Deck 6: Tracking the U S Economy

Question 1

The gross domestic product (GDP)of a country measures the _____.

A)market value of all intermediate goods and services produced by resources located within the country
B)market value of all goods and services produced by resources located outside the country
C)market value of all final goods and services produced by resources located within the country
D)value added to the economy by intermediate goods and services minus original cost
E)value of the total sales of financial assets

Answer 1

market value of all intermediate goods and services produced by resources located within the country

Question 2

The value of the films starring Charlie Chaplin produced in the United States that still exist will not be included in this year's U.S.gross domestic product (GDP)because:

A)Charlie Chaplin was not an American citizen.
B)Charlie Chaplin did not make the films this year.
C)the films earn less revenue.
D)the films no longer have any value except to collectors.
E)films are intermediate goods.

Answer 2

Charlie Chaplin did not make the films this year.

Question 3

Which of the following actions would increase the consumption spending component of the gross domestic product (GDP)?

A)Ann cooking dinner for Tim instead of going out
B)Ann and Tim buying a used microwave oven
C)Ann and Tim buying vegetables to prepare soup at home
D)Tim buying Ann a dress
E)Tim and Ann painting the garage themselves

Answer 3

Tim buying Ann a dress

Question 4

Which of the following actions will decrease the gross domestic product (GDP)?

A)Tom's alarm clock breaks,so he buys a new one.
B)Tom buys a new alarm clock because he tends to sleep through the first alarm.
C)Tom's alarm clock breaks.He now oversleeps and has to buy a cup of coffee on the way to work instead of making it at home.
D)Tom gets fired for being late often after his alarm clock breaks.
E)Tom sells his broken alarm clock and uses the money to buy some French fries.

Question 5

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

A)Bricks purchased by a company for constructing houses
B)Wheat purchased by a bakery
C)Steel purchased by a company for manufacturing cars
D)A cup of coffee bought at a restaurant
E)A used car bought by a person

Question 6

Which of the following is the best indicator of the performance of the national economy?

A)The budget deficit of the federal government
B)The stock of capital goods (machinery)in the nation
C)The nation's stock of money
D)The balance of trade with other nations
E)The value of the final goods and services produced in the nation

Question 7

Which of the following is not true about gross domestic product (GDP)?

A)It includes only final goods and services.
B)It reflects production in a particular year.
C)Intermediate goods and services are excluded to prevent double counting.
D)It excludes purchases of financial assets.
E)It includes transfer payments.

Question 8

In the double-entry bookkeeping system used to track the economy,_____.

A)the value of aggregate output equals the aggregate income paid for the resources used to produce that output
B)government spending on transfer payment is recorded
C)the earnings of all shareholders in the economy from the sale of shares are recorded
D)inventories are counted twice,once as investment and once as output
E)intermediate goods are counted twice,once as a type of output themselves and once as part of the final output

Question 9

Rhonda sells a house she has owned for 15 years and starts living in a rented apartment.To make it more marketable,she buys carpeting that she has professionally installed and buys wallpaper that her daughter hangs.Which items would be included in this year's gross domestic product (GDP)?

A)The sale price of the house
B)The cost of transporting all her furnitures to the new apartment
C)The opportunity cost of Rhonda's daughter's time
D)The opportunity cost of Rhonda's time
E)The purchase price for carpet and wallpaper,and the installation fee for the carpet

Question 10

Which of the following would be included in this year's gross domestic product (GDP)?

A)One hundred shares of IBM stock that Tony sold this May
B)A used car that Tracey sold to Justin
C)George's purchase of a fishing rod and reel at a garage sale
D)Sharon giving Dennis $20 as a reward for finding her ring
E)A bucket of Kentucky Fried Chicken that Kate bought this July

Question 11

Which of the following expenditures is included in the consumption component of the gross domestic product (GDP)?

A)The money spent on the purchase of stocks
B)The money spent on the purchase of used furnitures
C)The money spent on the purchase of a used car
D)The money spent on the purchase of kitchen appliances
E)The money spent on the purchase of bonds issued by the government

Question 12

Which of the following would be included in the calculation of gross domestic product (GDP)?

A)The value of a used automobile purchased by Jim
B)The sale price of a new house purchased by Joe
C)The receipt of $100 in food stamps by Sandy
D)The $200 that Kurt spends on the purchase of bonds
E)The amount of money that Laurie receives as unemployment benefit after losing her job

Question 13

Which of the following is an example of an intermediate good?

A)Sugar bought by a bakery
B)Sugar bought by a family
C)Furniture bought by a family
D)Burgers bought at a restaurant
E)Medicines bought at a pharmacy

Question 14

Which of the following is true of the gross domestic product (GDP)of a nation?

A)It can be measured by the stock of consumer goods in a nation at a particular point in time.
B)It can be measured by the stock of capital goods in a nation at a particular point in time.
C)It can be measured either by calculating the total spending on production or the total income from that production.
D)It is the sum of total spending on production and total income from that production.
E)It can be measured from the stock of wealth in the nation.

Question 15

Which of the following is not an example of intermediate goods or services?

A)Steel used in the manufacture of cars
B)Pizzas bought at a restaurant
C)Legal services hired by a public accounting firm
D)Glass used to manufacture sunglasses
E)Vegetables used by a restaurant

Question 16

Which of the following would be included in the gross domestic product (GDP)?

A)The monthly telephone bill paid by Mr.Jones
B)The corporate stock purchased by Steven
C)The used limousine purchased by Harold
D)The bricks purchased by a construction company to build a house
E)The $300 George saved because he painted his own garage

Question 17

Which of the following is true of an intermediate good?

A)It is of no value to the seller.
B)It is of no value to the buyer.
C)It is purchased for household production.
D)It helps produce another good.
E)It is sold at a discounted price by firms.

Question 18

The gross domestic product (GDP)excludes:

A)the increase in inventories during a given period.
B)the expenditures by government for newly produced goods and services during a given period.
C)the value of intermediate goods produced in an economy during a given period.
D)the value of final output during a given period.
E)household expenditure on durable goods.

Question 19

Which of the following is an example of an intermediate good?

A)The flowers that Mr.Grover buys at a local nursery
B)The flowers that Timmy picks from a neighbor's garden and brings to Mrs.Grover
C)The flour that Grandma buys to bake a birthday cake
D)The flour that Joe buys so that he can eat pizza three nights a week
E)The flour that Amy orders each month for the bakery she manages

Question 20

Which of the following would be excluded from the gross domestic product (GDP)?

A)The mayor of a city hiring more workers to improve the sanitation of the city
B)The sale of mobiles decreasing significantly
C)The government reducing welfare benefits
D)A homemaker spending $20 taking the family out to lunch instead of cooking food ,
E)A consumer having his pickup truck tuned up at the local garage

Question 21

Gross private domestic investment consists of _____.

A)spending by individual households on automobiles and durable goods
B)spending by businesses on labor resources
C)net additions to business inventories
D)spending by government on welfare benefits
E)spending by households on stocks and bonds

Question 22

Which of the following is true of exports and imports?

A)Both imports and exports are added to a nation's gross domestic product (GDP).
B)Both imports and exports are subtracted from a nation's gross domestic product (GDP).
C)Imports are added and exports are subtracted from a nation's gross domestic product (GDP).
D)Exports are added and imports are subtracted from a nation's gross domestic product (GDP).
E)Neither imports nor exports are included in a nation's gross domestic product (GDP).

Question 23

Which of the following will be included in the current year's gross domestic product (GDP)?

A)The sale price of equipment produced last year but sold this year
B)The money spent by Kate on the purchase of new furniture
C)The money spent by Barney on the purchase of his uncle's house
D)The sale price of the stock purchased by John
E)The opportunity cost of the time spent by Bruno cooking lunch for his neighbor

Question 24

Aggregate income equals:

A)the sum of income earned by all laborers in the world economy.
B)the sum of income earned by all workers in the private sector.
C)the sum of the income earned by all the resource suppliers in an economy.
D)the total income of all employees after payment of income tax.
E)the total income of all employees after purchases of necessities.

Question 25

Katrina pays $40 for a meal at a fancy restaurant.The ingredients used cost $10.The value added by the restaurant is _____.

A)$30
B)$40
C)$70
D)$40 plus the wages paid to the chef and waiters
E)$40 plus the profit earned by the restaurant owner

Question 26

The final market value of a good is _____.

A)the sum of the value added at all stages of production
B)the value added at one stage of production
C)greater than the sum of all the values added at all stages of production
D)less than the sum of all the values added at all stages of production
E)the value added at the final stage of production

Question 27

The gross domestic product (GDP)excludes:

A)the value of a new building.
B)the value of new stocks and shares.
C)the cost of a new vending machine.
D)government expenditure on a new bridge.
E)the money spent on the purchase of legal services by a household.

Question 28

If consumption = $5,000;investment = $800,government purchases = $700,exports = $30,imports = $60,and transfer payments = $340,then _____.

A)GDP = $7,400
B)GDP = $7,740
C)GDP = $3,140
D)GDP = $6,470
E)GDP = $6,840

Question 29

If consumption = $2,000,investment = $600,government purchases = $500,net exports = −$40,transfer payments = $340,then _____.

A)GDP = $2,720
B)GDP = $3,060
C)GDP = $3,140
D)GDP = $3,400
E)GDP = $3,340

Question 30

Which of the following is included as government purchases in gross domestic product (GDP)?

A)Social Security payments to elderly citizens
B)Welfare benefits distributed to the poor
C)Outright grants from government to recipients
D)Payments to clerical workers hired by government
E)Unemployment compensation benefits

Question 31

When a firm produces and sells a refrigerator worth $1,000,its contribution to the gross domestic product (GDP)on the income side is measured by:

A)the price paid by the consumer.
B)the investment made by the firm to manufacture the refrigerator.
C)the stock of inventories used by the firm to manufacture the refrigerator.
D)the cost of raw materials used by the firm to manufacture the refrigerator.
E)the sum of the wages,interest,and rent paid by the firm's owners and the profit of the firm.

Question 32

If an economy produces final output worth $5 trillion,then the aggregate income generated by that production:

A)will be $5 trillion.
B)will be more than $5 trillion.
C)will be $5 trillion minus taxes.
D)will be less than $5 trillion.
E)will be $5 trillion plus transaction costs.

Question 33

Which of the following is not a component of aggregate expenditure?

A)Consumption expenditures
B)Investment
C)Imports
D)Rent
E)Government purchases

Question 34

The value added by a firm is defined as:

A)the sum of all income earned by the workers in the firm.
B)the firm's actual investment minus planned investment.
C)the value of the product manufactured by the firm plus the transaction costs incurred by the firm.
D)the value of the firm's product minus the cost of materials it bought from other firms.
E)the increase in the value of the firm's stock or bond.

Question 35

Net exports equals _____.

A)the value of exports minus the value of imports
B)the value of imports minus the value of exports
C)the value of imports minus tariffs
D)the value of exports minus tariffs
E)the value of exports plus the value of imports minus depreciation

Question 36

If the value of exports equals $6.5 billion and the value of imports equals $8.0 billion in a year,then:

A)together imports and exports add $1.5 billion to the gross domestic product (GDP).
B)together exports and imports add $6.5 billion to the gross domestic product (GDP).
C)together exports and imports reduce the gross domestic product (GDP)by 1.5 billion.
D)together exports and imports add nothing to the gross domestic product (GDP).

Question 37

When calculating gross domestic product (GDP),double counting can be avoided by:

A)taxing corporate income.
B)adding all income taxes to GDP.
C)calculating GDP using the income as well as the expenditure method.
D)adding the value of exports to GDP and subtracting the value of imports.
E)summing the value added at each stage of production.

Question 38

The immediate effect of a purchase of a government bond on the gross domestic product (GDP)is_____.

A)a decrease in consumption
B)an increase in government spending
C)an increase in investment
D)a decrease in investment
E)nonexistent,since no real goods and services have been produced

Question 39

The largest component of aggregate expenditure is _____.

A)government purchases
B)transfer payments
C)imports
D)consumption
E)investment

Question 40

If a toy store overestimates the demand for a toy in 2004 and,as a result,has an unexpectedly large number of toys in stock at the end of the year,the value of the inventory of these toys will be considered as:

A)investment in 2004.
B)investment in 2005.
C)consumption in 2004.
D)consumption in 2005.
E)a part of GDP when the toys are sold.

Question 41

Which of the following is an example of a leakage from the circular flow of income and expenditure?

A)Investment
B)Imports
C)Government purchases
D)Exports
E)Transfer payments

Question 42

Which of the following correctly illustrates the leakages-injections approach to GDP?

A)DI + (NT)= C + I + G + (X ‒ M)
B)S + C + NT = DI
C)S + C + (NT)= I + G + (X ‒ M)
D)S + (NT)+ M = I + G + X
E)S + (NT)= I + G + (X ‒ M)

Question 43

If a firm hires labor for $6,000,pays rent of $2,000,buys raw materials for $10,000 from another firm,earns profits of $800,and sells its output for $25,000,the value added by the firm is _____.

A)$6,200
B)$9,000
C)$15,000
D)$18,000
E)$18,800

Question 44

Which of the following is an example of an injection into the circular flow of income and expenditure?

A)Net taxes
B)Saving
C)Transfer payments
D)Government borrowing
E)Disposable income

Question 45

The circular flow model shows the flow of:

A)money in the economy.
B)financial assets in the economy.
C)goods and services in the product market.
D)resources and money in the economy.
E)resources through the resource markets and their allocation in the product market.

Question 46

Marianne and Laura are both homemakers with children.When Laura starts to work as an unpaid volunteer at a hospital,she hires Marianne to care for her young child.In this context,the gross domestic product (GDP)will _____.

A)increase
B)decrease
C)remain unaffected
D)increase if Marianne cares for the child better than Laura
E)increase if Laura treats patients with more sincerity than the other volunteers

Question 47

If a firm hires labor for $20,000,pays rent of $12,000,buys raw materials for $6,000 from another firm,earns profits of $3,000,and sells its output for $41,000,the value added by the firm is _____.

A)$0
B)$15,000
C)$35,000
D)$38,000
E)$41,000

Question 48

Which of the following is true of leakages and injections in the circular flow model?

A)Leakages minus injections equal gross domestic product (GDP).
B)Injections minus leakages equal gross domestic product (GDP).
C)Leakages minus injections equal zero in equilibrium.
D)Leakages must be less than injections for an economy to be in equilibrium.
E)Leakages must be greater than injections for an economy to be growing.

Question 49

Jimmy Earl,a farmer,sells $20 worth of peanuts to a factory that manufactures peanut butter,which sells it for $45.Which of the following is true?

A)Total value added is $65.
B)The value of final sales is $65.
C)The value of final sales is $25.
D)Total value added is $25.
E)Total value added is $45.

Question 50

Which of the following is an example of a leakage from the circular flow of income and expenditure?

A)Government purchases of goods and services
B)Taxes
C)Investment
D)Exports
E)Consumption expenditures

Question 51

Lois sells ten sweaters she had knitted to a retail store.The gross domestic product (GDP)of her country _____.

A)will increase
B)will decrease
C)will remain unaffected
D)will increase only if the sweaters are as good as the sweaters sold by other retailers
E)will increase if the price of each sweater is less than the cost of inputs required

Question 52

Which of the following is an example of a leakage into the circular flow of income and expenditure?

A)Saving
B)Exports
C)Government expenditure on goods
D)Transfer payments
E)Investment by firms

Question 53

Which of the following is an example of an injection into the circular flow of income and expenditure?

A)Government spending
B)Imports
C)Disposable income
D)Net taxes
E)Saving

Question 54

If a firm hires labor for $8,000,pays rent of $4,000,buys raw materials for $13,000 from another firm,earns profits of $1,200,and sells its output for $31,000,the value added by the firm is _____.

A)$4,800
B)$10,000
C)$18,000
D)$25,000
E)$26,200

Question 55

The circular flow model shows that:

A)households are on the demand side of the resource market.
B)firms are on the demand side of both the product and resource markets.
C)households are on the supply side of the resource market and the demand side of the product market.
D)firms and governments are on the supply side of the loanable funds market.
E)governments are on the demand side of the product market and the supply side of the resource market.

Question 56

Which of the following is an example of an injection into the circular flow of income and expenditure?

A)Consumption
B)Exports
C)Taxes
D)Saving
E)Government borrowing

Question 57

A farmer grows wheat and sells it to a bakery for $5.The bakery uses the wheat to bake bread and sells it to a distributor for $20.The distributor sells the bread to a supermarket for $30,which then sells the bread to customers for $50.Which of the following is true?

A)The value added by the distributor is $30.
B)The value added by the supermarket is more than that added by the bakery.
C)GDP rises by $50 plus the value added at each stage of production.
D)Counting the value added at each stage instead of counting the final selling price creates a problem of double counting.
E)The value added by the farmer is $20 because the wheat,which is worth $5,is necessary for each of the three remaining stages of production.

Question 58

Which of the following statements is true regarding leakages and injections?

A)Government transfer payments must equal taxes because one is a leakage and the other is an injection.
B)Imports must equal exports since both are leakages.
C)Government purchases,investment,and exports are leakages from the circular flow of income and expenditure.
D)Savings and net taxes are leakages from the circular flow of income and expenditure.
E)Net taxes are an injection into the circular flow,while exports are a leakage.

Question 59

Which of the following is a problem associated with gross domestic product (GDP)as a measure of social welfare?

A)It includes many nonmarket activities.
B)It takes into account the value of only those goods which are widely used.
C)It takes into account the cost of environmental damage caused by pollution.
D)It includes intermediate goods as a separate entry.
E)It excludes the value of leisure time.

Question 60

If a firm hires labor for $4,000,pays rent of $1,500,buys raw materials for $6,000 from another firm,earns profits of $500,and sells its output for $14,000,the value added by the firm is _____.

A)$12,000
B)$8,000
C)$6,000
D)$2,000
E)$500

Question 61

The gross domestic product (GDP)of an economy for a particular year is likely to increase if _____.

A)workers go on longer vacations during that year
B)the length of an average work week decreases
C)homeowners hire lawn care services rather than maintaining the lawns themselves
D)people cook food at home instead of buying restaurant meals
E)the sale of illegal drugs increases

Question 62

The price index in the base year always equals_____.

A)0
B)10
C)100
D)1
E)0.01

Question 63

The existence of the underground economy causes gross domestic product (GDP)statistics to _____.

A)understate the true volume of economic activity
B)overstate the aggregate price level in the economy
C)overstate the standard of living
D)overstate the profit of firms
E)understate government spending in an economy

Question 64

Depreciation refers to:

A)the value of leisure goods.
B)changes in exchange rates.
C)income that we earn but do not receive.
D)investment undertaken merely to replace worn-out capital.
E)the effects of government subsidy programs.

Question 65

One of the limitations of the national income accounting system is:

A)valuing all output at its market price regardless of its contribution to society's economic welfare.
B)placing a market value on all negative externalities.
C)accurately measuring the value of leisure time.
D)double counting food produced on a farm for family consumption.
E)ignoring government production of goods and services.

Question 66

Which of the following will be excluded from the measurement of gross domestic product (GDP)?

A)The market value of automobiles purchased by the federal government
B)The market value of California wine purchased by a Canadian firm
C)The payment of employees' medical insurance
D)The market value of computers purchased by state governments
E)The market value of transactions in the underground economy

Question 67

Which of the following is likely to be excluded from the gross domestic product (GDP)of a country?

A)The value of the drugs being sold in a vacant lot
B)The value of the drugs being sold in a pharmacy
C)A doctor treating a patient in a hospital
D)The value of a new house bought by an individual
E)The value of new furnitures bought by an individual

Question 68

The statement "Gross domestic product (GDP)values all output equally" means that:

A)household production is treated the same as production by firms.
B)depreciation of manufactured capital is treated the same as depletion of natural resources.
C)the purchase of pollution control equipment is valued the same as pollution itself.
D)leisure time is valued the same as time spent working a job.
E)the market price of output is the measure of that output's value.

Question 69

The U.S.Department of Commerce has been developing so-called "green accounting" to:

A)include the value of leisure in the gross domestic product (GDP)of the country.
B)register the impact of pollution and natural resource depletion.
C)value the output of new firms.
D)illustrate the difference between nominal GDP and real GDP.
E)measure the value of the output produced by inexperienced workers.

Question 70

The national income accounting system measures economic activity based on the concept of _____.

A)absolute advantage of different industries in an economy
B)the circular flow of precious metal and money through the different sectors of an economy
C)comparative advantage of different industries in an economy
D)the circular flow of output and income through the different sectors of an economy
E)the circular flow of labor and other resources through the different sectors of an economy

Question 71

Given the following hypothetical data where C = $3,000;I = $1,200;G = $2,000;X − M = −$500;depreciation = $200;transfer payments = $800,net domestic product is _____.

A)$5,500
B)$5,700
C)$6,200
D)$6,400
E)$6,900

Question 72

Depreciation refers to a decrease in the value of a durable good caused by:

A)an increase in the price level.
B)changes in the interest rate.
C)wear and tear over time.
D)changes in tax laws.
E)a decrease in its resale value.

Question 73

Gross domestic product (GDP)is a poor measure of social well-being because:

A)the value of leisure time is included in GDP accounting.
B)the revenue earned through exports is ignored.
C)each dollar of government spending is valued at less than one-half of private spending.
D)consumer spending is more important than business spending and should be considered more valuable.
E)it values products at their market prices but ignores services produced.

Question 74

Which of the following is a difference between net domestic product (NDP)and gross domestic product (GDP)?

A)GDP includes the cost of polluting the environment,while NDP does not.
B)GDP excludes net taxes,while NDP includes it.
C)GDP excludes that part of the capital stock used up in the production process,while NDP includes it.
D)GDP includes all government spending,while NDP excludes government spending.
E)GDP includes that part of the capital stock used up in the production process,while NDP does not.

Question 75

Which of the following is reflected in the gross domestic product (GDP)?

A)The value of leisure time
B)The value of illegal goods and services
C)The value of final goods produced by firms
D)The cost of depletion of natural resources
E)The value of house maintenance performed by homeowners

Question 76

Nominal gross domestic product (GDP)is measured in terms of the _____.

A)current-year prices
B)base-year prices
C)export of goods and services
D)amount of taxes collected
E)hours of employment

Question 77

Gross domestic product (GDP)is not a perfect measure of welfare because it:

A)treats a dollar spent on guns the same as a dollar spent on education.
B)treats a dollar spent on exports the same as a dollar spent on imports.
C)double counts the value of leisure time.
D)double counts depreciation.
E)counts illegal activities in the underground economy.

Question 78

A shortcoming of national income accounting is that it ignores:

A)the depreciation of manufactured capital.
B)spending by poor households who are receiving government transfer payments.
C)spending on intermediate goods.
D)the depletion of natural resources.
E)U.S.products that are sold overseas.

Question 79

The base year for a price index is the year_____.

A)in which prices were lowest
B)in which prices were highest
C)in which real output was the largest
D)in which prices were stable
E)that serves as a reference point

Question 80

Gross domestic product (GDP)figures tend to understate the quantity of goods and services available because:

A)GDP excludes the value of goods produced at home.
B)many items are counted twice or more in the intermediate stages of production.
C)more women are entering the labor force.
D)firms often add less to inventories than they planned to.
E)exports are subtracted from GDP but imports are not added.