Deck 27: Measuring Domestic Output and National Income

Question 1

Which of the following transactions would be included in GDP?

A)Mary buys a used book for $5 at a garage sale.
B)Nick buys $5,000 worth of stock in Microsoft.
C)Olivia receives a tax refund of $500.
D)Peter buys a newly constructed house.

Answer 1

Peter buys a newly constructed house.

Question 2

The agency responsible for compiling the National Income Product Accounts for the U.S.economy is the

A)Council of Economic Advisers.
B)Bureau of Economic Analysis.
C)National Bureau of Economic Research.
D)Bureau of Labor Statistics.

Answer 2

Bureau of Economic Analysis.

Question 3

By summing the dollar value of all market transactions in the economy, we would

A)determine the market value of all resources used in the production process.
B)obtain a sum substantially larger than the GDP.
C)determine value added for the economy.
D)measure GDP.

Answer 3

obtain a sum substantially larger than the GDP.

Question 4

Suppose the total monetary value of all final goods and services produced in a particular country in 2015 is $500 billion and the total monetary value of final goods and services sold is $450 billion.We can conclude that

A)GDP in 2015 is $450 billion.
B)NDP in 2015 is $450 billion.
C)GDP in 2015 is $500 billion.
D)inventories in 2015 fell by $50 billion.

Question 5

Arthur sells $100 worth of cotton to Bob.Bob turns the cotton into cloth, which he sells to Camille for $300.Camille uses the cloth to make prom dresses that she sells to Donita for $700.Donita sells the dresses for $1,200 to kids attending the prom.The total contribution to GDP of this series of transactions is

A)$1,200.
B)$500.
C)$2,300.
D)$1,100.

Question 6

The concept of net domestic investment refers to

A)the amount of machinery and equipment used up in producing the GDP in a specific year.
B)the difference between the market value and book value of outstanding capital stock.
C)gross domestic investment less net exports.
D)total investment less the amount of investment goods used up in producing the year's output.

Question 7

The value added of a firm is the market value of

A)a firm's output plus the value of the inputs bought from others.
B)a firm's output less the value of the inputs bought from others.
C)the firm's output.
D)the firm's inputs bought from others.

Question 8

Which of the following is an intermediate good?

A)the purchase of gasoline for a ski trip to Colorado
B)the purchase of baseball uniforms by a professional baseball team
C)the purchase of a pizza by a college student
D)the purchase of jogging shoes by a professor

Question 9

Value added refers to

A)any increase in GDP that has been adjusted for adverse environmental effects.
B)the excess of gross investment over net investment.
C)the difference between the value of a firm's output and the value of the inputs it has purchased from others.
D)the portion of any increase in GDP that is caused by inflation as opposed to an increase in real output.

Question 10

GDP is the

A)national income minus all nonincome charges against output.
B)monetary value of all final goods and services produced within the borders of a nation in a particular year.
C)monetary value of all economic resources used in producing a year's output.
D)monetary value of all goods and services, final and intermediate, produced in a specific year.

Question 11

Value added can be determined by

A)summing the profits of all enterprises in the economy.
B)subtracting the purchase of intermediate products from the value of the sales of final products.
C)calculating the year-to-year changes in real GDP.
D)deflating nominal GDP.

Question 12

The National Income and Product Accounts (NIPA) help economists and policymakers to

A)determine which firms are likely to succeed or fail.
B)follow the long-run course of the economy to determine whether it has grown or stagnated.
C)measure what is occurring in each specific labor market.
D)accomplish all of these.

Question 13

If depreciation exceeds gross investment,

A)the economy's stock of capital may be either growing or shrinking.
B)the economy's stock of capital is shrinking.
C)the economy's stock of capital is growing.
D)net investment is zero.

Question 14

Suppose Smith pays $100 to Jones.

A)We can say with certainty that the GDP has increased by $100.
B)We can say with certainty that the GDP has increased, but we cannot determine the amount.
C)We can say with certainty that the nominal GDP has increased, but we can't say whether real GDP has increased or decreased.
D)We need more information to determine whether GDP has changed.

Question 15

Assume that a manufacturer of stereo speakers purchases $40 worth of components for each speaker.The completed speaker sells for $70.The value added by the manufacturer for each speaker is

A)$110.
B)$30.
C)$40.
D)$70.

Question 16

Gross domestic product (GDP) measures and reports output

A)as an index number.
B)in percentage terms.
C)in dollar amounts and percentage growth.
D)in quantities of physical units (for example, pounds, gallons, and bushels).

Question 17

Tom Atoe grows fruits and vegetables for home consumption.This activity is

A)excluded from GDP in order to avoid double counting.
B)excluded from GDP because an intermediate good is involved.
C)productive but is excluded from GDP because no market transaction occurs.
D)included in GDP because it reflects production.

Question 18

National income accountants can avoid multiple counting by

A)including transfer payments in their calculations.
B)only counting final goods.
C)counting both intermediate and final goods.
D)only counting intermediate goods.

Question 19

Alejandro Scoobertini owns a store specializing in soccer jerseys.In 2016, he purchased $150,000 worth of jerseys from manufacturers, employed one worker for $40,000, purchased $20,000 worth of supplies from an office supply store, and sold jerseys for $280,000.Based on this information, what was the value added at Alejandro's store in 2016?

A)$70,000
B)$110,000
C)$280,000
D)$490,000

Question 20

Final goods and services refers to

A)goods and services that are unsold and therefore added to inventories.
B)goods and services whose value has been adjusted for changes in the price level.
C)goods and services purchased by ultimate users, rather than for resale or further processing.
D)the excess of U.S.exports over U.S.imports.

Question 21

Which of the following is not economic investment?

A)the purchase of a new drill press by the Ajax Manufacturing Company
B)the purchase of 100 shares of AT&T by a retired business executive
C)construction of a suburban housing project
D)the piling up of inventories on a grocer's shelf

Question 22

An economy is enlarging its stock of capital goods

A)when net investment exceeds gross investment.
B)when gross investment exceeds replacement investment.
C)whenever gross investment is positive.
D)when replacement investment exceeds gross investment.

Question 23

Transfer payments are

A)excluded when calculating GDP because they only reflect inflation.
B)excluded when calculating GDP because they do not reflect current production.
C)included when calculating GDP because they are a category of investment spending.
D)included when calculating GDP because they increase the spending of recipients.

Question 24

The largest component of total expenditures in the United States is

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

Question 25

If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the country's capital stock

A)may have either increased or decreased.
B)increased by $65 billion.
C)increased by $55 billion.
D)decreased by $55 billion.

Question 26

Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Based on this information, positive net investment is occurring in

A)economy A only.
B)economy B only.
C)economy C only.
D)economies A and B only.

Question 27

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories fell by $10 billion.GDP in year 2 is

A)$180 billion.
B)$190 billion.
C)$200 billion.
D)$210 billion.

Question 28

In the treatment of U.S.exports and imports, national income accountants

A)subtract exports, but add imports, in calculating GDP.
B)subtract both exports and imports in calculating GDP.
C)add both exports and imports in calculating GDP.
D)add exports, but subtract imports, in calculating GDP.

Question 29

Net exports are

A)that portion of consumption and investment goods sent to other countries.
B)exports plus imports.
C)exports less imports.
D)imports less exports.

Question 30

If the economy adds to its inventory of goods during some year,

A)gross investment will exceed net investment by the amount of the inventory increase.
B)this amount should be ignored in calculating that year's GDP.
C)this amount should be subtracted in calculating that year's GDP.
D)this amount should be included in calculating that year's GDP.

Question 31

In national income accounting, the consumption category of expenditures includes purchases of

A)both new and used consumer goods.
B)automobiles for personal use but not houses.
C)consumer durable and nondurable goods but not services.
D)consumer nondurable goods and services but not consumer durable goods.

Question 32

Suppose that inventories were $80 billion in 2015 and $70 billion in 2016.In 2016, national income accountants would

A)add $10 billion to other elements of investment in calculating total investment.
B)subtract $10 billion from other elements of investment in calculating total investment.
C)add $75 billion (= $150/2) to other elements of investment in calculating total investment.
D)subtract $75 billion (= $150/2) from other elements of investment in calculating total investment.

Question 33

If depreciation (consumption of fixed capital) exceeds gross domestic investment, we can conclude that

A)nominal GDP is rising but real GDP is declining.
B)net investment is negative.
C)the economy is importing more than it exports.
D)the economy's production capacity is expanding.

Question 34

In 1933, net private domestic investment was a minus $6.0 billion.This means that

A)gross private domestic investment exceeded depreciation by $6.0 billion.
B)the economy was expanding in that year.
C)the production of 1933's GDP used up more capital goods than were produced in that year.
D)the economy produced no capital goods at all in 1933.

Question 35

The value of U.S.imports is

A)added to exports when calculating GDP because imports reflect spending by Americans.
B)subtracted from exports when calculating GDP because imports do not constitute spending by Americans.
C)subtracted from exports when calculating GDP because imports do not constitute production in the United States.
D)added when calculating GDP because imports do not constitute production in the United States.

Question 36

Which of the following do national income accountants consider to be investment?

A)the purchase of an automobile for private, nonbusiness use
B)the purchase of a new house
C)the purchase of corporate bonds
D)the purchase of gold coins

Question 37

When an economy's production capacity is expanding,

A)nominal GDP, but not necessarily real GDP, is rising.
B)net exports is always a positive amount.
C)DI exceeds PI.
D)gross domestic investment exceeds depreciation.

Question 38

GDP can be calculated by summing

A)consumption, investment, government purchases, exports, and imports.
B)consumption, investment, government purchases, and net exports.
C)consumption, investment, wages, and rents.
D)consumption, investment, government purchases, and imports.

Question 39

In national income accounting, the consumption category of expenditures includes purchases of

A)both new and used consumer goods.
B)consumer durable goods and consumer nondurable goods but not services.
C)consumer durable goods, consumer nondurable goods, and services.
D)changes in business inventories.

Question 40

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories increased by $10 billion.GDP in year 2 is

A)$180 billion.
B)$190 billion.
C)$200 billion.
D)$210 billion.

Question 41

Nominal GDP is

A)the sum of all monetary transactions that occur in the economy in a year.
B)the sum of all monetary transactions involving final goods and services that occur in the economy in a year.
C)the amount of production that occurs when the economy is operating at full employment.
D)money GDP adjusted for inflation.

Question 42

In the second quarter (three-month period) of 2001, U.S.nominal GDP increased but U.S.real GDP declined.We can conclude that

A)nominal income declined by more than personal income.
B)the price level rose by more than nominal GDP.
C)real wages declined by more than real GDP.
D)the price level fell by more than real GDP.

Question 43

Real GDP measures

A)current output at current prices.
B)current output at base year prices.
C)base year output at current prices.
D)base year output at current exchange rates.

Question 44

In a typical year, which of the following measures of aggregate output and income is likely to be the smallest?

A)gross domestic product
B)national income
C)disposable income
D)personal income

Question 45

Transfer payments are included in

A)NI.
B)PI.
C)GDP.
D)NDP.

Question 46

Which of the following best defines national income?

A)income received by households less personal taxes
B)the before-tax income received by households
C)incomes earned by U.S.resource suppliers plus taxes on production and imports
D)the market value of the annual output net of consumption of fixed capital

Question 47

What is the difference between national income and personal income?

A)personal taxes
B)National income includes income earned both in the United States and abroad, while personal income only includes that income earned within the borders of the United States.
C)National income represents before-tax income, while personal income measures how much is available for spending after all taxes have been subtracted.
D)National income represents income earned by American-owned resources, while personal income measures received income, whether earned or unearned.

Question 48

The amount of after-tax income received by households is measured by

A)discretionary income.
B)national income.
C)disposable income.
D)personal income.

Question 49

Consumption of fixed capital (depreciation) can be determined by

A)adding taxes on production and imports to NDP.
B)subtracting NDP from GDP.
C)subtracting net investment from GDP.
D)adding net investment to gross investment.

Question 50

Nominal GDP is adjusted for price changes through the use of

A)the Consumer Price Index (CPI).
B)the Producer Price Index (PPI).
C)the GDP price index.
D)exchange rates.

Question 51

A price index is

A)a comparison of the current price of a market basket to a fixed point of reference.
B)a comparison of real GDP in one period relative to another.
C)the cost of a market basket of goods and services in a base period divided by the cost of the same market basket in another period.
D)a ratio of real GDP to nominal GDP.

Question 52

The ZZZ Corporation issued $25 million in new common stock in 2016.It used $18 million of the proceeds to replace obsolete equipment in its factory and $7 million to repay bank loans.As a result, investment

A)of $7 million occurred.
B)of $25 million occurred.
C)of $18 million occurred.
D)has not occurred.

Question 53

National income measures

A)nominal GDP after it has been inflated or deflated for changes in the value of the dollar.
B)the after-tax income of resource suppliers.
C)the total of all sources of private income plus government revenue from taxes on production and imports.
D)the amount of wage, rent, interest, and profits income actually received by households.

Question 54

Real GDP refers to

A)the value of the domestic output after adjustments have been made for environmental pollution and changes in the distribution of income.
B)GDP data that embody changes in the price level but not changes in physical output.
C)GDP data that do not reflect changes in both physical output and the price level.
D)GDP data that have been adjusted for changes in the price level.

Question 55

If personal income exceeds national income in a particular year, we can conclude that

A)transfer payments exceeded the sum of Social Security contributions, corporate income taxes, and taxes on production and imports.
B)the sum of Social Security contributions, corporate income taxes, and undistributed corporate profits exceeded transfer payments.
C)consumption of fixed capital and taxes on production and imports exceeded personal taxes.
D)transfer payments exceeded the sum of Social Security contributions, corporate income taxes, and undistributed corporate profits.

Question 56

In calculating the GDP, national income accountants

A)treat inventory changes as an adjustment to personal consumption expenditures.
B)ignore inventories because they do not represent final goods.
C)subtract increases in inventories or add decreases in inventories.
D)add increases in inventories or subtract decreases in inventories.27-8

Question 57

If real GDP falls from one period to another, we can conclude that

A)deflation occurred.
B)inflation occurred.
C)nominal GDP fell.
D)none of these necessarily occurred.

Question 58

The total amount of income earned by U.S.resource suppliers in a year, plus taxes on production and imports, is measured by

A)gross domestic product.
B)national income.
C)personal income.
D)disposable income.

Question 59

If net foreign factor income is zero and there are no statistical discrepancies, the sum of national income and the consumption of fixed capital equals

A)disposable income.
B)personal income.
C)net domestic product.
D)gross domestic product.

Question 60

If real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for that year is

A)100.
B)200.
C)240.
D)300.

Question 61

Which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being?

A)the services of used-car dealers
B)the child-care services provided by stay-at-home parents
C)the construction of new houses
D)government expenditures on military equipment

Question 62

The growth of GDP may understate changes in the economy's economic well-being over time if the

A)distribution of income becomes increasingly unequal.
B)quality of products and services improves.
C)environment deteriorates because of pollution.
D)amount of leisure decreases.

Question 63

Real GDP is

A)the nominal value of all goods and services produced in the economy.
B)the nominal value of all goods and services produced in the domestic economy, corrected for inflation or deflation.
C)that aggregate output that is produced when the economy is operating at full employment.
D)always greater than nominal GDP.

Question 64

A large underground economy results in an

A)understated GDP.
B)overstated GDP.
C)understated GDP price index.
D)overstated GDP price index.

Question 65

GDP excludes

A)the market value of unpaid work in the home.
B)the production of services.
C)the production of nondurable goods.
D)positive changes in inventories.

Question 66

Assume that the size of the underground economy increases both absolutely and relatively over time.As a result,

A)real GDP will rise more rapidly than nominal GDP.
B)GDP will tend to increasingly understate the level of output through time.
C)GDP will tend to increasingly overstate the level of output through time.
D)the accuracy of GDP will be unaffected through time.

Question 67

The GDP tends to

A)overstate economic welfare because it does not include certain nonmarket activities such as the productive work of housewives.
B)understate economic welfare because it includes expenditures undertaken to offset or correct pollution.
C)understate economic welfare because it does not take into account increases in leisure.
D)overstate economic welfare because it does not reflect improvements in product quality.

Question 68

In an economy experiencing a persistently falling price level,

A)potential GDP will necessarily exceed actual GDP.
B)changes in nominal GDP may either overstate or understate changes in real GDP.
C)changes in nominal GDP understate changes in real GDP.
D)changes in nominal GDP overstate changes in real GDP.

Question 69

Historically, real GDP has increased less rapidly than nominal GDP because

A)price indices have not reflected improvements in product quality.
B)the general price level has increased.
C)technological progress has resulted in more efficient production.
D)the general price level has decreased.

Question 70

Environmental pollution is accounted for in

A)GDP.
B)PI.
C)DI.
D)none of these.

Question 71

If real GDP rises and the GDP price index has increased,

A)the percentage increase in nominal GDP must have been less than the percentage increase in the price level.
B)nominal GDP may have either increased or decreased.
C)nominal GDP must have increased.
D)nominal GDP must have fallen.

Question 72

Suppose nominal GDP was $360 billion in 1990 and $450 billion in 2000.The appropriate price index (1985 = 100) was 120 in 1990 and 125 in 2000.Between 1990 and 2000, real GDP

A)increased by $60 billion.
B)decreased by $32 billion.
C)increased by $100 billion.
D)increased by $117 billion.

Question 73

Suppose a nation's 2010 nominal GDP was $972 billion and the general price index was 90.To make the 2010 GDP comparable with the base year GDP, the 2010 GDP must be

A)deflated to $678 billion.
B)deflated to $896 billion.
C)inflated to $1,080 billion.
D)deflated to $1,080 billion.

Question 74

Which of the following activities is excluded from GDP, causing GDP to understate a nation's production?

A)the services of health care workers
B)the services of military personnel
C)the construction of new buildings
D)goods and services produced in the underground economy

Question 75

In determining real GDP, economists adjust the nominal GDP by using the

A)national productivity index.
B)wholesale (producers') price index.
C)GDP price index.
D)consumer price index.

Question 76

Suppose nominal GDP in 2009 was $100 billion and in 2010 it was $260 billion.The general price index in 2009 was 100 and in 2010 it was 180.Between 2009 and 2010, the real GDP rose by approximately

A)160 percent.
B)44 percent.
C)37 percent.
D)80 percent.

Question 77

(Advanced analysis) Only three goods are produced in an economy in the following amounts: A = 10, B = 30, C = 5.The current year per-unit prices of these three goods are A = $2, B = $3, and C = $1.If the per-unit prices of the three goods were each $1 in a base year used to construct a GDP price index, then the GDP price index in the current year is

A)205.5.
B)255.5.
C)39.3.
D)100.

Question 78

The fact that nominal GDP has risen faster than real GDP

A)suggests that the base year of the GDP price index has been shifted.
B)tells us nothing about what has happened to the price level.
C)suggests that the general price level has fallen.
D)suggests that the general price level has risen.

Question 79

If nominal GDP rises,

A)real GDP may either rise or fall.
B)we can be certain that the price level has risen.
C)real GDP must fall.
D)real GDP must also rise.

Question 80

In comparing GDP data over a period of years, a difference between nominal and real GDP may arise because

A)of changes in trade deficits and surpluses.
B)the length of the workweek has declined historically.
C)the price level may change over time.
D)depreciation may be greater or smaller than gross investment.