Deck 21: Measuring Total Income and Output

Question 1

Refer to Figure 6-1.Your purchase of groceries from Safeway is represented by which two flows?

A)A and B
B)A and C
C)A and D
D)C and D

Answer 1

A

Question 2

Which of the following items is a flow variable?
I.consumption expenditure
II.gross private investment
III.government purchases
IV.net exports

A)All of the above items
B)I, III, and IV only
C)I, II, and III only
D)I, II, and IV only

Answer 2

A

Question 3

Which of the following items is a stock variable?
I.consumption expenditure
II.gross private investment
III.a trade surplus
IV.government debt

A)All of the above items
B)II, III, and IV only
C)II and III only
D)III and IV only

Answer 3

D

Question 4

The value of an economy's total output of goods and services is called

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

Question 5

Refer to Figure 6-1."B" represents

A)the flow of factors of production.
B)the flow of factor incomes.
C)the flow personal consumption expenditures.
D)the flow of consumer goods and services.

Question 6

In the long run, a country's material standard of living is determined by
I.its output relative to its population
II.its income relative to its population
III.the amount of money supply relative to its population
IV.the average level of prices and the average income of its population

A)all of the items listed
B)I only
C)I and II only
D)I and IV only

Question 7

Which of the following is an example of a flow variable?

A)the balance in your checking account
B)the value of your stock portfolio
C)the amount of cash you have in your safe
D)the interest rate you pay on your auto loan

Question 8

Which of the following is true of the circular flow model?
I.Personal consumption spending flows from households to firms.
II The production of goods and services generates income to households.
III.Consumers finance their personal consumption spending by supplying factors of production to firms.

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

Question 9

Refer to Figure 6-1."C" represents

A)the flow of factors of production.
B)the flow of factor incomes.
C)the flow personal consumption expenditures.
D)the flow of consumer goods and services.

Question 10

Which of the following is an example of a stock variable?

A)your monthly utilities bill
B)the value of your stock portfolio
C)your annual salary
D)the interest rate you pay on your auto loan

Question 11

Which of the following is counted as consumption?

A)you buy a government bond
B)you buy a toaster from your neighbor in a garage sale
C)the purchase of a new home
D)the purchase of new car

Question 12

Let C=consumption, I=private investment, G=government purchases, X_n=net exports.Which of the following best represents the equation for GDP?

A)GDP = C+ I + G − X_n
B)GDP = C + I + G + X_n
C)GDP = C + I + G + Net Imports
D)GDP = C + I + G + T + X_n

Question 13

The measurement of the value of goods and services purchased by households during a particular period is called

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

Question 14

GDP is the sum of

A)personal consumption, private investment, government purchases, exports, and imports.
B)personal consumption, private investment, government purchases, and net exports.
C)personal consumption, private investment, government purchases, and net imports.
D)personal consumption, private investment, government purchases, and imports-exports

Question 15

Gross domestic product

A)is a flow variable.
B)is a stock variable.
C)could be either a flow variable or a stock variable depending on the time period considered.
D)is neither a flow nor a stock variable; it is a statistic.

Question 16

Refer to Figure 6-1."A" represents

A)the flow personal consumption expenditures.
B)the flow of consumer goods and services.
C)the flow of factors of production.
D)the flow of factor incomes.

Question 17

Which statistic do economists use to measure the business cycle?

A)changes in the inflation rate
B)changes in real gross domestic product
C)changes in gross private investment
D)changes in the implicit price deflator

Question 18

GDP can be measured

A)either in terms of the total value of output produced or as the total value of consumer expenditures on goods and services.
B)either in terms of the total value of output produced or as the total value of income generated in producing that output.
C)either in terms of the total value of income generated in producing a nation's output or as the total sales of a nation's output.
D)either in terms of the total value of inputs used to produce a nation's output or as the cost of producing of that output excluding profit.

Question 19

What is the difference between a flow variable and a stock variable?

A)A stock variable is a variable that is measured over a specific period of time while a flow variable is a variable that is independent of time.
B)A flow variable is a variable that is measured in units of current prices while a stock variable is measured using prices from a base period.
C)A flow variable is a variable that is measured over a specific period of time while a stock variable is a variable that is independent of time.
D)A stock variable is a variable that is measured in units of current prices while a flow variable is measured using prices from a base period.

Question 20

Refer to Figure 6-1."D" represents

A)the flow of factors of production.
B)the flow of factor incomes.
C)the flow personal consumption expenditures.
D)the flow of consumer goods and services.

Question 21

Government purchases include
I.purchases by the federal government.
II.purchases by the state and local government agencies.
III.the total value of output produced by government agencies.
IV.transfer payments.

A)all of the above items
B)I, II, and III only
C)I, II, and IV only
D)I and II only

Question 22

Transfer payments are

A)payments to people for their current production.
B)payments that do not require a good or service in exchange.
C)considered a part of government purchases.
D)an important component GDP because they increase consumption spending.

Question 23

Which of the following is included in gross private domestic investment?
I.Safeway's purchase of three new delivery trucks
II.repairs to and replacements to the shelving system at Safeway
III.changes in business inventories
IV.your purchase of groceries at Safeway

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

Question 24

Which of the following is an example of a transfer payment?

A)the President's salary
B)paying a gambling debt
C)a barber's income
D)a pension payment to a retired military person

Question 25

Goods that are produced in a particular period but not sold in the current period

A)go into inventories and are called consumption.
B)end up in inventories and are included in gross private investment.
C)are excluded in the current year's GDP and included in GDP in the year they are sold.
D)are classified as intermediate goods.

Question 26

The construction of a new state highway would be included in the

A)personal consumption category of GDP.
B)government purchases category of GDP.
C)government output category of GDP.
D)government investment category of GDP.

Question 27

Refer to Figure 6-1.Suppose you have been hired by an electronics store as a salesperson.Which of the following flows represents this transaction?

A)A and B
B)A and C
C)A and D
D)C and D

Question 28

Payments made by the government to individuals that do not require the recipients to produce a good or service in exchange are called

A)private investment.
B)transfer payments.
C)government purchases.
D)personal consumption.

Question 29

In the circular flow model for an economy that produces only consumption goods,

A)factor incomes flow from households to firms.
B)factors of production flow from households to firms.
C)factor incomes flow from households to firms and to the government.
D)factors of production flow from firms to households.

Question 30

In the circular flow model for an economy that produces only consumption goods,

A)factor incomes flow from households to firms.
B)factors of production flow from firms to households.
C)expenditures on output flow from firms to households.
D)factors of production flow from households to firms.

Question 31

The official measure of private investment in computing GDP is

A)personal investment expenditures.
B)capital consumption allowance.
C)net private domestic investment.
D)gross private domestic investment.

Question 32

Which of the following items is included in gross private domestic investment?

A)an increase in the level of government spending on new schools
B)the purchase of medical equipment by the Marines for use in its field hospitals
C)an increase in business inventories
D)an increase in the value of corporate stocks sold during the year

Question 33

Which of the following statements is true?

A)Capital and gross private investment are flow variables.
B)Capital and gross private investment are stock variables.
C)Capital is a stock variable while and gross private investment is a flow variable.
D)Capital is a flow variable while and gross private investment is a stock variable.

Question 34

Gross private domestic investment includes
I.expenditures on new buildings, plants, tools, and equipment.
II.purchases of new residential housing.
III.changes in business inventories.
IV.purchases of stocks and bonds .

A)All of the items are included.
B)I, III, and IIV only
C)I and II only
D)I, II, and III only

Question 35

Government purchases

A)are the sum of purchases of goods and services from firms by government agencies and the total value of output produced by government agencies.
B)are the sum of purchases of goods and services from firms by government and the value of transfer payments made to government to its citizens.
C)are the sum of purchase of final goods and service from firms by government agencies and the payment of interests on loans undertaken by the government.
D)refer to the purchase of final goods and service from firms by government agencies and do not include the value of output produced by government agencies.

Question 36

Transfer payments are

A)incomes to certain individuals and are part of GDP.
B)not included in GDP because they do not represent income derived from current production.
C)included in GDP only if they are for unemployment compensation.
D)payments for services performed in the current time period.

Question 37

Suppose clothing manufacturer, Eddie Bauer, produced 10,000 pairs of jeans in 2005 but sold 9,200 pairs.How will this be recorded in GDP accounts?

A)The 9,200 pairs sold will be counted under the consumption component of GDP in 2005 and the 800 pairs that were not sold will not be included in GDP.
B)The 10,000 pairs of jeans produced would be counted as investment and will be included in GDP.
C)The 9,200 pairs sold will be counted as consumption and the 800 pairs that were not sold will counted as investment and both items will be included in 2005 GDP.
D)The 9,200 pairs sold will be counted under the consumption component of GDP in 2005 and the 800 pairs that were not sold will be included in 2006 GDP.

Question 38

Private investment plays a crucial role in the macro economy because it is

A)the largest expenditure component of GDP.
B)the smallest expenditure component of GDP.
C)an expenditure that adds to the economy's productive capacity.
D)undertaken by the government and must be funded by tax revenue.

Question 39

Which of the following items would not be a part of private investment?

A)a new factory building
B)new factory equipment
C)inventory increases
D)an old shopping center acquired by a merger

Question 40

In the calculation of GDP, the value of a new house is included in

A)personal consumption expenditures.
B)personal saving.
C)the depreciation of capital.
D)private investment.

Question 41

Which of the following is an expenditure component of GDP?

A)interest
B)indirect business taxes
C)capital consumption allowance
D)personal consumption

Question 42

A trade deficit occurs when

A)imports are less than exports.
B)exports are less than imports.
C)exports equals imports.
D)a nation buys less from other nations than it sells to them.

Question 43

GDP is defined as the

A)total value of business sales of goods and services during a given period.
B)total value of all final goods and services produced during a given period.
C)value of all economic transactions made among consumers, businesses, and government during a particular period.
D)measure of economic and social welfare for the economy.

Question 44

The purchases of U.S.products by citizens of Mexico are

A)counted as U.S.exports.
B)counted as U.S.imports.
C)considered Mexico's exports.
D)considered as an income transfer from the U.S.to Mexico.

Question 45

A country's exports minus its imports measures

A)net exports.
B)gross exports.
C)net imports.
D)gross imports.

Question 46

If exports are less than imports,

A)net imports equal zero.
B)net imports is a negative number.
C)net exports is a negative number.
D)net exports is a positive number.

Question 47

Social Security payments to U.S.citizens are called

A)transfer payments and are included in GDP.
B)transfer payments and are not included in GDP.
C)income and are included in GDP.
D)income and are not included in GDP.

Question 48

Value added is defined as

A)the value of productivity gains that arise when a firm increases its capital-labor ratio.
B)the difference between the value of all resources used to produce a product and the final selling price of that product.
C)the amount by which the value of a firm's output exceeds the value of the goods and services the firm purchases from other firms.
D)the cost savings that a firm enjoys when it reduces the cost of its resources by employing a more efficient production method.

Question 49

A nation records a trade surplus when

A)net exports are negative.
B)net exports are positive.
C)imports are greater than exports.
D)net exports equal zero.

Question 50

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

A)a new boat purchased by your brother for vacation purposes
B)purchase of lumber by a property developer to be used in building a new house
C)payments to military personnel
D)a professor's salary

Question 51

Goods and services produced abroad and sold in the domestic economy are called

A)net exports.
B)exports.
C)imports.
D)transfer payments.

Question 52

The largest expenditure category in GDP is

A)government purchases.
B)personal consumption.
C)net exports.
D)gross private domestic investment.

Question 53

The total volume of business sales in an economy is much larger than the value of GDP because

A)GDP understates the value of total output.
B)the output approach to measuring GDP excludes intermediate transactions.
C)GDP includes transfer payments.
D)business sales includes sales to foreign countries but GDP excludes sale of output to foreign countries.

Question 54

Which of the following would not be included in this year's GDP?

A)the production of a television show
B)the purchase of a new work truck
C)the hiring of a new police officer
D)your purchase of your neighbor's 1998 Toyota

Question 55

Which of the following would not be included in GDP?

A)used car sales
B)new residential construction
C)a new truck purchased by a building contractor
D)telephone service purchased for a home

Question 56

The amount by which the value of a firm's output exceeds the value of the goods and services the firm purchases from other firms is called

A)profit.
B)value added.
C)markup rate.
D)marginal cost.

Question 57

Goods and services produced in the domestic economy and sold abroad are called

A)net exports.
B)exports.
C)imports.
D)transfer payments.

Question 58

Which of the following items would be included in GDP in 2008?
I.payment made to a mechanic who repaired your 2005 Toyota
II.the fees charged by a lawyer for drawing your parents' will
III.new car sales by a local car dealer
IV.the value of new cars produced in 2008 but not sold in 2008

A)All of the items are included.
B)I, II, and III only
C)II and III only
D)II, III, and IV only

Question 59

GDP includes __________ expenditures but does not include __________ expenditures.

A)education; national defense
B)Social Security payments to retired persons; education
C)Social Security payments to retired persons; national defense
D)national defense; transfer payment

Question 60

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

A)crude oil in an oil well
B)gasoline purchased by Exxon for its pumps
C)a song you downloaded for a fee from Amazon.com
D)retail floor space at a suburban shopping mall

Question 61

To estimate the value of U.S.GDP from U.S.GNP, we must

A)add the value of output produced by U.S.residents and sold abroad.
B)add the income earned from the rest of the world by U.S.residents and subtract payments made by U.S.residents to the rest of the world.
C)subtracting the value of output produced by U.S.residents and sold abroad.
D)subtract the income earned from the rest of the world by U.S.residents and add payments made by U.S.residents to the rest of the world.

Question 62

When would an economist focus on GNP rather than GDP?

A)When the economist wants more accurate measure of production, since GNP data are typically much more precise than GDP data.
B)When the economist wants to study consumption, since consumption expenditures are weighted more heavily in GNP than in GDP.
C)When the economist wants to measure total income earned by residents of a country.
D)When the economist wants a measure that includes depreciation, because GDP omits depreciation in its calculations.

Question 63

The equality between GDP and gross domestic income implies that income generated by final goods and services is equal to

A)personal consumption expenditures.
B)gross private domestic investment.
C)expenditures on final good and services.
D)total wages and other employee compensation.

Question 64

The gross national product of the U.S.measures

A)the market value of final goods and services produced in the U.S.during a particular period.
B)the market value of final goods and services produced using factors of production owned by U.S.residents during a particular period.
C)the market value of goods and services produced anywhere in the world, by its U.S.citizens and foreigners residing in the U.S.during a particular period.
D)the market value of goods and services produced in the U.S.by foreigners residing in the U.S.during a particular period.

Question 65

The value of income generated by the production of a given value of final goods and services is called

A)gross domestic income.
B)net factor output.
C)net foreign factor income.
D)gross personal product.

Question 66

Which of the following statements about gross national product is correct? It measures the market value of

A)all goods and services, both final and intermediate, produced by resources located within a nation regardless of who owns those resources.
B)all goods and services, both final and intermediate, produced by residents and firms regardless of the location of production.
C)all final goods and services produced by residents and firms of a nation regardless of the location of production.
D)all final goods and services produced by resources located within a nation regardless of who owns those resources.

Question 67

Double counting in GDP accounting

A)refers to the fact that accountants check their figures twice.
B)refers to the inclusion of intermediate goods.
C)is the method of using both income and expenditures in measuring GDP.
D)is represented by all of the above.

Question 68

Gross domestic income (GDI)is defined as

A)the income of all laborers in the world economy during a particular period.
B)the income of all workers in the private sector during a particular period.
C)the income of all individuals who supply resources to the production of final goods and services during a particular period.
D)income after all income taxes but before paying other payroll taxes during a particular period.

Question 69

Gross national product of China can be calculated from China's GDP by

A)adding the value of output produced by China's residents and sold abroad.
B)adding the income earned from the rest of the world by China's residents and subtracting payments made by China's residents to the rest of the world.
C)subtracting the value of output produced by China's residents and sold abroad.
D)subtracting the income earned from the rest of the world by China's residents and adding payments made by China's residents to the rest of the world.

Question 70

In GDP accounting, the value of total final output in a given period equals the value of

A)total income generated by the production of final goods and services in that period.
B)total income less taxes.
C)total income less depreciation.
D)total income plus government purchases.

Question 71

Vikram, an Indian national working for the Microsoft Corporation, sends a monthly gift of $300 to his parents who live in Bangalore, India.This activity

A)increases India's GNP and decreases U.S.GNP.
B)decreases U.S.GNP but does not affect U.S.GDP.
C)increases U.S.GNP and India's GNP.
D)does not affect the GDP and GNP of either country.

Question 72

Which of the following is an advantage of a value-added tax (VAT)compared to a tax on retail sales?

A)The VAT may lead to higher revenue collected because even if no sales takes place, the government collects tax revenue at earlier stages of production.
B)The VAT is a more equitable tax system because the tax burden is shared by every participant in the production process and by the final consumer.
C)The VAT encourages productive behavior because each producer bears a smaller portion of the total tax imposed on a product.
D)The VAT reduces a nation's trade deficit.

Question 73

If we add up all the values added at every stage of production for a good, we will get

A)the total cost of the labor used to produce the good.
B)the prices of the factors of production used to produce the good.
C)the final value of the good.
D)the intermediate value of the good.

Question 74

The value of gross domestic product (GDP)differs from the value of gross national product (GNP)when

A)net exports are excluded from GDP but included in GNP.
B)production in one country employs factors of production owned by residents of other countries.
C)production in one country employs only factors of production owned by its residents.
D)when domestic firms that produce in factories abroad are exempt from paying domestic taxes.

Question 75

What is a value-added tax (VAT)?

A)It is essentially a tax on profits earned by firms from the sale of goods and services.
B)It is a tax placed on a product whenever value is added at a stage of production and at final sale.
C)It is a tax imposed on those who supply factors of production, such as the payroll tax.
D)It is a tax imposed on luxury goods to generate additional revenue for the government.

Question 76

GDP can be calculated by totaling either the

A)market values of all final goods and services or the total sales values of all intermediate goods at all stages of production.
B)market values of all final goods and services or the values added at all stages of production.
C)total sales values of all intermediate goods at all stages of production or the values added at all stages of production.
D)market values of all final goods and services or the values added by labor at all stages of production.

Question 77

Suppose that in Croy, residents never supply factors of production to foreign firms, while producers in Croy regularly employ factors owned by residents of other countries.Which of the following statements is true for Croy?

A)GDP is greater than GNP.
B)GDP is less than GNP.
C)GDP and GNP are about the same.
D)GDP exceeds GNP by an amount equal to depreciation plus indirect business taxes.

Question 78

The Pfister Company, located in New York, is a German manufacturer of heavy-duty glass shower doors.For example, it uses glass- cutting machinery imported from Germany for its production.The value of the company's output

A)increases both U.S.gross domestic product and gross national product.
B)increases U.S.gross domestic product and decreases U.S.gross national product.
C)U.S.gross domestic product but U.S.gross national product is not affected.
D)increases U.S.gross national product but U.S.gross domestic product is not affected.

Question 79

A resident of San Diego, California, owns and operates a garage across the U.S.Mexican border in Tijuana, Mexico.The value of garage services produced at the shop would be counted in
I.Canada's GDP.
II.Canada's GNP.
III.U.S.GDP.
IV U.S.GNP.

A)I and II
B)I and IV
C)I, II, and IV
D)I, II, III, and IV

Question 80

Suppose that in Wentworth most residents supply factors of production to foreign firms, while producers in Wentworth never employ factors owned by residents of other countries.Which of the following statements is true for Wentworth?

A)GDP is greater than GNP.
B)GDP is less than GNP.
C)GDP and GNP are about the same.
D)GDP exceeds GNP by an amount equal to depreciation plus indirect business taxes.