Question 1

If a farmer grows a head of cabbage with fertilizer costs of $0.10 and seed costs of $0.15 and sells it to a wholesaler for $0.55,the total value added by the farmer is

Accepted Answer

The value added by the farmer is calculated by subtracting the costs of inputs (fertilizer and seed) from the selling price. So, $0.55 - ($0.10 + $0.15) = $0.30.

Question 2

The sum of value added

Accepted Answer

The sum of value added is one way to compute the GDP. It is a measure of the value produced by each firm in the economy, calculated by subtracting the value of intermediate inputs from the value of outputs.

Question 3

Which of the following is directly included in the calculation of GDP?

Accepted Answer

Only the final sale of a brand new Cadillac is directly included in the calculation of GDP. This is because GDP measures the value of final goods and services produced within a country's borders in a given time period. The other options (B, C, and D) do not represent final goods or services, or they do not represent the production of goods or services within the country's borders.

Question 4

Real GDP is used most effectively to

Accepted Answer

Real GDP is most commonly used to analyze the growth rate of the economy over time. This is because it measures the monetary value of all final goods and services produced within a country's borders in a given time period, adjusted for inflation. By comparing real GDP over multiple periods, economists can assess the rate of economic growth or contraction. While real GDP can provide insights into a country's standard of living and household income, it is not the most effective measure for these purposes. Additionally, it is not appropriate to use real GDP to measure how much output can be consumed sustainably, as GDP does not take into account the depletion of natural resources or environmental degradation. Finally, while real GDP can be used for international comparisons of economic growth rates, it is not a comprehensive measure of a country's overall standard of living.

Question 5

Suppose the total market value of all the final goods and services produced in the country of Cannedada was $4 billion in 2008 (measured in 2008 prices)and $5 billion in 2009 (measured in 2009 prices).Which of the following statements is definitely correct?

Accepted Answer

The information provided only gives nominal GDP values for two years without adjusting for inflation or changes in price levels, making it impossible to definitively conclude changes in real GDP or production levels.

Question 6

Real GDP is the

Accepted Answer

Real GDP is the value of final output produced in a given period, adjusted for changing prices. This is different from nominal GDP, which measures the value of final output produced in a given period measured in current prices. Real GDP is adjusted for inflation to give a more accurate picture of the actual growth or decline of the economy over time.

Question 7

Which of the following would not be included in the calculation of GDP?

Accepted Answer

Tips earned by a bartender who does not report them to the IRS are considered part of the underground economy and are not measured in the official GDP calculation. The other options involve legitimate income earned by individuals in various professions, which would be included in GDP.

Question 8

Which of the following is not a final good or service?

Accepted Answer

Paper purchased by a textbook company is an intermediate good since it will be used in the production of the final good, which is the textbook. The other choices are final goods or services as they are directly consumed by the end user.

Question 9

Value added is the

Accepted Answer

Value added refers to the increase in market value of a product that takes place at each stage of the production process. It is the difference between the value of inputs and the value of outputs at each stage of production. This is the most accurate definition of value added. A, C, and D descriptions do not accurately capture the concept of value added.

Question 10

A computer manufacturer sells laptops to retail stores for $450 each.If the manufacturer pays $200 for all of the components in each laptop and $75 in wages to it's workers,the value added to each computer by manufacturing is

Accepted Answer

The value added by manufacturing is calculated by subtracting the cost of components and wages from the selling price, which is $450 - ($200 + $75) = $175. However, the correct calculation should result in $450 - $200 = $250, as the wages are part of the value added by the manufacturing process.

Question 11

Real GDP is more accurate than nominal GDP in making comparisons of output over time because

Accepted Answer

Nominal GDP is calculated using current prices, which can change over time due to inflation or deflation. Real GDP adjusts for changes in prices by using a base year's prices to calculate output, making it a more accurate measure of output changes over time.

Question 12

If one added up the value of all intermediate goods that went into the production of real GDP,the total value of intermediate goods would be

Accepted Answer

Intermediate goods are the raw materials, components, and supplies used in the production of final goods. If one were to add up the value of all intermediate goods used in the production of real GDP, the total would be greater than the GDP itself. This is because GDP is calculated based on the market value of final goods and services produced within a country in a given period, and does not include the value of intermediate goods to avoid double counting.

Question 13

When an individual makes repairs to her own home instead of hiring a company to make the repairs,the activity is

Accepted Answer

The individual's repairs to her own home are a nonmarket activity because they are not part of any business transaction. While the repairs may be productive, they are excluded from GDP because they are not part of any market transaction.

Question 14

A convenience store pays a farmer $1.25 per pineapple.If it costs the farmer $0.15 in seeds,$0.25 in fertilizer,and $0.25 in forgone output to grow each pineapple,the value added by the farmer to each pineapple is

Accepted Answer

The value added by the farmer to each pineapple is the difference between the selling price and the cost of production. 
Cost of production per pineapple = $0.15 (seeds) + $0.25 (fertilizer) + $0.25 (forgone output) = $0.65
Value added per pineapple = selling price - cost of production = $1.25 - $0.65 = $0.60
Therefore, choice C is correct.

Question 15

Which of the following items can you definitively say is part of the underground economy?

Accepted Answer

Unreported income is a definitive part of the underground economy, as it involves earning income that is not reported to the government or tax authorities. Payments to family members for performing household tasks may or may not be part of the underground economy, depending on whether they are being paid legally or not. Income from legal pursuits and child care services provided by a legitimate company are not part of the underground economy.

Question 16

The value of final output produced in a given period,measured in current prices,is

Accepted Answer

Nominal GDP measures the value of final output produced in a given period, measured in current prices. Real GDP adjusts for inflation, while NDP subtracts depreciation from GDP and GNP includes income earned by domestic residents both domestically and abroad.

Question 17

Suppose the total market value of all the final goods and services produced in the country of Rushya was $8 billion in 2008 (measured in 2008 prices)and $9 billion in 2009 (measured in 2009 prices).Which of the following statements is definitely correct?

Accepted Answer

The information provided only gives nominal GDP values for two different years without specifying the price levels or the base year for price adjustments. Therefore, without knowing if the increase in GDP is due to higher production or simply higher prices, we cannot determine if real GDP, which is adjusted for inflation, has increased.

Question 18

To avoid counting the same output more than once,the calculation of GDP includes

Accepted Answer

GDP is calculated by summing up the value of only the final goods to avoid double counting, as intermediate goods are already accounted for in the value of these final goods.

Question 19

All of the following count as unreported income except

Accepted Answer

The money paid to a private tutor who works for Tutors Inc. would likely be reported by Tutors Inc. as part of its business income, making it reported income. The other options (A, B, C) are typically not reported to tax authorities, thus counting as unreported income.

Question 20

A furniture factory produces dining room sets.The lumber it purchases from the lumberyard is a/an

Accepted Answer

Since the lumber is used as a raw material to produce the dining room sets, it is considered an intermediate good.

Quiz 5: National Income Accounting