Deck 5: Measuring a Nations Production and Income

Question 1

The equation for GDP using the expenditure approach is:

A) GDP = Consumption + Investment + Government Purchases + Imports + Exports.
B) GDP = Consumption + Investment + Government Purchases - Imports - Exports.
C) GDP = Consumption + Investment + Government Purchases + Imports - Exports.
D) GDP = Consumption + Investment + Government Purchases + Exports - Imports.

Answer 1

GDP = Consumption + Investment + Government Purchases + Exports - Imports.

Question 2

In macroeconomics, underground activities include:

A) illegal activities.
B) mining.
C) non- market transactions.
D) A and C are correct.

Answer 2

A and C are correct.

Question 3

From Application 1, Wal- Mart's 2008 value added was roughly equal to the GDP of _______, the _______ largest economy in the world.

A) Japan; 2nd
B) Bulgaria; 56th
C) Indonesia; 23rd
D) Belgium; 28th

Answer 3

Bulgaria; 56th

Question 4

The traditional definition of a recession is a decline in real GDP lasting for

A) at least one year.
B) at least one month.
C) at least two consecutive quarters.
D) at least two consecutive years.

Question 5

Suppose that an economy is experiencing continuously rising prices. If 2000 is the base year, then the real GDP in 2009 is _______ than the nominal GDP.

A) greater than
B) equal to
C) less than
D) There is insufficient information to answer this question.

Question 6

Recall Application 3, "The Links Between Self- Reported Happiness and GDP," to answer the following questions:
According to the Application 3, self- reported levels of happiness among individuals in the U.S. have

A) decreased with increasing per capita incomes over the past 30 years.
B) tended to decrease incomes increased at any point in time.
C) increased with increasing per capita incomes over the past 30 years.
D) been higher among African Americans than among whites.

Question 7

In 1929- 1933, the U.S. experienced unemployment rates exceeding _______.

A) 50 percent
B) 25 percent
C) 90 percent
D) 33 percent

Question 8

Real GDP equals nominal GDP when:

A) the current year is earlier than the base year.
B) the current year and the base year are the same.
C) the current year is later than the base year.
D) the current year and the base year are not the same.

Question 9

The concerns of macroeconomics include all of the following except:

A) consumer prices.
B) the structure of the U.S. steel industry.
C) gross domestic output.
D) the unemployment rate.

Question 10

From World War II until 2008, the U.S. has experienced:

A) one depression.
B) four depressions.
C) 10 depressions.
D) no depressions.

Question 11

If net investment is negative, the capital stock has _______ ; if net investment is positive, the capital stock has _______ .

A) decreased; increased
B) increased; increased
C) decreased; decreased
D) increased; decreased

Question 12

Which of the following would be included in GDP?

A) the sale of Firestone tires to Ford Motor company
B) the broker's fee one pays when purchasing stocks
C) the purchase of a used car
D) none of the above

Question 13

If a power plant that pollutes the air produces $10 million in electricity. It the pollution causes a decline of $100 million to the value of the air we breathe, then this activity will cause a/an in real GDP and a/an _______ in social welfare.

A) increase; increase
B) decrease;increase
C) increase; decrease
D) decrease; decrease

Question 14

When calculating GDP, exports are _______ and imports are _______.

A) added; added
B) subtracted; added
C) subtracted; subtracted
D) added; subtracted

Question 15

The most severe decline in output in U.S. history took place during:

A) the September 2001 to November 2001 period.
B) the 1929- 1933 period.
C) the 1973- 1975 period.
D) the July 1981 to November 1982 period.

Question 16

In factor markets:

A) households supply inputs, which firms demand.
B) firms supply products, which households demand.
C) households demand inputs, which firms supply.
D) households supply goods and services, which businesses demand.

Question 17

If no foreign companies produce in a country, but many of the country's companies produce abroad, then it is probably true:

A) the country's GDP equals its domestic income.
B) the country's GNP exceeds its GDP.
C) the country's GNP and GDP are equal.
D) the country's GDP exceeds its GNP.

Question 18

If you take a walk in the park during your coffee break, this activity _______ the measurement of real GDP and _______ social welfare.

A) decreases; has no effect on
B) has no effect on; increases
C) increases; decreases
D) decreases; increases.

Question 19

Suppose that net investment in 2009 was $360 billion and depreciation was $30 billion. Gross investment in 2009 was:

A) $390 billion.
B) $330 billion.
C) $300 billion.
D) - $30 billion.

Question 20

_______ is commonly defined as six consecutive months of declining real GDP.

A) A trough
B) An expansion
C) A peak
D) A recession

Question 21

Personal income measures the amount of:

A) income that flows to households.
B) income that flows to households, less social security benefits.
C) income of households, less all transfer payments.
D) income households retain after paying taxes.

Question 22

Refer to Application 2, "Comparing the Severity of Recessions," to answer the following questions:
According to the application, the recession that started in December 2007 is comparable to the recession in:

A) 1980.
B) 1981- 1982.
C) 1990- 1991.
D) 1973- 1975.

Question 23

When a country is experiencing persistent deflation, then:

A) real GDP is greater than nominal GDP before the base year.
B) real GDP is less than nominal GDP before the base year.
C) real GDP is greater than nominal GDP after the base year.
D) both B and C are correct.

Question 24

Gross domestic product measured in terms of the prices of a fixed, or base, year is called:

A) nominal GDP.
B) current GDP.
C) real GDP.
D) base GDP.

Question 25

The single largest expenditure component in GDP is:

A) consumption expenditures.
B) private investment expenditures.
C) net exports.
D) government purchases.

Question 26

The profit from IBM's production in Italy is included in the U.S. _ _ and in the Italian .

A) GNP; GDP
B) GDP; GDP
C) GNP; GNP
D) GDP; GNP

Question 27

Consumer expenditures on household appliances represent which of the following components of Consumption Expenditures?

A) inventory investment
B) services
C) durable goods
D) nondurable goods

Question 28

Refer to Application 1, "Using Value Added to Measure the True Size of Wal- Mart," to answer the following questions:
From Application 1, Wal- Mart's 2008 sales were roughly equal to the GDP of , the largest economy in the world.

A) Belgium; 28th
B) Japan; 2nd
C) China; 3rd
D) Ukraine; 53rd

Question 29

If national income is $645 billion, indirect taxes are $20 billion, and subsidies are $15 billion, then net national product is:

A) $167 billion.
B) $645 billion.
C) $685 billion.
D) $650 billion.

Question 30

Expenditures on which of the following would not be counted in private investment expenditure?

A) new factories
B) stocks and bonds
C) inventory changes
D) new housing

Question 31

The largest component of national income is:

A) compensation of employees.
B) corporate profits.
C) rental income.
D) proprietor's income.

Question 32

Suppose that an economy is experiencing continuously rising prices. If 2000 is the base year, then the real GDP in 1990 is _______ than the nominal GDP.

A) less than
B) greater than
C) equal to
D) There is insufficient information to answer this question.

Question 33

Nominal GDP measures the value of all goods and services:

A) in current dollars.
B) without inflation.
C) in constant dollars.
D) in fixed dollars.

Question 34

Which of the following is not counted in the GNP of the United States?

A) the wage of a U.S. citizen who works in a foreign country for a foreign firm
B) the value of services that are produced by state and local governments in the United States
C) the profit earned by a restaurant located in the United States but owned by a Mexican company
D) the interest earned by a U.S. bank on loans to a business firm located in Brazil

Question 35

Gross Domestic Product (GDP):

A) excludes sales of all final goods and services.
B) includes all goods and services sold in a given period.
C) includes sales of raw materials.
D) excludes used car sales because no new production takes place.

Question 36

Which of the following is not a topic studied in macroeconomics?

A) the inflation rate
B) the unemployment rate
C) the relative price of IBM computers
D) Gross Domestic Product

Question 37

In 1929- 1933, the U.S. experienced unemployment rates exceeding 25 percent and the U.S. real GDP contracted over 33 percent. During this period, the U.S. economy experienced:

A) a peak.
B) a trough.
C) an expansion.
D) a depression.

Question 38

Actual investment purchases in a given period are measured by:

A) net investment.
B) the change in business inventories.
C) gross investment.
D) depreciation.

Question 39

A company produced 10 dishwasher machines in 1998. The company sold 8 in 1998 and added 2 to its inventories. The market value of the dishwasher machines in 1998 was $200 per unit. What is the value of this company's output that will be included in the 1998 GDP?

A) $1,800
B) $400
C) $1,600
D) $2,000

Question 40

More abundant leisure time increases _______, but it _______ real GDP.

A) nominal GDP; decreases
B) economic welfare; decreases
C) nominal GDP; leaves unchanged
D) social welfare; decreases

Question 41

Nominal GDP is not an accurate measure of the real level of economic activity in a country because:

A) inflation distorts the real value of all the goods and services produced.
B) taxes distort the real value of all the goods and services produced.
C) base year prices are likely to experience substitution bias.
D) the GDP deflator constantly underestimates the real cost of living.

Question 42

Which of the following is not included in private investment expenditure?

A) changes in business inventories
B) the purchase of common stock
C) the purchase of a newly built home
D) the purchase of a newly built factory

Question 43

Refer to Table 5.4. Suppose this economy produces only the two goods X and Y. If year 2 is the base year, then the percentage growth rate in Real GDP between year 1 and year 2 is approximately:

A) 1.3 percent.
B) 29 percent.
C) 3 percent.
D) 60 percent.

Question 44

In the circular flow diagram, firms:

A) demand the inputs that households supply in product markets.
B) demand the goods and services that households supply in product markets.
C) supply the goods and services that households demand in product markets.
D) supply the inputs that households demand in factor markets.

Question 45

When a country is experiencing persistent inflation, then:

A) real GDP is greater than nominal GDP after the base year.
B) real GDP is less than nominal GDP before the base year.
C) real GDP is greater than nominal GDP before the base year.
D) both B and C are correct.

Question 46

Which of the following is included in both the U.S. GDP and GNP?

A) the value of all cars produced by Toyota in the U.S.
B) the value of all cars produced by Ford in Mexico
C) the value of all cars produced by General Motors in the U.S.
D) the value of cars produced by Nissan in Japan and the U.S.

Question 47

In the circular flow diagram, firms _______ inputs and households _______ goods and services.

A) supply; supply
B) supply; demand
C) demand; supply
D) demand; demand

Question 48

Depreciation is:

A) the amount of decline in business inventories.
B) the additional capital stock in a year.
C) the wear and tear of capital as it is used in production.
D) the decrease in the overall price level.

Question 49

Gross domestic product measures:

A) the total income earned from current production of final goods and services in the country.
B) the total spending on currently- produced final goods and services in the country.
C) the total market value of all currently- produced final output in the country.
D) all of the above.

Question 50

When we calculate the percent change in the real GDP between 2008 and 2009, we

A) subtract 2008 real GDP from 2009 real GDP, and express the difference as a proportion of 2008 real GDP.
B) take the average of 2008 and 2009 real GDP.
C) divide 2008 real GDP with 2009 real GDP.
D) subtract 2008 real GDP from 2009 real GDP.

Question 51

_______ is commonly defined as a severe recession.

A) A peak
B) A depression
C) A trough
D) An expansion

Question 52

If net investment in 2009 is $400 billion and gross investment in 2009 is $440 billion, depreciation in 2009 is:

A) $40 billion.
B) $440 billion.
C) $840 billion.
D) $400 billion.

Question 53

The profit from British Airways production in the U.S. is included in the British _______ and in the U.S. _______.

A) GNP; GDP
B) GDP; GNP
C) GNP; GNP
D) GDP; GDP

Question 54

Which of the following statements is correct?

A) Investment represents household purchases of assets.
B) Net exports are imports minus exports.
C) The purchase of a new home is treated as investment.
D) Consumption is spending by firms and households on new capital.

Question 55

If net investment is negative, then

A) gross investment is less than zero.
B) gross investment is less than depreciation.
C) gross investment is greater than depreciation.
D) depreciation is less than zero.

Question 56

Which of the following is a nondurable good?

A) washing machine
B) food
C) truck
D) laptop computer

Question 57

The U.S. experienced a recession that ended in November 2001. In December 2001, the U.S. was in a:

A) peak.
B) trough.
C) recession.
D) period of expansion.

Question 58

If net investment is zero, then:

A) gross investment is less than depreciation.
B) gross investment equals depreciation.
C) depreciation is zero.
D) gross investment is greater than depreciation.

Question 59

GDP is:

A) the value of all monetary transactions within a country in a given year.
B) the total market value of all final goods and services produced within a country in a given year.
C) a measure of all spending in the economy on foreign and domestic goods and services.
D) all of the above.

Question 60

Real GDP is gross domestic product measured:

A) at a constant output level but at current prices.
B) using the prices of a specified base year.
C) in current dollars.
D) as the difference between the current year's GDP and last year's GDP.

Question 61

Which of the following is not an example of a final good or service?

A) the popcorn you bought before watching the new Harry Potter movie
B) coffee beans Starbucks purchases to make coffee
C) the gasoline you bought at the pump
D) the economics class that you are taking to complete your degree

Question 62

If net national product is $250 billion and indirect taxes are $5 billion, then national income is:

A) $245 billion.
B) $285 billion.
C) $255 billion.
D) $405 billion.

Question 63

The total market value of all final goods and services produced within a country in a given year is the:

A) gross domestic product.
B) gross national product.
C) national income.
D) net national product.

Question 64

Refer to Application 2, "Comparing the Severity of Recessions," to answer the following questions:
According to the application, compared to just looking at the unemployment rate, a more correct way to measure the damage caused by the recession is to:

A) look at the incomes of those who lost their jobs before and after the recession.
B) look at the incomes of the rich before and after the recession.
C) look at the incomes of the those who lost their job as well as those who kept their jobs.
D) compare the inflation rates before and after the recession.

Question 65

Which of the following is an example of a final good or service?

A) coffee beans Starbucks purchases to make coffee
B) lumber purchased by a construction company to be used in building houses
C) a tractor purchased by a farmer to cultivate his farm
D) wheat a bakery purchases to make bread

Question 66

Macroeconomics is the study of the

A) effects of patents upon product innovation.
B) purchase decisions of individual consumers.
C) national economy taken as a whole.
D) economic choices of laboratory animals.

Question 67

In the circular flow diagram, households demand _______ and supply _______.

A) inputs; goods and services
B) goods and services; goods and services
C) inputs; inputs
D) goods and services; inputs

Question 68

Inflation is:

A) sustained decreases in the total prices of all goods and services.
B) sustained decreases in the average prices of all goods and services.
C) sustained increases in the average prices of all goods and services.
D) sustained increases in the total prices of all goods and services.

Question 69

Net investment equals:

A) gross investment minus depreciation.
B) GDP minus final sales.
C) depreciation plus GDP.
D) gross investment minus final sales.

Question 70

The fact that the Nigerian oil industry is managed by large foreign corporations tends to make Nigeria's:

A) GDP exceed its GNP.
B) GDP equal its NDP.
C) GNP exceed its GDP.
D) GDP equal its GNP.

Question 71

Which of the following is not a durable good?

A) household appliances
B) clothing
C) furniture
D) automobiles

Question 72

If gross investment in 2009 is $600 billion and depreciation in 2009 is $50 billion, net investment in 2009 is:

A) $550 billion.
B) $50 billion.
C) $600 billion.
D) none of the above

Question 73

In the circular flow diagram, firms _______ goods and services and households _______ inputs.

A) supply; supply
B) demand; supply
C) supply; demand
D) demand; demand

Question 74

For a country like Mexico, where a relatively large fraction of the population works abroad and sends home part of their salaries, we would expect that:

A) the difference between GDP and GNP will be small.
B) GNP will exceed GDP.
C) GDP will exceed GNP.
D) GDP will equal GNP.

Question 75

Refer to Application 2, "Comparing the Severity of Recessions," to answer the following questions:
According to the application, during the recession that started in 1973, unemployments that rose from:

A) 6.9 to 9.1 percent.
B) 3.5 to 15.3 percent.
C) 4.9 percent to 8.5 percent.
D) 4.6 percent to 10 percent.

Question 76

Because production generates income which, in turn, generates expenditure, it is true that:

A) it is not possible to charge taxes on either expenditure or income without disrupting macroeconomic equilibrium.
B) the magnitude of government budget deficits is equal to the magnitude of trade deficits, albeit with the opposite sign.
C) both the income and production approaches to measuring macroeconomic activity should yield the same results.
D) corporate profits can not be larger than the income paid to households for the rental of their capital.

Question 77

Which of the following is not a transfer payment?

A) Medicaid
B) Social Security benefits
C) government welfare payments
D) corporate dividends

Question 78

Refer to Application 2, "Comparing the Severity of Recessions," to answer the following questions:
According to the application, the recession that started in 1973 lasted:

A) 16 months.
B) 9 months.
C) 24 months.
D) 6 months.

Question 79

GDP is not a perfect measure of social welfare and the society's economic well- being because:

A) it does not include all economic activities in the economy.
B) it does not say anything about the distribution of income.
C) GDP accounting rules do not adjust for production that causes negative spillovers.
D) all of the above.

Question 80

If a farmer buys a new tractor from John Deere for use on her cotton farm, it is included in GDP as:

A) a nondurable consumption good.
B) part of private investment.
C) a durable consumption good.
D) a service.