Question 1

An example of income earned but not received is corporate dividends.

Accepted Answer

Corporate dividends are considered income received when they are distributed to shareholders, not earned but not received. Income earned but not received typically refers to accrued income like wages earned but not yet paid.

Question 2

The GDP of country A may be higher than that of country B because the workers in country A work more hours per week than workers in country B.

Accepted Answer

GDP is calculated by multiplying the average productivity per worker by the number of hours worked. Therefore, if the workers in country A work more hours per week than workers in country B, then their GDP would be higher.

Question 3

Disposable income equals national income minus personal taxes.

Accepted Answer

Disposable income is actually the total personal income minus personal current taxes, not the national income minus personal taxes. National income is a broader concept that includes income from production, while disposable income specifically refers to individuals' income after taxes.

Question 4

Of the two types of investment (fixed and inventory),fixed investment is the larger of the two.

Accepted Answer

Fixed investments typically refer to long-term investments in assets such as machinery, buildings, and land, while inventory investments refer to short-term investments in goods that are held for resale. Fixed investments are typically larger in scale and require more capital investment than inventory investments. Therefore, the statement is true.

Question 5

Net interest is the interest paid out by US households and government minus the interest income they received.

Accepted Answer

Net interest is the difference between interest income earned and interest paid out, so the statement is incorrect as it subtracts interest income from interest paid out.

Question 6

Countries with a large GDP must also have a large per-capita GDP.

Accepted Answer

A country can have a large GDP due to its overall size and economic output but still have a low per-capita GDP if it has a large population.

Question 7

GDP is computed using base-year dollars.

Accepted Answer

GDP is computed using constant dollars, which adjust for inflation, not base-year dollars.

Question 8

Compensation of employees is the largest component of GDP when using the expenditure approach to calculate GDP.

Accepted Answer

Compensation of employees is the largest component of GDP when using the income approach to calculate GDP, not the expenditure approach. The expenditure approach calculates GDP based on total spending on goods and services in the economy.

Question 9

Net exports must always be a positive amount.

Accepted Answer

Net exports can be positive, negative, or zero, depending on whether a country is exporting more goods and services than it imports (positive), importing more than it exports (negative), or exporting and importing equal amounts (zero).

Question 10

Sales tax is an example of an indirect business tax.

Accepted Answer

Sales tax is a tax collected by businesses from customers when they purchase goods or services. The tax is then remitted to the government, making it an indirect business tax.

Question 11

The research of economists Stevenson and Wolfers tends to support the Easterlin paradox.

Accepted Answer

The research of economists Stevenson and Wolfers challenges the Easterlin paradox by providing evidence that higher income levels are correlated with higher levels of happiness, suggesting a positive relationship between income and happiness across countries and time periods.

Question 12

If a business firm in Country A produces a good but does not sell it in that same year,that good will not be counted in Country A's GDP.

Accepted Answer

Goods produced but not sold within the same year are counted in a country's GDP as changes in inventories, which are considered an investment.

Question 13

Net domestic product (NDP)is the total value of new goods available in the economy after worn out capital goods have been replaced.

Accepted Answer

Net domestic product (NDP) is calculated by subtracting depreciation from the gross domestic product (GDP). Depreciation accounts for the wear and tear on capital goods, so NDP takes into account the replacement of those goods and only reflects the value of newly produced goods in the economy.

Question 14

A transfer payment is a payment to a person that is made in return for goods and services supplied.

Accepted Answer

A transfer payment is a payment made without reference to particular goods or services supplied, but rather for a specific purpose such as providing assistance or welfare to an individual or group. Examples of transfer payments include social security benefits, unemployment benefits, and government subsidies.

Question 15

If the GDP in one year is greater than it was in the previous year,then economic growth must have occurred.

Accepted Answer

Economic growth is measured by the real GDP, which accounts for inflation. If GDP increases but is due to inflation, real economic growth may not have occurred.

Question 16

GDP includes some nonmarket goods.

Accepted Answer

GDP includes some nonmarket goods such as household production, volunteer work, and government services that are not sold in a market but still have value and contribute to the economy.

Question 17

Corporate profits is the largest category of national income.

Accepted Answer

The largest category of national income is employee compensation, which includes wages, salaries, and benefits paid to workers. Corporate profits are a significant component of national income, but they are not the largest category.

Question 18

Corporate profits can be broken into three categories: dividends,undistributed profits,and corporate profits taxes.

Accepted Answer

This statement is true. Corporate profits can indeed be broken down into these three categories: dividends, undistributed profits, and corporate profits taxes. Dividends are the portion of profits paid out to shareholders, undistributed profits are the profits kept within the company for future growth or investment, and corporate profits taxes are the taxes paid on the profits earned by the company.

Question 19

Purchases of new residential housing are considered investment,for purposes of computing GDP.

Accepted Answer

Purchases of new residential housing are considered investment because they represent the creation of new capital assets for the economy, which will generate economic benefits in the future. Therefore, these purchases are included in the calculation of GDP, which measures the overall output of the economy.

Question 20

Some economists argue that GDP overstates overall economic welfare because it does not include the impact of bads such as pollution.

Accepted Answer

Economists have argued that GDP does not include the negative impacts of activities like pollution and environmental degradation, which can harm overall economic welfare. Therefore, GDP may overstate economic welfare by failing to account for these negative externalities.

Quiz 7: Consumer Choice: Maximizing Utility and Behavioral Economics