Deck 4: Measuring Gdp and Economic Growth

Question 1

A loaf of bread purchased by one of your instructors would be best described as

A) a financial asset.
B) a used good.
C) a final good.
D) an intermediate good.

Answer 1

C

Question 2

Which of the following expenditures associated with the production of a new high- performance SUV will be directly included in GDP?

A) the purchase of used welding robots to assemble to vehicles
B) the purchase of new machine tools to manufacture the engines
C) the sale of bonds to finance the construction of the assembly plant
D) the purchase of new tires to be installed on the new vehicles

Answer 2

B

Question 3

Gross domestic product

A) includes all the goods and none of the services produced in an economy in a given time period.
B) is generally less than federal expenditure in any time period.
C) measures the value of the aggregate production of goods and services in a country during a given time period.
D) measures the value of labor payments generated in an economy in a given time period.

Answer 3

C

Question 4

If Nike, an American corporation, produces sneakers in Thailand this would

A) add to neither U.S. GDP nor Thailand's GDP.
B) add to Thailand's GDP but not to U.S. GDP.
C) count for both Thailand's GDP and U.S. GDP.
D) count as part of U.S. GDP since it is a U.S. corporation.

Question 5

A ton of coal purchased by your local utility to burn to make electricity would be best described as

A) a final product.
B) a financial asset.
C) a used good.
D) an intermediate good.

Question 6

GDP does not directly include intermediate goods because

A) intermediate goods are not valuable.
B) that would count the intermediate goods twice.
C) intermediate goods are not useful to consumers.
D) that would understate the true size of GDP.

Question 7

Gross domestic product (GDP) measures the

A) number of final goods and services produced in the economy in a given time period.
B) market value of old and new final goods and services sold in the economy in a given time period.
C) number of final goods and services sold in the economy in a given time period.
D) market value of final goods and services produced in the economy in a given time period.

Question 8

The word "final" in the definition of GDP refers to

A) not counting intermediate goods or services.
B) the time period when production took place.
C) counting the intermediate goods and services used to produce GDP.
D) valuing production at market prices.

Question 9

Intermediate goods are excluded from GDP because

A) their inclusion would understate GDP
B) the premise of the question is incorrect because intermediate goods are directly included in calculating GDP.
C) their inclusion would involve double counting.
D) they represent goods that have never been purchased so they cannot be counted.

Question 10

Double counting (counting the same thing twice) in GDP accounting is avoided by not including

A) intermediate goods.
B) illegal activities.
C) net exports.
D) depreciation.

Question 11

The calculation of the final goods and services sold in an economy would NOT include

A) the purchase of a service by a household.
B) the purchase of a lawnmower by a household.
C) Ford Motor Company's purchase of a new industrial robot to be used to produce cars.
D) General Motors' purchases of tires for new automobiles.

Question 12

Gross domestic product is a measure of the total value of all

A) final goods and services produced in an economy over a period of time.
B) sales in an economy over a period of time.
C) consumer income in an economy over a period of time.
D) capital accumulation in an economy over a period of time.

Question 13

Gross domestic product is the total produced within a country in a given time period.

A) market value of all final goods and services
B) amount of final and intermediate goods and services
C) market value of all final and intermediate goods and services
D) market value of all goods and services

Question 14

In 2009, Ozzie purchased a 1999 Ford Escort from his neighbor for his son, purchased a 1999 "one owner" Camry from Larchmont Toyota for his wife, bought a 2009 new Ford for himself, and sold his 1993 Dodge Caravan to his teenage nephew. Which, if any, of these transactions will be included in GDP in 2009?

A) all four transactions
B) the purchase of the Ford and the Caravan
C) only the purchase of the Ford
D) all three purchases but not the sale

Question 15

GDP is defined as the market value of all _ _ in a given time period.

A) final goods and services produced by citizens of a particular country regardless of where in the world they are located
B) final goods and services produced in a country by only the citizens of the country
C) final goods produced in a country
D) final goods and services produced in a country

Question 16

In computing GDP, it is essential to

A) avoid double counting.
B) include government tax revenues.
C) include government transfer payments.
D) count all intermediate products directly as they are produced.

Question 17

Which of the following expenditures is for an intermediate good?

A) You buy new tires for your used car.
B) General Motors buys new tires to put on the cars it's building.
C) The government buys new tires for its military vehicles.
D) A U.S. tire firm sells new tires to Canada.

Question 18

In the United States, GDP is typically measured

A) quarterly.
B) monthly.
C) daily.
D) weekly.

Question 19

Gross domestic product (GDP) is the in a given time period.

A) value of all final and intermediate goods and services produced by the economy excluding those goods exported to foreign nations
B) market value of final goods and services produced by the economy
C) value of personal consumption expenditures, gross private domestic investment, and federal government expenditures
D) sum of wage and salary compensation of employees and corporate profits

Question 20

In the GDP definition, market value refers to

A) when the production took place.
B) not counting intermediate products.
C) valuing production in production units.
D) valuing production according to the market price.

Question 21

If we compare the four sources of spending in the economy we see that

A) household consumption is the largest.
B) business investment is the largest.
C) government expenditure is the largest.
D) household consumption is the smallest.

Question 22

In the circular flow of economic activity

A) aggregate expenditure is measured as it moves through the financial markets.
B) aggregate expenditure measures the dollar value of purchases of final goods and services.
C) aggregate expenditure measures the dollar value of purchases of factors.
D) aggregate income measures the dollar value of labor resources only.

Question 23

The circular flow model shows that consumer goods and services produced by business firms are sold in the

A) financial market.
B) goods market.
C) factor market.
D) labor market.

Question 24

In the circular flow of income

A) households demand goods and services that are supplied by firms, and the firms demand factors that are supplied by intermediate firms.
B) households demand goods and services that are supplied by firms, while supplying factors that are demanded by firms.
C) households buy goods and services while firms sell goods and services. Firms obtain labor from households, capital from government, and raw materials from other firms.
D) households sell goods and services while firms sell factors.

Question 25

The circular flow of income shows that

A) governments purchase goods and services.
B) firms generally are the demanders in the goods markets and suppliers in the factor markets.
C) households transact only in the goods market.
D) None of the above answers is correct.

Question 26

The circular flow diagram indicates that

A) firms buy goods and services from households.
B) households sell goods and services to the government.
C) firms buy the services of factors of production from the government.
D) households sell the services of factors of production to firms.

Question 27

The factor market can best be described as where

A) firms buy goods and services.
B) firms buy the services of labor, land and capital.
C) governments sell goods and services.
D) households buy goods and services.

Question 28

In the circular flow model, consumption expenditures are the spending by

A) government in financial markets.
B) households in the goods market.
C) firms for factors of production.
D) the rest of the world in the goods market.

Question 29

The circular flow shows that the household sector earns its income by

A) selling goods and services.
B) selling factors of production.
C) buying factors of production.
D) selling financial assets.

Question 30

The circular flow diagram shows

A) how nominal GDP is distinct from real GDP.
B) the effects of inflation in a simple economy.
C) how the prices of factors are determined.
D) the flows between different sectors of the economy.

Question 31

In the circular flow diagram, aggregate expenditure includes the sum of

A) income and saving.
B) consumption, investment, and saving.
C) consumption and investment.
D) saving and investment.

Question 32

In the circular flow model of an economy with no government sector and no international trade, households

A) receive income from buyers of goods and services.
B) pay firms for the use of their factors.
C) receive income from the sale of factors in the goods markets.
D) receive income from producers for the use of factors in the factor markets.

Question 33

In the above figure, consumption expenditure is shown by flow

A) A.
B) B.
C) C.
D) F.

Question 34

Compared to the other sources of spending, net exports is

A) small and negative.
B) large and negative.
C) small and positive.
D) large and positive.

Question 35

The circular flow diagram shows that

A) goods and factor markets are independent.
B) the total amount of income generated by the economy equals the total purchases of final goods and services.
C) the flow of payments to the factors used to produce goods and services exceeds the flow of payments for final goods and services.
D) consumption expenditure equals saving.

Question 36

GDP counts only final goods and services because this

A) method avoids including any goods that are produced this year and sold next year.
B) method avoids double counting of goods going through several stages of production.
C) method avoids understating the value of GDP produced during a given year.
D) amount can be more easily determined in the marketplace.

Question 37

In the above figure, household income is shown by flow

A) A.
B) B.
C) C.
D) F.

Question 38

In the above figure, flow B represents .

A) household purchases of goods and services
B) firms' payments for labor services
C) household income
D) household borrowing

Question 39

In the above figure, flow B represents households' _.

A) income
B) saving
C) investment
D) consumption expenditures

Question 40

Which of the following is true regarding the circular flow diagram?
I) "Aggregate income" is the flow of income earned by firms.
II) Retained earnings are considered income earned by firms rather than part of households' incom
III) The government, households, and firms all operate in the financial market.

A) I only
B) I and III
C) I and II
D) III only

Question 41

Gross investment equals net investment plus

A) depreciation.
B) capital.
C) dividends paid to the owners of the company.
D) capital gains.

Question 42

According to the circular flow diagram, the dollar value of a nation's output is equal to

A) profits.
B) net income minus taxes.
C) total income.
D) wages.

Question 43

Depreciation is

A) the decrease in the stock of capital goods from physical wear and tear.
B) always larger than capital consumption.
C) added to GDP to equal net domestic product.
D) not included in GDP from the income side.

Question 44

Total output and total income in the circular flow model

A) are measures of the economy's level of savings.
B) are equal to each other.
C) include only intermediate goods.
D) are related because national income is less than national product.

Question 45

Gross domestic product (GDP) is

A) the sum of compensation of employees, proprietors' income, net interest, rental income, corporate profits, depreciation, and indirect business taxes minus subsidies.
B) the sum of consumption expenditure, investment, government expenditure on goods and services, and net exports.
C) the value of all final goods and services produced in a country during a year.
D) all of the above

Question 46

Depreciation is defined as the

A) decrease in the stock of capital due to investment by firms.
B) increase in the stock of capital due to investment by firms.
C) decrease in the stock of capital due to wear and tear.
D) increase in the stock of capital due to wear and tear.

Question 47

Gross domestic product is the

A) value of the final goods and services produced in a country during a specific time.
B) total amount of income earned in producing the final goods and services in a country during a specific time.
C) total amount that buyers spent on the final goods and services produced in a country during a specific time.
D) All of the above answers are correct.

Question 48

The circular flow shows that

A) GDP equals aggregate income.
B) aggregate expenditure is less than aggregate income.
C) aggregate production equals aggregate expenditure.
D) Both answers A and C are correct.

Question 49

Which of the following relationships is correct?

A) Net Investment = Gross Investment + Depreciation
B) Depreciation = Gross Investment - Capital Consumption
C) Gross Investment = Net Investment + Depreciation
D) Capital Consumption = Net Investment - Depreciation

Question 50

Comparing aggregate expenditure and aggregate incomes shows that

A) they are equal.
B) aggregate expenditure is usually greater than aggregate income.
C) aggregate income can not equal aggregate expenditure if we have any savings.
D) aggregate income is usually greater than aggregate expenditure.

Question 51

Choose the best statement.

A) An increase in compensation of employees increases aggregate income but does not change GDP.
B) GDP always equals aggregate expenditure and sometimes equals aggregate income.
C) GDP equals aggregate expenditure and equals aggregate income.
D) An increase in government purchases increases aggregate expenditure but does not change GDP.

Question 52

Which of the following is correct?

A) Aggregate income is greater than aggregate expenditure but equal to GDP.
B) Aggregate income, aggregate expenditure and GDP are all equal.
C) Aggregate income is greater than GDP but equal to aggregate expenditure.
D) Aggregate expenditure equals GDP but is less than aggregate income.

Question 53

Net investment equals

A) capital stock minus depreciation.
B) the total quantity of plant, equipment and buildings.
C) gross investment minus depreciation.
D) gross investment/depreciation.

Question 54

Depreciation is subtracted from gross domestic product to determine directly

A) national income.
B) net domestic product.
C) consumption expenditures plus investment expenditures plus government expenditure plus net exports.
D) disposable income.

Question 55

Gross domestic product can be calculated

A) by adding up the personal consumption of all members of the society.
B) either by valuing the nation's output of goods and services or by valuing the income generated in the production process.
C) by adding up the income tax returns of all members of the society.
D) by adding up the value of all intermediate goods used in the economy.

Question 56

In the nation of Nirvana, depreciation is $22 billion, GDP is $260.4 billion, and national income is
$215.2 billion. Net domestic product is

A) $445.2 billion.
B) $215.2 billion.
C) smaller than national income.
D) $238.4 billion.

Question 57

Comparing gross domestic product and net domestic product we see that

A) net domestic product is smaller than gross domestic product.
B) gross domestic product is smaller than net domestic product.
C) there is no consistent relationship.
D) they are equal in the United States.

Question 58

Suppose Mail Boxes Etc. buys a new copier for its store for $1000. A year later, when the firm wants to upgrade to a new copier, it finds that the old copier is only worth $750. Over the year the copier was used, has occurred.

A) net investment
B) replacement investment
C) depreciation
D) gross investment

Question 59

GDP equals net domestic product plus

A) indirect business taxes and personal taxes.
B) retained earnings.
C) transfer payments and business transfers.
D) depreciation.

Question 60

Which of the following are equal to one another?
I) aggregate production
II) aggregate expenditure
III) aggregate income

A) I equals II, but not III.
B) II equals III, but not I.
C) I equals II equals III.
D) I equals III, but not II.

Question 61

In the equation, GDP = C + I + G + NX, G refers to

A) local, state, and federal government expenditure on goods and services, but does not include transfer payments.
B) the taxes and expenditures of all government units.
C) local, state, and federal government spending for all purposes.
D) federal government expenditures plus all transfer payments.

Question 62

is gross investment minus .

A) Net investment; depreciation
B) Depreciation; replacement investment
C) The capital stock; depreciation
D) The capital stock; net investment

Question 63

The difference between gross investment and net investment is

A) the capital stock.
B) depreciation.
C) the level of saving.
D) the real interest rate.

Question 64

The expenditure approach measures GDP by adding

A) compensation of employees, rental income, corporate profits, net interest, and proprietors' income.
B) consumption expenditure, gross private domestic investment, net exports of goods and services, and government expenditure on goods and services.
C) compensation of employees, rental income, corporate profits, net interest, proprietors' income, indirect taxes paid, and depreciation and subtracting subsidies paid by the government.
D) compensation of employees, rental income, corporate profits, net interest, proprietors' income, subsidies paid by the government, indirect taxes paid, and depreciation.

Question 65

Which of the following is NOT part of the expenditure approach to measuring GDP?

A) gross private domestic investment
B) net interest
C) personal consumption expenditures
D) net exports of goods and services

Question 66

GDP equals

A) the value of the aggregate production in a country during a given time period.
B) aggregate income.
C) aggregate expenditure.
D) all of the above

Question 67

GDP can be computed as the sum of

A) the total expenditures of consumers and business over a period of time.
B) the total expenditures of consumption, investment, government expenditure on goods and services, and net exports over a period of time.
C) the total expenditures of consumption, investment, and government expenditure on goods and services over a period of time.
D) all sales that have taken place in an economy over a period of time.

Question 68

Of the following, the largest component of GDP is

A) gross private domestic investment.
B) personal consumption expenditures.
C) government expenditure on goods and services.
D) net exports of goods and services.

Question 69

Gross investment is equal to

A) depreciation plus net investment.
B) net investment minus capital stock.
C) depreciation minus net investment.
D) net investment plus capital stock.

Question 70

Gross investment equals

A) net investment - depreciation + change in inventories.
B) depreciation + change in inventories.
C) net investment + depreciation.
D) net investment + change in inventories.

Question 71

Which of the following is NOT a final good?

A) a hot dog sold to a spectator at a Chicago Bears football game
B) a new car sold to Avis for use in their fleet of rental cars
C) a purse sold to a foreign visitor
D) a new computer sold to an NYU student

Question 72

Net investment equals

A) savings - depreciation.
B) depreciation + addition to inventories.
C) gross investment - depreciation.
D) gross investment + depreciation.

Question 73

If depreciation is less than gross investment, then net investment is

A) positive.
B) zero.
C) negative.
D) This situation could never occur because it is impossible for depreciation to be less than gross investment.

Question 74

Net investment is the

A) profit or loss in the stock market.
B) value of software and other network related products.
C) total amount of gross investment minus depreciation.
D) value of the depreciated capital multiplied by the changes in the price level.

Question 75

The largest component of GDP in the expenditures approach is

A) government expenditure on goods and services.
B) net exports.
C) personal consumption expenditures.
D) gross private domestic investment.

Question 76

The components of the expenditure approach to measuring GDP include all of the following EXCEPT

A) government expenditure on goods and services.
B) the implicit payments for unpaid household work.
C) investment.
D) net exports.

Question 77

GDP using the expenditure approach equals the sum of personal consumption expenditures plus

A) gross private investment plus government expenditure on goods and services minus imports of goods and services.
B) gross private investment plus government expenditure on goods and services plus net exports of goods and services.
C) gross private investment.
D) gross private investment plus government expenditure on goods and services.

Question 78

Two methods of measuring GDP are

A) the saving approach and the investment approach.
B) the goods approach and the services approach.
C) the income approach and the expenditure approach.
D) the income approach and the receipts approach.

Question 79

The four categories of expenditure used by the expenditure approach method to calculate GDP are

A) consumption expenditure, taxes, saving and investment.
B) consumption expenditure, investment, government expenditure and net exports.
C) saving, taxes, government expenditure and investment.
D) consumption expenditure, investment, net imports and saving.

Question 80

Net investment

A) is the only measure of investment used to calculate GDP.
B) equals gross investment plus depreciation.
C) equals gross investment minus depreciation.
D) is equivalent to the existing capital stock in the economy.