Question 1

Bountiful Harvest Bakery buys $4.00 of flour from Grinkers' Mill and uses the flour to make bread sold to the public for $12.00. Taking these two transactions into account, what is the effect on GDP?

Accepted Answer

The purchase of flour from Grinkers' Mill adds $4.00 to GDP as it is a final good. The production and sale of bread also adds $12.00 to GDP as it is a final good. Therefore, the total effect on GDP is an increase of $16.00 ($4.00 + $12.00).

Question 2

One bag of flour is sold for $1.00 to a bakery, which uses the flour to bake bread that is sold for $3.00 to consumers. A second bag of flour is sold for $1 to a grocery store who sells it to a consumer for $2.00. Taking these four transactions into account, what is the effect on GDP?

Accepted Answer

The answer of One bag of flour is sold for...

Question 3

One bag of oranges is sold for $6.00 to a company that turns them into juice which is sold to consumers for $12.00. Another bag of oranges is purchased by a grocery store for $6.00 who then sells it to a consumer for $7. Taking these four transactions into account, how much is added to GDP?

Accepted Answer

Only the final transaction of selling the bag of oranges to the consumer for $7 adds to GDP as it represents a final good or service being exchanged for money. The intermediate transactions of purchasing the oranges and turning them into juice do not add to GDP as they are not final goods or services. Therefore, only $1 (the difference between the purchase price and selling price at the grocery store) is added to GDP.

Question 4

Suppose there are only two firms in an economy: Cowhide, Inc. produces leather and sells it to Couches, Inc., which produces and sells leather furniture. With each $1,000 of leather that it buys from Cowhide, Inc., Couches, Inc. produces a couch and sells it for $3,000. Neither firm had any inventory at the beginning of 2009. During that year, Cowhide produced enough leather for 20 couches. Couches, Inc. bought 80% of that leather for $16,000 and promised to buy the remaining 20% for $4,000 in 2010. Couches, Inc. produced 16 couches during 2009 and sold each one during that year for $3,000. What was the economy's GDP for 2009?

Accepted Answer

The answer of Suppose there are only two firms in...

Question 5

Whip-It manufactures blenders. In 2009 it had $50,000 of blenders in inventory. In 2010 it sold $300,000 of blenders to consumers and had $40,000 of blenders in inventory. How much did blenders produced by Whip-it add to GDP in 2010?

Accepted Answer

The answer of Whip-It manufactures blenders. In 2009 it had...

Question 6

A newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter. Based on this information GDP likely

Accepted Answer

The answer of A newspaper article informs you that most...

Question 7

A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute

Accepted Answer

The answer of A steel company sells some steel to...

Question 8

Gross domestic product includes all

Accepted Answer

Gross domestic product only includes legal final goods and services, but it excludes illegal final goods and services.

Question 9

Which of the following is not included in GDP?

Accepted Answer

The answer of Which of the following is not included...

Question 10

Al's Aluminum Company sells $1 million worth of aluminum to Shiny Foil Company, which uses the aluminum to make aluminum foil. Shiny Foil Company sells $4 million worth of aluminum foil to households. The transactions just described contribute how much to GDP?

Accepted Answer

The answer of Al's Aluminum Company sells $1 million worth...

Question 11

Janet bought flour and used it to bake bread she ate. ABC Bakery bought flour which it used to bake bread that customers purchased. In which case will the flour be counted as a final good?

Accepted Answer

The answer of Janet bought flour and used it to...

Question 12

Transactions involving items produced in the past, such as the sale of a 5-year-old automobile by a used car dealership or the purchase of an antique rocking chair by a person at a yard sale, are

Accepted Answer

GDP only measures the value of goods and services produced in the current year, so transactions involving items produced in the past are not included in current GDP.

Question 13

The Patersons bought a home that was newly constructed in 2007 for $275,000. They sold the home in 2009 for $205,000. Which of the following statements is correct regarding the sale of the house?

Accepted Answer

The sale of an existing home does not affect GDP, as GDP measures the value of new production within a given year. The house was counted in GDP when it was newly constructed in 2007.

Question 14

Which of the following transactions would be included in GDP for 2010?

Accepted Answer

GDP includes goods and services produced within a specific year. Amanda's purchase of a zoo ticket in 2010 counts as a service transaction for that year, even if the visit occurs later.

Question 15

George lived in a home that was newly constructed in 2005 for which he paid $200,000. In 2008 he sold the house for $225,000. Which of the following statements is correct regarding the sale of the house?

Accepted Answer

The sale of an existing home does not affect GDP because GDP measures the value of new production within a given year. The house was constructed in 2005, so its value was included in the GDP for that year. The resale in 2008 does not contribute to GDP as it is not a new production.

Question 16

Which of the following domestically produced items is not included in GDP?

Accepted Answer

All of the above items (a bottle of shampoo, a hairdryer, and a haircut) are included in GDP as they are all domestically produced goods or services.

Question 17

Suppose there are only two firms in an economy: Rolling Rawhide produces rawhide and sells it to Chewy Chomp, Inc., which uses the rawhide to produce and sell dog chews. With each $2 of rawhide that it buys from Rolling Rawhide, Chewy Chomp, Inc. produces a dog chew and sells it for $5. Neither firm had any inventory at the beginning of 2008. During that year, Rolling Rawhide produced enough rawhide for 1000 dog chews. Chewy Chomp, Inc. bought 75% of that rawhide for $1500 and promised to buy the remaining 25% for $500 in 2009. Chewy Chomp, Inc. produced 750 dog chews during 2008 and sold each one during that year for $5. What was the economy's GDP for 2008?

Accepted Answer

The GDP for 2008 includes the value of final goods and services produced. Chewy Chomp, Inc. sold 750 dog chews at $5 each, totaling $3750. Additionally, the unsold rawhide worth $500 is considered inventory investment, bringing the total GDP to $4250.

Question 18

A painter pays $500 for paint he uses to repaint a house. He then presents a bill for $1200 that covers his time and expenses to the homeowner. How much do these transactions add to GDP?

Accepted Answer

The transactions add $1200 to GDP because they represent the value of the final goods and services produced in the economy. The cost of the paint is not included as it only represents an intermediate good, not a final good or service.

Question 19

In 2009, Corny Company grows and sells $2 million worth of corn to Tasty Cereal Company, which makes corn flakes. Tasty Cereal Company produces $6 million worth of corn flakes in 2009, with sales to households during the year of $4.5 million. The unsold $1.5 million worth of corn flakes remains in Tasty Cereal Company's inventory at the end of 2009. The transactions just described contribute how much to GDP for 2009?

Accepted Answer

GDP is calculated based on the value of final goods and services produced. The $6 million worth of corn flakes produced by Tasty Cereal Company includes both the $4.5 million sold to households and the $1.5 million added to inventory, which counts as investment. The $2 million worth of corn sold to Tasty Cereal Company is an intermediate good and is not counted separately in GDP.

Question 20

Tim mows the yard for his neighbors. He spends $1 on gas and charges them $20 for each lawn he mows. What's the total contribution to GDP each time Tim mows a yard?

Accepted Answer

The contribution to GDP includes the total revenue generated from goods and services produced within a country's borders. In this case, Tim's service of mowing the lawn for his neighbors generates $20 in revenue, which contributes to the GDP. The cost of gas does not factor into the contribution to GDP as it is considered an intermediate good, meaning it is not a final good or service produced for consumption. Therefore, the total contribution to GDP each time Tim mows a yard is $20.

Quiz 10: Measuring a Nations Income