Deck 5: Measuring a Nation's Production and Income

Question 1

Macroeconomics differs from microeconomics in that

A) macroeconomics is the study of individual markets, while microeconomics deals with the nation's economy as a whole.
B) microeconomics is the study of individual markets, while macroeconomics deals with the nation's economy as a whole.
C) macroeconomics focuses principally on social and political issues, while microeconomics involves the study of a nation's monetary system.
D) microeconomics focuses principally on social and political issues, while macroeconomics involves the study of a nation's monetary system.

Answer 1

microeconomics is the study of individual markets, while macroeconomics deals with the nation's economy as a whole.

Question 2

What are the two critical measures of a nation's economic health?

A) income and spending
B) sales and taxes
C) wages and raises
D) production and income

Answer 2

production and income

Question 3

Macroeconomics is the study of individual economic markets.

Answer 3

False

Question 4

If an economy produced 220 pounds of jelly beans at $5 per pound and 90 pounds of gum drops at $2 per pound in 2012, its real gross domestic product (GDP)was

A) 310 pounds of candy.
B) $180.
C) $1,100.
D) $1,280.

Question 5

Macroeconomics

A) studies the behavior of individual consumers, firms and markets.
B) studies the behavior of the economy as a whole.
C) involves the interaction between different countries in specific markets.
D) studies how computer automation has changed economics.

Question 6

Explain the supply and demand of products, factors of production, and the payments for the products and factors of production as described in the circular flow diagram.

Question 7

If the prices of goods begin to rise rapidly, people may find it difficult to maintain their lifestyles. Explain why.

Question 8

Which of the following is a macroeconomic statement?

A) Motorcycle manufacturer productivity decreased by three percent in 2012.
B) The price of cell phones decreased by 18 percent last year.
C) Real domestic output of seafood increased 12 percent from 2011 to 2012.
D) The U.S. inflation rate was two percent in 2012.

Question 9

Which of the following is NOT a macroeconomic statement?

A) Aggregate worker productivity decreased by three percent in 2012.
B) The price of cell phones decreased by 18 percent last year.
C) Gross domestic product in Peru increased 4 percent from 2011 to 2012.
D) The U.S. inflation rate was two percent in 2012.

Question 10

We measure gross domestic product by multiplying the quantities of goods by their prices because it allows us to

A) express the values of products in a common unit of measurement.
B) correct for inflation.
C) directly compare the output of one economy to that of another.
D) calculate the total number of units of goods produced in an economy.

Question 11

The circular flow is used to make the point that

A) rising prices never occur during times of unemployment.
B) unemployment only occurs during a recession.
C) production generates income.
D) households purchase factors of production from firms.

Question 12

The value of all final goods and services produced during a given time period measures a nation's

A) gross domestic product.
B) net national product.
C) consumer price index.
D) net exports.

Question 13

Which of the following would be a macroeconomic question?

A) How have the retirement benefits in the auto industry changed over time?
B) How has inflation increased over time?
C) How has the price of gold increased over time?
D) How has the number of commercial airline flights decreased over time?

Question 14

The manner in which a nation's economy reacts when the measured factors are changed affects almost every individual.

Question 15

Gross domestic product calculations count only final goods and services because

A) these are the only goods and services that are purchased in an economy.
B) counting all goods and services would lead to double-counting of many activities.
C) it is difficult to measure the prices of intermediate goods produced.
D) one cannot calculate the quantities of intermediate goods produced.

Question 16

If an economy produced 60 pounds of sushi at $12 per pound and 15 gallons of sake at $30 per gallon, the total value of these goods and services would be

A) $450.
B) $720.
C) $1,170.
D) $2,700.

Question 17

In the circular flow model, firms sell the services of factors of production to households.

Question 18

Fluctuations in economic performance is one of the two basic issues of macroeconomics. The other is

A) tracking unemployment.
B) keeping interest rates in check.
C) long-run economic growth.
D) monitoring inflation rates.

Question 19

In the study of macroeconomics, production leads to income, and income leads to production in a continuing cycle.

Question 20

As depicted in the circular flow diagram, firms

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

Question 21

A rancher raises sheep. Once a year he shears them and sells the raw wool to a processor who cleans it and spins it into yarn. The yarn is then sold to a knitting mill, which produces and sells sweaters. In calculating GDP we would count

A) the raw wool, the yarn and the sweaters.
B) only the yarn and the sweaters.
C) only the sweaters.
D) only the raw wool and the yarn.

Question 22

The data presented in the text shows that in the period from 1930-2011, real GDP in the United States has

A) increased substantially.
B) decreased in every year since 1930.
C) decreased only in recent years.
D) generally remained the same.

Question 23

Suppose that a sporting goods store had $800 of golf balls on its shelves at the beginning of 2012 and $1,300 at the end of 2012. The amount of inventory investment included in GDP would be

A) $500.
B) $800.
C) $1,300.
D) $2,100.

Question 24

Which prices are used to measure goods and services in calculating the nominal GDP?

A) past years prices
B) current prices
C) average prices
D) projected prices

Question 25

What is the fastest growing component of consumption in the United States?

A) new home construction
B) nondurable goods
C) durable goods
D) services

Question 26

Blu-ray disc players, iPhones, and hybrid cars are generally considered to be ________ goods.

A) durable
B) nondurable
C) intermediate
D) service

Question 27

How does real gross domestic product (GDP)differ from nominal GDP?

A) Nominal GDP controls for price changes, while real GDP does not.
B) Real GDP controls for price changes, while nominal GDP does not.
C) Nominal GDP can be used to directly compare the amount of output produced from year to year, while real GDP cannot be used for such comparison.
D) There is no difference between nominal GDP and real GDP.

Question 28

How many broad categories are used by economists to define the GDP?

A) 3
B) 4
C) 6
D) 8

Question 29

The largest component of GDP is

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

Question 30

Gross investment is

A) what is left over from total new private investment after depreciation.
B) the total amount of private investment purchases, whether new or previously existing.
C) the total amount of new private investment purchases.
D) the wear and tear on private investment.

Question 31

Which of the following is an example of a consumption expenditure?

A) the construction of a new public library
B) the purchase of a ticket to a New Orleans Saints game
C) the purchase of a new fire truck
D) the salary paid to the mayor of Denver

Question 32

Which of the following is NOT a component of gross domestic product?

A) net exports
B) government purchases
C) purchases by consumers of used goods
D) purchases by consumers of finished goods

Question 33

"Final goods and services" are those that are

A) produced outside the United States.
B) used in the production of other goods and services.
C) double counted in the calculation of GDP.
D) sold to ultimate or final purchasers.

Question 34

For the purpose of GDP accounting, consumption expenditures include

A) only nondurable goods.
B) only durable goods.
C) both nondurable goods and services.
D) durable goods, nondurable goods, and services.

Question 35

Which of the following is NOT a component of private investment, for purposes of GDP accounting?

A) newly produced housing
B) additions to firms' stock of inventories
C) purchases by firms of used machinery
D) newly built factories

Question 36

What type of spending is the largest component of the GDP?

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

Question 37

Which of the following is NOT an example of a consumption expenditure?

A) a digital camera you purchase to take on vacation
B) a new county jail
C) a motorcycle you purchase to ride on the weekends
D) a restaurant meal

Question 38

When there are sustained increases in real GDP over time, we say that the economy is undergoing

A) economic stagnation.
B) a recession.
C) economic growth.
D) massive changes in productive capacity.

Question 39

Going to the dentist would be counted in GDP as

A) crowns and fillings.
B) insurance utilization.
C) a service.
D) a measure of welfare.

Question 40

Bananas, chocolate bars, chewing gum, orange juice and yogurt are considered to be ________ goods.

A) durable
B) nondurable
C) essential
D) service

Question 41

The majority of spending in the category of government purchases comes from

A) the federal government.
B) state and local governments.
C) transfer payments.
D) military spending.

Question 42

Net exports include goods produced

A) domestically that are sold domestically, less goods produced domestically that are sold abroad.
B) domestically that are sold abroad, less goods produced domestically that are sold domestically.
C) domestically that are sold abroad, less goods that are produced abroad that are sold domestically.
D) abroad that are sold domestically, less goods that are produced domestically that are sold abroad.

Question 43

Net investment is

A) what is left over from total new private investment after depreciation.
B) the total amount of private investment purchases, whether new or previously existing.
C) the total amount of new private investment purchases.
D) gross investment plus depreciation.

Question 44

If in the third quarter of 2012 total investment spending was $4,768 billion and depreciation was $3,292 billion, then the amount counted in GDP, which is known as gross investment, would be

A) $1,476 billion.
B) $3,292 billion.
C) $4,768 billion.
D) $8,060 billion.

Question 45

If in the third quarter of 2012 total investment spending was $4,768 billion and depreciation was $3,292 billion, then net investment was equal to

A) $1,476 billion.
B) $3,292 billion.
C) $4,768 billion.
D) $8,060 billion.

Question 46

A trade surplus occurs when

A) a country purchases more from abroad than other countries purchase from it.
B) a country sells more abroad than it purchases from abroad.
C) a country's firms open more stores abroad than foreign firms open in the country.
D) foreign firms open more stores in a country than the country opens in foreign countries.

Question 47

Social security payments are examples of

A) nondurable goods.
B) durable goods.
C) services.
D) transfer payments.

Question 48

A nation's net exports consist of

A) its exports plus its imports.
B) its exports minus its imports.
C) its exports plus all other nation's imports.
D) its imports plus all other nation's exports.

Question 49

Intermediate goods are not counted as part of gross domestic product.

Question 50

For the purposes of GDP accounting, government purchases

A) are considered part of investment.
B) are considered part of consumption.
C) include transfer payments.
D) include wages and benefits paid to government workers.

Question 51

GDP is supposed to measure the goods ________ the United States.

A) purchased in
B) produced in
C) imported to
D) exported to

Question 52

A "trade deficit" occurs when

A) we sell more to other countries than we buy from them.
B) we buy more from other countries than we sell to them.
C) we sell more to one country than another.
D) we sell less to one country than another.

Question 53

Which of the following is NOT an example of private investment expenditure?

A) new plants and equipment added during the year
B) new houses built during the year
C) using credit cards to purchase durable and nondurable goods
D) increases in inventories on goods produced during the year

Question 54

Which of the following should be included in U.S. GDP?

A) a 3D television manufactured in Thailand and sold in the United States
B) a 3D television manufactured in Thailand by a U.S. firm and sold in the United States
C) a 3D television manufactured in the United States and sold in Thailand
D) a used 3D television manufactured in the United States and sold in Thailand

Question 55

Depreciation is

A) what is left over from total new private investment after use for a year.
B) the total amount of private investment purchases, whether new or previously existing.
C) the total amount of new private investment purchases.
D) the wear and tear on private investment.

Question 56

For the purposes of GDP accounting, government purchases include

A) the purchases of new military equipment.
B) social security payments.
C) direct transfer payments by the government to other individuals.
D) welfare payments.

Question 57

When considering imports and exports, economists include the ________ as a component of the GDP.

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

Question 58

The GDP equation is

A) Y = C + I + G + NX.
B) Y = C - I - G - NX.
C) C + I = G + NX.
D) C + I = Y + G + NX.

Question 59

Exports ________ GDP and imports ________ GDP.

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

Question 60

Transfer payments are excluded from government purchases in GDP accounting because

A) they are difficult to measure.
B) they are a reward to individuals who have been productive their entire lives.
C) they are already included as part of investment.
D) nothing is being produced in return for the payment.

Question 61

Net exports are total imports minus total exports.

Question 62

Income that flows to the private sector for services and production, is called

A) net income.
B) national income.
C) deficit income.
D) derived income.

Question 63

Wages paid to teachers, police personnel, and postal workers are not transfer payments because they are payments for services and not simply "transfers" of money.

Question 64

Nominal GDP uses current year prices to measure GDP.

Question 65

Define transfer payments and explain why they are not included in the government purchases section of the GDP accounts.

Question 66

"Nominal GDP" is a measure of GDP that adjusts for price changes.

Question 67

Define GDP.

Question 68

We ADD to the GDP when goods produced abroad are sold in the United States.

Question 69

List and describe the four components of GDP.

Question 70

The four components of GDP are consumption expenditures, private investment expenditures, government purchases, and transfer payments.

Question 71

A trade surplus occurs when a country's exports exceed that country's imports.

Question 72

In the GDP accounts, investment includes the purchase of newly issued shares of stock.

Question 73

The value of goods produced in a previous year but sold in the current year is added to the GDP for the current year.

Question 74

When gross domestic product (GDP)is adjusted by adding any income earned abroad by U.S. firms or residents which is sent back to the United States and by subtracting any income earned in the United States by non-U.S. corporations or foreign nationals which is sent back to their home countries, it is called

A) depreciation.
B) subsidized income.
C) international GDP.
D) gross national product (GNP).

Question 75

To an economist, "investment" in the GDP accounts means purchases of new final goods and services by firms.

Question 76

The majority of spending in the government purchases category comes from the federal government.

Question 77

Depreciation is the term used when plants, equipment and housing deteriorate and wear out, thus losing their original values.

Question 78

Explain why only final goods are included in GDP.

Question 79

In the determination of production of goods or services with respect to GDP, transfer payments are included.

Question 80

As a component of GDP, consumption expenditures refers to purchases by consumers of currently produced goods and services.