Question 1

Disinvestment occurs when

Accepted Answer

Disinvestment occurs when the consumption of private fixed capital exceeds gross private domestic investment. This means that businesses are not investing enough in capital goods to replace the existing stock, resulting in a decline in productive capacity over time. Disinvestment can lead to lower economic growth and decreased competitiveness in the long run.

Question 2

Computation of GDP by the expenditures method would include the purchase of

Accepted Answer

The expenditures method of GDP includes government spending on goods and services, such as land purchases, but not intermediate goods like fertilizer or cement, nor financial transactions like bonds.

Question 3

A nation's capital stock was valued at $500 billion at the start of the year and $575 billion at the end. Consumption of ﬁxed capital in the year was $35 billion. Assuming stable prices, net
Investment was

Accepted Answer

The answer of A nation's capital stock was valued at...

Question 4

The following are national income account data for a hypothetical economy in billions of dollars: gross private domestic investment ($320), imports ($35), exports ($22), personal consumption
Expenditures ($2,460), and government purchases ($470). What is GDP in this economy?

Accepted Answer

GDP is calculated as the sum of personal consumption expenditures, gross private domestic investment, government purchases, and net exports (exports minus imports). Thus, GDP = $2,460 + $320 + $470 + ($22 - $35) = $3,237 billion.

Question 5

When local police and ﬁre departments buy new cars for their operations, these are counted as part of

Accepted Answer

When local police and fire departments buy new cars, they are considered part of government spending (G).

Question 6

Government purchases in national income accounts would include payments for

Accepted Answer

Government purchases refer to the expenditures made by the government that are not related to transfer payments, like Social Security, welfare, or unemployment benefits. Salaries for current U.S. military officers are considered government purchases, as they are payments made for goods and services produced by the government.

Question 7

$$\begin{array} { | l | c | } 
\hline \text { Personal Consumption Expenditures } & \$ 4,500 \
\hline \text { Consumption of Fixed Capital } & 150 \
\hline \text { Gross Private Domestic Investment } & 800 \
\hline \text { Government Purchases } & 950 \
\hline \text { Exports } & 65 \
\hline \text { Imports } & 85 \
\hline
\end{array}$$ Refer to the accompanying data about a hypothetical economy (in billions of dollars). GDP in this economy is

Accepted Answer

GDP is calculated as the sum of Personal Consumption Expenditures, Gross Private Domestic Investment, Government Purchases, and Net Exports (Exports - Imports), without including Consumption of Fixed Capital as it's a non-market transaction. Therefore, GDP = $4,500 (Personal Consumption Expenditures) + $800 (Gross Private Domestic Investment) + $950 (Government Purchases) + ($65 - $85) (Net Exports) = $4,500 + $800 + $950 - $20 = $6,230 billion.

Question 8

When gross private domestic investment exceeds depreciation, it can be concluded that

Accepted Answer

Gross private domestic investment refers to all investments made within a country by private individuals and firms. Depreciation, on the other hand, refers to the decrease in value of assets over time due to wear and tear. When gross private domestic investment exceeds depreciation, it means that the economy is adding more capital stock than it is losing through depreciation. This is known as net investment, which is positive in this case. Therefore, the correct answer is A.

Question 9

Net exports is a positive number when

Accepted Answer

Net exports refers to the value of a nation's exports minus the value of its imports. If a nation's exports exceed its imports, then net exports will be a positive number. Therefore, option C is the correct answer. Option A is incorrect because simply increasing exports does not necessarily mean that net exports are positive. Option B is incorrect because just exporting goods and services does not give any indication of whether net exports are positive or not. Option D is incorrect because if exports fall short of imports, net exports will be negative.

Question 10

$$\begin{array} { | l | r | } 
\hline \text { Personal Consumption Expenditures } & \$ 4,500 \
\hline \text { Consumption of Fixed Capital } & 150 \
\hline \text { Gross Private Domestic Investment } & 800 \
\hline \text { Government Purchases } & 950 \
\hline \text { Exports } & 65 \
\hline \text { Imports } & 85 \
\hline
\end{array}$$ Refer to the accompanying data about a hypothetical economy (in billions of dollars). How much are net exports of this economy?

Accepted Answer

To calculate net exports, we subtract imports from exports. So, net exports = exports - imports. From the given data, exports are $200 billion and imports are $220 billion. Therefore, net exports = $200 billion - $220 billion = -$20 billion. The negative sign indicates that this economy has a trade deficit.

Question 11

In an economy that is experiencing a shrinking production capacity,

Accepted Answer

When the production capacity of an economy is shrinking, it means that the amount of capital goods (such as machinery and equipment) available for producing goods and services is decreasing over time. This implies that the amount of capital goods being used up (depreciated) is greater than the amount of new investment being made in these goods. Therefore, depreciation exceeds gross investment in this situation. Choices A and B are not true because gross domestic investment and net private domestic investment can still be positive despite a shrinking production capacity. Choice C is not true because depreciation is still occurring, just at a higher rate than new investment.

Question 12

If inﬂows to the capital stock are greater than outﬂows, then

Accepted Answer

When inflows to the capital stock are greater than outflows, it means that the capital stock is increasing. This increase is referred to as net investment, and it is positive in this case because more capital is being added to the existing stock.

Question 13

The consumption of ﬁxed capital in each year's production is called

Accepted Answer

The consumption of fixed capital is referred to as depreciation, which is the reduction in the value of a fixed asset over time due to wear and tear, obsolescence or any other causal factor. Therefore, the correct answer is C. Indirect business taxes refer to taxes on the production, sale or use of goods and services. Inventory reduction refers to a decrease in the amount of goods held in inventory by a company. Net investment refers to the total amount of investment made in an economy, which includes both new investment and replacement investment.

Question 14

The following are national income account data for a hypothetical economy in billions of dollars: government purchases ($1,050), personal consumption expenditures ($4,800), imports ($370),
Exports ($240), and gross private domestic investment ($1,130). What is GDP for this economy?

Accepted Answer

The answer of The following are national income account data...

Question 15

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

Accepted Answer

Gross investment can be calculated as the change in capital stock plus consumption of fixed capital. In this case, the change in capital stock is $350 billion - $300 billion = $50 billion. Adding this to the consumption of fixed capital of $25 billion gives a gross investment of $75 billion.

Question 16

The expenditures or output approach to GDP measures it by summing up

Accepted Answer

The expenditures or output approach to GDP measures it by summing up the total spending for consumption, investment, net exports, and government purchases. This approach takes into account all final goods and services produced within a country's borders, regardless of whether they are sold domestically or abroad. It is the most commonly used approach for calculating GDP.

Question 17

In an economy that has stationary production capacity,

Accepted Answer

In an economy that has stationary production capacity, there is no increase or decrease in the capital stock. Therefore, net investment (investment minus depreciation) is zero. However, gross investment may not be zero as firms may invest in equipment or machinery to replace old ones. Nonetheless, the net effect on the capital stock is zero. GDP can still be positive as it reflects the value of production that has already taken place.

Question 18

A distinguishing characteristic of public transfer payments is that

Accepted Answer

Public transfer payments involve no contribution to current production in return. They are simply payments made by the government to individuals or groups without any expectation of goods or services being provided in return.

Question 19

GDP in an economy is $11,050 billion. Consumer expenditures are $7,735 billion, government purchases are $1,989 billion, and gross investment is $1,410 billion. Net exports must be

Accepted Answer

GDP is calculated as the sum of consumer expenditures, government purchases, gross investment, and net exports. Given the data: GDP = Consumer Expenditures + Government Purchases + Gross Investment + Net Exports. Plugging in the numbers: $11,050 billion = $7,735 billion + $1,989 billion + $1,410 billion + Net Exports. Solving for Net Exports gives: Net Exports = $11,050 billion - ($7,735 billion + $1,989 billion + $1,410 billion) = -$84 billion.

Question 20

In the expenditures approach of national income accounting, C, Ig, and G include expenditures for

Accepted Answer

In the expenditures approach of national income accounting, C (consumption), Ig (gross private domestic investment), and G (government spending) include both domestically produced as well as imported goods and services.

Quiz 7: Measuring Domestic Output and National Income