

Question 39

Which of the following is a final good or service?

A)diesel fuel bought for a delivery truck
B)fertilizer purchased by a farm supplier
C)a haircut
D)Chevrolet windows purchased by a General Motors assembly plant

Question 40

The term "final goods and services" refers to:

A)goods and services which are unsold and therefore added to inventories.
B)goods and services whose value has been adjusted for changes in the price level.
C)goods and services purchased by ultimate users, as opposed to resale or further processing.
D)the excess of Canadians exports over Canadians imports.

Question 41

In calculating GDP, governmental transfer payments, such as welfare payments, are:

A)not counted.
B)counted as investment spending.
C)counted as government spending.
D)counted as consumption spending.

Question 42

Suppose ZZZ Corporation issues new common stock worth $25 million in 2020.It uses $18 million of the proceeds to replace obsolete equipment in its factory and $7 million to repay bank loans.As a result, there is an increase in gross investment by:

A)$7 million.
B)$25 million.
C)$18 million.
D)$11 million.

Question 43

GDP excludes expenditures by:

A)businesses on pollution control equipment.
B)business for travel and entertainment.
C)government on military hardware.
D)consumers on used automobiles.

Question 44

An increase in inventories during 2022:

A)will result in gross investment being higher than net investment by the amount of the inventory increase.
B)should be ignored while calculating GDP for 2022.
C)should be subtracted from GDP calculated for 2022.
D)should be included in GDP calculated for 2022.

Question 45

In calculating GDP, national income accountants:

A)treat inventory changes as an adjustment to personal consumption expenditures.
B)ignore inventories because they do not represent final goods.
C)subtract increases in inventories and add decreases in inventories.
D)add increases in inventories and subtract decreases in inventories.

Question 46

As defined in national income accounting, investment includes:

A)business expenditures on machinery and equipment.
B)all consumption.
C)imports, but not exports.
D)all nonfood items.

Question 47

If depreciation exceeds gross investment:

A)the economy's stock of capital may be either growing or shrinking.
B)the economy's stock of capital is shrinking.
C)the economy's stock of capital is growing.
D)net investment is zero.

Question 48

The largest component of total expenditures in Canada is:

A)net exports.
B)government purchases.
C)consumption.
D)gross investment.

Question 49

If depreciation (consumption of fixed capital) exceeds gross investment, it can be concluded that:

A)nominal GDP is rising but real GDP is declining.
B)net investment is negative.
C)the economy is importing more than it exports.
D)the economy is expanding.

Question 50

In calculating GDP by the expenditure approach, we sum up:

A)consumption, investment, government purchases, exports, and imports.
B)investment, government purchases, consumption, and net exports.
C)consumption, investment, wages, and rents.
D)consumption, investment, government purchases, and imports.

Question 51

Suppose Smith pays $100 to Jones.

A)We can say with certainty that the GDP has increased by $100.
B)We can say with certainty that the GDP has increased, but we cannot determine the amount.
C)We can say with certainty that the nominal GDP has increased, but we can't say whether real GDP has increased or decreased.
D)We need more information to determine whether GDP has changed.

Question 52

Transfer payments are:

A)excluded when calculating GDP because they only reflect inflation.
B)excluded when calculating GDP because they do not reflect current production.
C)included when calculating GDP because they are a category of investment spending.
D)included when calculating GDP because they increase the spending of recipients.

Question 53

Economists define investment to include:

A)any increase in business inventories.
B)the addition of cash to a savings account.
C)the purchase of common or preferred stock.
D)the purchase of any durable good, for example, an automobile or a refrigerator.

Question 54

Tom Atoe grows tomatoes for home consumption.This activity is:

A)excluded from GDP in order to avoid double counting.
B)excluded from GDP because an intermediate good is involved.
C)productive but is excluded from GDP because no market transaction occurs.
D)included in GDP because it reflects production.

Question 55

A distinguishing characteristic of public transfer payments is that:

A)they are used to subsidize the major transportation carriers to reduce transportation costs.
B)they are counted as part of government purchases in the calculation of the gross domestic product.
C)there is a tax on the amount of the subsidy above a certain income level.
D)the recipients make no contribution to current production in return for them.

Question 56

Which of the following is not an economic investment?

A)the purchase of a drill press by the Ajax Manufacturing Company
B)the purchase of 100 shares of Bell Canada by a retired business executive
C)construction of a suburban housing project
D)the piling up of inventories on a grocer's shelf

Question 57

In calculating GDP by the income approach, we should sum up:

A)wages, consumption, investment and rent.
B)wages, rent, interest and profit income.
C)wages, interest, investment, and exports.
D)wages, profit income, investment, and consumption.

Question 58

Which of the following do national income accountants consider to be "investment"?

A)the purchase of an automobile for private, non-business use
B)the purchase of a new house
C)the purchase of corporate bonds
D)the purchase of gold coins

Question 59

Net investment refers to:

A)the amount of machinery and equipment used up in producing GDP in a specific year.
B)the difference between the market value and book value of outstanding capital stock.
C)gross domestic investment less net exports.
D)gross investment less consumption of fixed capital.

Question 60

A nation's gross domestic product (GDP) by the expenditure approach:

A)can be found by summing C + I_g+ G + X_n.
B)is the dollar value of the total output produced by its citizens, regardless of where they are living.
C)can be found by summing C + S + G + X_n.
D)is always some amount less than its NDI.

Question 61

Which would be considered an investment according to economists?

A)the purchase of newly-issued shares of stock in Microsoft
B)the construction of a new computer chip factory by Intel
C)the purchase of shares of stock by Fidelity, a mutual fund company
D)the sale of government bonds by the nation's central bank

Question 62

Refer to the above information.Negative net investment is occurring in:

A)economy A only.
B)economy B only.
C)economy C only.
D)economies A and B only.

Question 63

In Year 1, inventories rose by $25 billion.In Year 2, inventories fell by $20 billion.In calculating total investment, national income accountants would have:

A)decreased it by $25 billion in Year 1 and increased it by $20 billion in Year 2.
B)decreased it by $25 billion in Year 1 and increased it by $5 billion in Year 2.
C)increased it by $25 billion in Year 1 and decreased it by $5 billion in Year 2.
D)increased it by $25 billion in Year 1 and decreased it by $20 billion in Year 2.

Question 64

Net exports are a negative number when:

A)a nation's imports of goods and services fall.
B)a nation's imports of goods and services rise.
C)a nation's exports of goods and services are greater than its imports.
D)a nation's imports of goods and services are greater than its exports.

Question 65

Which would be considered an investment according to economists?

A)the buying of shares of Janus mutual funds
B)the purchase of a new machinery by Ford
C)the purchase of stock of MacDonald's
D)the selling of IBM corporate bonds

Question 66

In an economy, the value of inventories fell from $75 billion in 2012 to $63 billion in 2013.In calculating the total investment for 2013, national income accountants would:

A)decrease it by $75 billion.
B)increase it by $63 billion.
C)decrease it by $12 billion.
D)increase it by $138 billion.

Question 67

If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the country's capital stock:

A)may have either increased or decreased.
B)increased by $65 billion.
C)increased by $55 billion.
D)decreased by $55 billion.

Question 68

When an economy's production capacity is expanding:

A)nominal GDP, but not necessarily real GDP, is rising.
B)net exports is always a positive amount.
C)disposable income exceeds personal income.
D)gross investment exceeds depreciation.

Question 69

An economy is enlarging its stock of capital goods:

A)when net investment exceeds gross investment.
B)when gross investment exceeds replacement investment.
C)whenever gross investment is positive.
D)when replacement investment exceeds gross investment.

Question 70

Gross investment refers to:

A)private investment minus public investment.
B)net investment plus replacement investment.
C)net investment after it has been "inflated" for changes in the price level.
D)net investment plus net exports.

Question 71

In national income accounting, G stands for:

A)government purchases.
B)gross investment.
C)government transfer payments.
D)gross saving.

Question 72

Money spent on the purchase of a new house is included in the GDP as a part of:

A)the consumption of private fixed capital.
B)personal consumption expenditures.
C)personal saving.
D)investment.

Question 73

A nation's capital stock was valued at $300 billion at the start of the year and $350 billion at the end.Consumption of private fixed capital in the year was $25 billion.Assuming stable prices, gross investment was:

A)$25 billion.
B)$50 billion.
C)$75 billion.
D)$90 billion.

Question 74

In 1933 net investment was minus $208 million.This meant that:

A)gross investment exceeded depreciation by $208 million.
B)the economy was expanding in that year.
C)the production of 1933's GDP used up more capital goods than were produced in that year.
D)the economy produced no capital goods at all in 1933.

Question 75

A nation's stock of capital goods will decline when:

A)gross investment exceeds net investment.
B)net investment is positive, but less than gross investment.
C)depreciation exceeds gross investment.
D)gross investment exceeds depreciation.

Question 76

Refer to the information below.Net investment: All figures are in billions.

A)cannot be determined from the data given.
B)is $45.
C)is $53.
D)is $72.

Question 77

In an economy, the value of inventories rose from $100 billion in 2016 to $150 billion in 2017.In calculating the total investment for 2017, national income accountants would:

A)decrease it by $50 billion.
B)increase it by $50 billion.
C)decrease it by $100 billion.
D)increase it by $150 billion.

Question 78

In an economy experiencing a declining production capacity:

A)the nation's stock of capital goods is expanding.
B)net exports are necessarily zero.
C)Net Investment exceeds GDP.
D)depreciation exceeds gross investment.

Question 79

From an economist's perspective, which is not considered to be an investment?

A)construction of a new factory
B)purchase of shares of company stock
C)the building of an apartment complex
D)additions to inventories at steel plants

Question 80

In November 2017, General Motors produced an automobile that was delivered to a local dealership in December 2017.The auto was sold to Sharon Smith for personal use in February 2018.Following national income accounting practices, this auto would be counted as:

A)consumption in 2017 and 2018.
B)consumption in 2017 and investment in 2018.
C)disinvestment in 2017 and consumption in 2018.
D)investment in 2017 and disinvestment in 2018.