Deck 6: Measuring Total Output and Income

Question 1

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 amount you pay on your auto loan

Answer 1

D

Question 2

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 amount you pay on a mortgage

Answer 2

B

Question 3

Use the following to answer questions
Exhibit: Circular Flow Model
(Exhibit: Circular Flow Model)
The exhibit shows a simplified circular flow model where only consumption goods are being produced.The arrow marked "D" represents the flow of:

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

Answer 3

B

Question 4

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 5

Use the following to answer questions
Exhibit: Circular Flow Model
(Exhibit: Circular Flow Model)
The exhibit shows a simplified circular flow model where only consumption goods are being produced.The arrow marked "B" represents the flow of:

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

Question 6

Use the following to answer questions
Exhibit: Circular Flow Model
(Exhibit: Circular Flow Model)
The exhibit shows a simplified circular flow model where only consumption goods are being produced.The arrow marked "A" represents the flow of:

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

Question 7

Which of the following items is a stock variable?

A)Expenditure on consumer goods
B)Private investment
C)Labor wage
D)Government debt

Question 8

Let C = consumption, I = private investment, G = government purchases, and 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 + tax revenues + X_n

Question 9

Which of the following is counted as consumption expenditure?

A)A person buying a government bond
B)A person buying a toaster from your neighbor in a garage sale
C)A firm renting a two-storied building
D)A person buying a new car

Question 10

Of the following, 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 the value of imports
D)Changes in the implicit price deflator

Question 11

Use the following to answer questions
Exhibit: Circular Flow Model
(Exhibit: Circular Flow Model)
The exhibit shows a simplified circular flow model where only consumption goods are being produced.The arrow marked "C" represents the flow of:

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

Question 12

All of the following items are a flow variable EXCEPT _____.

A)a savings account balance
B)consumption expenditure
C)government purchases
D)gross private investment

Question 13

Which of the following is NOT true of the circular model of the economy?

A)Personal consumption spending flows from households to firms.
B)The production of goods and services generates income for households.
C)Consumers finance their personal consumption spending by supplying factors of production to firms.
D)Payments to factors of production flows from households to firms.

Question 14

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

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

Question 15

GDP is the sum of:

A)personal consumption, private investment, government purchases, 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 foreign remittances.

Question 16

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

A)consumption
B)investment
C)gross domestic product
D)exports

Question 17

The gross domestic product of a nation can be measured:

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

Question 18

The gross domestic product of a nation:

A)is a flow variable.
B)is a stock variable.
C)could either be a flow variable or a stock variable depending on the time period considered.
D)could either be a flow variable or a stock variable depending on the share of personal consumption.

Question 19

In the long run, a country's material standard of living is determined by:

A)the difference between its exports and imports.
B)the average level of prices and the average income of its population.
C)its output relative to its population.
D)the amount of money supply relative to its population.

Question 20

Use the following to answer questions
Exhibit: Circular Flow Model
(Exhibit: Circular Flow Model)
The exhibit shows a simplified circular flow model where only consumption goods are being produced.Which two flows represent your purchase of groceries from Safeway?

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

Question 21

In the calculation of GDP, the value of a new house constructed by a firm is included in:

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

Question 22

For computing GDP, the official measure of the value of all goods produced during a period for use in the production of other goods is called:

A)personal investment expenditure.
B)a capital consumption allowance.
C)a transfer payment.
D)gross private domestic investment.

Question 23

Government purchases include:

A)purchases made by people working in government organizations.
B)the total value of output produced by government agencies.
C)investments made by foreign public agencies.
D)transfer payments.

Question 24

Transfer payments are:

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

Question 25

The construction of a new state highway would be included in the _____ category of GDP.

A)personal consumption
B)government purchases
C)government output
D)government investment

Question 26

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

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

Question 27

Government purchases are defined as:

A)the sum of purchases of goods and services from firms by government agencies and the total value of output produced by government agencies.
B)the sum of purchases of goods and services from firms by the government and the value of transfer payments made to government to its citizens.
C)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)the purchase of final goods and service from firms by government agencies excluding the value of output produced by government agencies.

Question 28

Private investment plays a crucial role in the macroeconomy 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 29

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 30

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

A)The President's salary
B)A payment for a gambling debt
C)A barber's income
D)A pension payment to retired military personnel

Question 31

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

A)The sale of some Safeway stocks to another company
B)Safeway's purchase of three new delivery trucks
C)Your purchase of groceries at Safeway
D)An annual bonus given to Safeway employees

Question 32

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

A)The 9,200 pairs that were 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 in 2005.
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 GDP in 2005.
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 GDP in 2006.

Question 33

Gross private domestic investment includes purchases of:

A)government T-bills.
B)existing residential housing.
C)company stocks.
D)new factory equipment.

Question 34

Use the following to answer questions
Exhibit: Circular Flow Model
(Exhibit Circular Flow Model)
The exhibit shows a simplified circular flow model where only consumption goods are being produced.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)B and C
C)A and D
D)C and D

Question 35

Social Security payments to U.S.citizens are considered:

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 36

Transfer payments are:

A)payments made 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 pertain to unemployment benefits.
D)payments for services produced in the current time period.

Question 37

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 38

Thames Patio Solutions is a manufacturer of patio umbrellas.In 2007, its inventory increases by 170 umbrellas.In 2008, it sells all the 170 umbrellas.Which of the following can be inferred in this case?

A)The value of the increased inventory will be counted as part of GDP in 2007, and the value of the 170 umbrellas sold in 2008 will not cause GDP in 2008 to increase.
B)The value of the increased inventory will not affect GDP in 2007, but the sale of the umbrellas will cause GDP in 2008 to increase.
C)The value of the increased inventory will be counted as part of GDP in 2007 and the value of the 170 umbrellas sold in 2008 will cause GDP in 2008 to increase.
D)Since the umbrellas were not sold in 2007, they will not be included as part of GDP in 2007, and since they were not produced in 2008, they will not be included as part of GDP in 2008.This is a shortcoming of GDP computations.

Question 39

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 gross private investment is a flow variable.
D)Capital is a flow variable while gross private investment is a stock variable.

Question 40

Which of the following items would NOT be a part of private investment in the computation of GDP?

A)A new factory building
B)New factory equipment
C)A rise in inventory levels at a firm
D)An old shopping center acquired by a firm

Question 41

Use the following to answer questions
Exhibit: Components of GDP for an Economy 2

(Exhibit: Components of GDP for an Economy 2)
What is the value of GDP?

A)$1,010 billion
B)$1,060 billion
C)$950 billion
D)$210 billion

Question 42

Use the following to answer questions
Exhibit: The Circular Flow for the United States
The largest expenditure category in U.S.GDP in 2011 was:

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

Question 43

Use the following to answer questions
Exhibit: Components of GDP for an Economy 2


-(Exhibit: Components of GDP for an Economy 2)
What is the value of exports?

A)$130 billion
B)-$130 billion
C)$230 billion
D)-$230 billion

Question 44

Use the following to answer questions
Exhibit: Components of GDP for an Economy 1

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 gas stations
C)A song you downloaded for a fee from Amazon.com
D)Retail floor space at a suburban shopping mall

Question 45

Use the following to answer questions
Exhibit: Components of GDP for an Economy 1


-(Exhibit: Components of GDP for an Economy 1)
What is the value of exports?

A)-$120 billion
B)$120 billion
C)-$480 billion
D)$480 billion

Question 46

A trade deficit occurs when:

A)foreign remittances paid are less than foreign remittances received.
B)exports are less than imports.
C)exports equal imports.
D)exports are greater than imports.

Question 47

Use the following to answer questions
Exhibit: The Circular Flow for the United States
(Exhibit: The Circular Flow for the United States)
Washington State purchases four airplanes from Boeing.This expenditure falls under the:

A)gross private investment category and the flow is represented by 2.
B)government purchases category and the flow is represented by 2.
C)gross private investment category and the flow is represented by 3.
D)government purchases category and the flow is represented by 3.

Question 48

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

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

Question 49

Use the following to answer questions
Exhibit: Components of GDP for an Economy 2

(Exhibit: Components of GDP for an Economy 2)
What is the value of government purchases of goods and services?

A)$100 billion
B)$160 billion
C)$300 billion
D)$192 billion

Question 50

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

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

Question 51

The purchases of U.S.products by the 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 52

Use the following to answer questions
Exhibit: Components of GDP for an Economy 1

(Exhibit: Components of GDP for an Economy 1)
What is the total value of government purchases of goods and services?

A)$570 billion
B)$280 billion
C)$370 billion
D)$190 billion

Question 53

A country's exports minus its imports measures:

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

Question 54

Use the following to answer questions
Exhibit: The Circular Flow for the United States
(Exhibit: The Circular Flow for the United States)
A New York restaurant purchases 1,000 cases of wine from a winery in France.This transaction is recorded as part of:

A)gross private investment and the flow is represented by 2.
B)net exports and the flow is represented by 4.
C)consumption expenditure and the flow is represented by 1.
D)consumption expenditure and the flow is represented by 4.

Question 55

GDP does NOT include _____.

A)government purchases
B)investment by firms
C)consumption spending
D)transfer payments

Question 56

Use the following to answer questions
Exhibit: The Circular Flow for the United States
(Exhibit: The Circular Flow for the United States)
The purchase of a new tractor by Farmer Brown is:

A)classified as gross private investment and the flow is represented by 5.
B)classified as gross private investment and the flow is represented by 2.
C)classified as consumption and the flow is represented by 5.
D)classified as consumption and the flow is represented by 1.

Question 57

A nation records a trade surplus when:

A)foreign remittances paid are more than foreign remittances received.
B)net exports are positive.
C)imports are greater than exports.
D)net exports equal zero.

Question 58

Use the following to answer questions
Exhibit: The Circular Flow for the United States
(Exhibit: The Circular Flow for the United States)
John, a resident of the U.S., buys a new set of golf clubs from a U.S.firm.This transaction is part of:

A)personal consumption expenditures and the flow is represented by 1.
B)personal consumption expenditures and the flow is represented by 5.
C)private investment expenditure and the flow is represented by 1.
D)private investment expenditure and the flow is represented by 5.

Question 59

Use the following to answer questions
Exhibit: Components of GDP for an Economy 1

Which of the following is an expenditure component of GDP?

A)Income from interest
B)Indirect business taxes
C)Capital consumption allowance
D)Personal consumption

Question 60

Use the following to answer questions
Exhibit: Components of GDP for an Economy 1

(Exhibit: Components of GDP for an Economy 1)
What is the value of GDP?

A)$1,820 billion
B)$2,170 billion
C)$2,080 billion
D)$2,550 billion

Question 61

Use the following to answer questions
Exhibit: Stages of Production of Toy Model Airplanes

(Exhibit: Stages of Production of Toy Model Airplanes)
The final value of a model airplane is _____.

A)$5
B)$21
C)$56
D)$77

Question 62

The gross domestic product of an economy is defined as the:

A)total value of all industrial goods produced and sold during a given period.
B)total value of all final goods and services produced during a given period.
C)value of all noneconomic transactions made among consumers during a particular period.
D)value of all non-monetary transactions between consumers and firms during a given period.

Question 63

Double counting in GDP accounting:

A)refers to the fact that accountants check their figures twice.
B)refers to the inclusion of both intermediate goods and final goods in GDP.
C)is the method of using both income and expenditures in measuring GDP.
D)is the method of calculating the GDP by including the net incomes received by residents of a nation living abroad.

Question 64

GDP can be calculated by totaling either the:

A)market values of all final goods and services or the total volume of all intermediate goods at all stages of production.
B)market values of all final goods and services or the value added at all stages of production.
C)total sales values of all intermediate goods at all stages of production or the value 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 65

If we sum up the value added at every stage of production of 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 capital-labor ratio.

Question 66

The gross national product (GNP)
Of the U.S.measures:

A)the market value of final goods and services sold 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 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 67

Use the following to answer questions
Exhibit: Components of GDP for an Economy 2

(Exhibit: Components of GDP for an Economy 2)
Net exports are negative.This would mean that:

A)imports are larger than exports and there is a trade surplus.
B)exports are larger than imports and there is a trade surplus.
C)imports are larger than exports and there is a trade deficit.
D)exports are larger than imports and there is a trade deficit.

Question 68

Use the following to answer questions
Exhibit: Stages of Production of Toy Model Airplanes

(Exhibit: Stages of Production of Toy Model Airplanes)
The total sales value of all transactions involved in the production of a model airplane is _____.

A)$5
B)$21
C)$56
D)$77

Question 69

Pfeister Inc., a firm located in New York, is a German manufacturer of heavy-duty glass doors.It uses glass-cutting machinery imported from Germany in production.The firm's output of glass doors will be counted in:

A)U.S.GDP.
B)U.S.domestic private investment.
C)Germany's GDP.
D)Germany's net exports.

Question 70

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

A)The purchase of a new yacht by a boating enthusiast
B)The purchase of lumber by a construction company
C)The salaries paid to military personnel
D)The salary earned by a construction worker

Question 71

The total volume of 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)total sales include sales to foreign countries but GDP excludes sale of output to foreign countries.

Question 72

A resident of San Diego, California, owns and operates a garage across the U.S.-Mexican border in Tijuana, Mexico.The value of the garage services produced at the shop would be counted in _____.

A)U.S.GNP
B)Mexico's GNP
C)U.S.GDP
D)U.S.'s net exports

Question 73

The value of GDP differs from the value of GNP because:

A)net exports are excluded from GDP but included in GNP.
B)production in a country usually employs factors of production owned by residents of other countries.
C)production in a country employs only factors of production owned by its residents.
D)government purchases are excluded from GDP but included in GNP.

Question 74

Use the following to answer questions
Exhibit: Stages of Production of Toy Model Airplanes

(Exhibit: Stages of Production of Toy Model Airplanes)
The value added by the sale of a model airplane to the customer is _____.

A)$2
B)$3
C)$4
D)$5

Question 75

Use the following to answer questions
Exhibit: Stages of Production of Toy Model Airplanes

(Exhibit: Stages of Production of Toy Model Airplanes)
The value added by the extraction of the crude oil is _____.

A)$2
B)$3
C)$4
D)$5

Question 76

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 total cost of production of a product and the total revenues earned from the sale of the product.
C)the amount by which the value of a firm's final output exceeds the total value of the intermediate goods and services used to produce the good.
D)the cost savings that a firm enjoys when it reduces the cost of its resources by employing a more efficient production method.

Question 77

China's gross national product 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 by China's residents from the rest of the world 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 by China's residents from the rest of the world and adding payments made by China's residents to the rest of the world.

Question 78

Use the following to answer questions
Exhibit: Stages of Production of Toy Model Airplanes

(Exhibit: Stages of Production of Toy Model Airplanes)
The total value added in the production of a model airplane is _____.

A)$16
B)$17
C)$21
D)$77

Question 79

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

A)profit
B)value added
C)the markup rate
D)the marginal product

Question 80

Which of the following statements about GNP is correct?

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