Question 1

The national income accounting system is used by
A) only the United States
B) only industrialized nations
C) only developing countries
D) all countries
E) members of the World Trade Organization

Accepted Answer

The national income accounting system is used by all countries to measure and track their economic activity and performance. It is a fundamental tool for economic analysis and policy-making, and is therefore important for all countries, regardless of their level of development or membership in international organizations like the WTO.

Question 2

-According to Table 10.1, the contribution to GDP from the production of one loaf of bread is
A) $1.95.
B) $1.20.
C) $0.75.
D) $0.65.
E) $0.10.

Accepted Answer

The contribution to GDP from the production of one loaf of bread is calculated by taking the final sale price and subtracting the cost of intermediate goods. If the final sale price is $1.95 and the cost of intermediate goods (flour, etc.) is $1.20, then the contribution to GDP is $1.95 - $1.20 = $0.75.

Question 3

If GDP included intermediate goods and services, then
A) GDP would be understated.
B) we would obtain a more realistic GDP value.
C) we would be undercounting.
D) we would be double counting.
E) final goods and services would have to be subtracted to obtain the true GDP value.

Accepted Answer

Including intermediate goods and services in GDP would lead to double counting because these goods are already included in the value of final goods and services.

Question 4

Gross domestic product constitutes the
A) total quantitative output in an economy.
B) current market value of all goods and services produced in a given year.
C) total spending in an economy.
D) total monetary transactions in an economy.
E) current market value of all final goods and services produced in a given year within a country's borders.

Accepted Answer

Gross domestic product (GDP) is the current market value of all final goods and services produced within a country's borders in a given year. It specifically refers to the output produced within a country's borders, which is why answer choices A, C, and D are incorrect. GDP measures the value of goods and services that are sold in markets, which is why intermediate goods and services are excluded, leaving only final goods and services, making E the correct option.

Question 5

National income accounting can best be characterized as a
A) set of rules to summarize economic activity over a given period of time.
B) system for comparing different political systems.
C) microeconomic model used by the Federal Reserve.
D) statistical measure of the income received by consumers as opposed to businesses.
E) standardized economic report written by politicians.

Accepted Answer

National income accounting is a set of rules and methods for measuring economic activity over a given period of time, typically a year. It includes measures such as Gross Domestic Product (GDP), which summarizes the total dollar value of all goods and services produced within a country's borders in a given year, and other indicators of economic activity such as national income and personal income. It is used by economists, policymakers, and businesses to analyze and understand the overall health of an economy, as well as to make decisions about economic policy and investments.

Question 6

The concept of value added refers to the
A) increase in the value of a product that occurs at each stage of production.
B) amount subtracted from the value of the goods because of inflation.
C) total value of all intermediate goods used in the production of the final good.
D) amount paid in the final sale of a product or service.
E) amount subtracted from the value of resources because of depreciation.

Accepted Answer

Value added refers to the increase in the value of a product that occurs at each stage of production. It reflects the value contributed by labor, capital, and resources at each stage of the production process. For example, if a farmer produces wheat that is sold for $1 per pound, and a baker takes that wheat and turns it into bread that is sold for $2 per pound, the value added by the baker is $1 per pound.

Question 7

Gross domestic product (GDP)
A) is gross national product (GNP) less income earned by foreigners working domestically.
B) is different from GNP because GDP includes domestically owned resources in foreign countries.
C) is different from GNP because GDP measures only output produced domestically.
D) counts all income received by foreign citizens.
E) is gross national product (GNP) plus domestic income from abroad.

Accepted Answer

GDP measures only the output produced within a country's borders, regardless of the nationality of those producing it. GNP, on the other hand, includes income earned by domestic citizens overseas and excludes income earned by foreigners domestically. Option A, D, and E are incorrect in their definitions of GDP and GNP, and option B is incorrect as it is describing the opposite of GDP, which would be a measure of output produced by domestic firms located in foreign countries.

Question 8

The stock of unsold goods held by a firm is called
A) capital stock.
B) inventory.
C) reservoir.
D) backup.
E) depreciation.

Accepted Answer

Inventory refers to the stock of unsold goods held by a firm. Capital stock refers to the total value of a company's assets. Reservoir refers to a large natural or artificial lake used as a source of water supply. Backup refers to a reserve or substitute. Depreciation refers to the decrease in value of an asset over time.

Question 9

National income accounting does not
A) provide a framework for discussing macroeconomics.
B) measure the output of an entire economy as well as the flows between sectors
C) summarize the level of production in an economy over a specific period of time.
D) estimate the amount of activity that occurs.
E) None of these - national income accounting does all of these.

Accepted Answer

The statement "None of these" implies that national income accounting does all of these, which is correct. Therefore, there is no single best choice.

Question 10

A cotton farmer sells cotton to a textile mill for $3; the textile mill sells cloth to a shirt manufacturer, adding $2 to the value of the final shirt; the manufacturer sells the shirt to the retail store, adding $10 to the value of the final shirt; the retail store sells to a customer , adding $12 to the value of the final shirt. What is the retail price of the shirt, the price the customer pays?
A) $12
B) $22
C) $24
D) $27
E) $30

Accepted Answer

The total added value to the shirt is $2 + $10 + $12 = $24.
Therefore, the retail price of the shirt is $3 (cotton farmer price) + $24 (added value) = $27. Thus, the customer pays $27 for the shirt, which is option D.

Question 11

Changes in inventory are applied by economists to measure
A) changes in business capital.
B) the total value of goods produced and sold in a year.
C) the total value of sold products.
D) changes in planned investment.
E) the total value of goods produced but not sold in a year.

Accepted Answer

Changes in inventory measure the total value of goods produced but not sold in a year.

Question 12

-According to Table 10.1, the value added by the grocer is
A) $.10.
B) $.15.
C) $.30.
D) $.65.
E) $.75.

Accepted Answer

The answer of 
-According to Table 10.1, the value added...

Question 13

Changes in inventory
A) are always planned.
B) are always unplanned.
C) count in GDP.
D) depend on government regulations.
E) count as output that is produced and sold in a given year.

Accepted Answer

Changes in inventory count in GDP because they are considered part of the investment component, reflecting goods produced but not sold within the same year.

Question 14

Productive activity in the underground economy
A) results in an overstatement of actual income and production in the national accounting system.
B) consists of unrecorded cash transactions.
C) is fully estimated and included in the national income accounting system.
D) poses no problems for the measurement of gross domestic product.
E) does not affect GDP, but it is included in the value-added computations.

Accepted Answer

The underground economy consists of unrecorded cash transactions that are not captured in the official national accounting system, thus affecting the accuracy of gross domestic product (GDP) measurements.

Question 15

National income accounting is
A) used by business firms to determine the level of profit during a given year.
B) used by accountants to figure household tax obligations.
C) a system of accounts designed to measure macroeconomic activity.
D) a system of measures that indicates when an economy is experiencing inflation.
E) a system of microeconomic measures that indicates equilibrium conditions for individual markets.

Accepted Answer

National income accounting is a system of accounts that is designed to measure macroeconomic activity, such as the overall level of production, income, and expenditure in an economy. It is used to track economic growth, inflation, and other macroeconomic indicators. It is not used by individual businesses to determine profits or by accountants to calculate household taxes. It is also not a system of microeconomic measures that indicate equilibrium conditions for individual markets.

Question 16

-The total value added in Table 10.1 is the same as the
A) value of the wheat before the miller turned it into flour.
B) retail value of the loaf of bread minus the wholesale value of the bread.
C) sum of all sales transactions.
D) final retail price of the loaf of bread.
E) wholesale value of the loaf of bread plus the final market value of the bread.

Accepted Answer

The total value added refers to the final retail price of the loaf of bread, as it encompasses all the value added at each stage of production, from the initial raw materials to the final product sold to consumers.

Question 17

Which of the following economic activities is not be counted as part of GDP?
A) A student working part-time
B) A housewife selling cherry pies in the corner store
C) A gang member selling illegal drugs
D) The government buying computers for public schools
E) None - all of these are counted in GDP.

Accepted Answer

Illegal activities such as drug sales are not included in GDP as they are not considered legal economic activities.

Question 18

GDP can be calculated as
A) output.
B) expenditures.
C) income.
D) output and income only.
E) output, expenditures, and income.

Accepted Answer

GDP can be calculated using three methods: output approach (the value of goods and services produced), expenditure approach (the sum of all expenditures on goods and services), and income approach (the sum of all income earned in the economy). Therefore, the best choice is E, which includes all three methods.

Question 19

What is the importance of not including intermediate goods when calculating GDP?
A) Avoiding single product counting
B) Restricting GDP to important goods
C) Maintaining a constant consumer price index definition
D) Avoiding double counting
E) Restricting GDP to goods that can be priced

Accepted Answer

Including intermediate goods in GDP calculation would result in double counting, as they would already be included in the final goods and services produced. To avoid this, intermediate goods are excluded, and only final goods and services that are sold to final consumers are counted.

Question 20

Which of the following will count in this year's GDP?
A) The value of a house built last year
B) The real estate broker's fee on the sale of the house this year
C) The value of a new Toshiba built-in home theatre system installed to help sell the house
D) All of these would be counted in this year's GDP.
E) All of these would not be counted in this year's GDP.

Accepted Answer

Only the real estate broker's fee on the sale of the house this year would be counted in this year's GDP since it is a current transaction. The value of a house built last year and the value of a new Toshiba built-in home theatre system installed to help sell the house are considered investment goods and would only be counted in GDP in the year they were produced.

Quiz 10: Macroeconomic Measures

The national income accounting system is used by

-According to Table 10.1, the contribution to GDP from the production of one loaf of bread is

If GDP included intermediate goods and services, then

Gross domestic product constitutes the

National income accounting can best be characterized as a

The concept of value added refers to the

Gross domestic product (GDP)

The stock of unsold goods held by a firm is called

National income accounting does not

Changes in inventory are applied by economists to measure

-According to Table 10.1, the value added by the grocer is

Changes in inventory

Productive activity in the underground economy

National income accounting is

-The total value added in Table 10.1 is the same as the

Which of the following economic activities is not be counted as part of GDP?

GDP can be calculated as

What is the importance of not including intermediate goods when calculating GDP?

Which of the following will count in this year's GDP?