Deck 4: National Income Accounting

Question 1

What agency tracks aggregate activity in the U.S. economy?

A) The Bureau of Labor Statistics
B) The Office of Management and Budget
C) The Supreme Court
D) The Department of Commerce

Answer 1

D

Question 2

What's the difference between GNP and GDP?

A) GNP does not include depreciation.
B) GDP includes receipts from rest of world and subtracts payments to rest of world.
C) GDP subtracts receipts from rest of world and includes payments to rest of world.
D) There is no difference.

Answer 2

B

Question 3

Mary has been working as a housekeeper for John for 6 months at a salary of $1,000 per month. John and Mary get married, and Mary continues to take care of the house. How does this affect GDP?

A) GDP will be unaffected, since Mary is doing the same thing as always.
B) GDP will go up, since Mary will have more income now.
C) GDP will go down, since Mary's housekeeping chores will be unpaid.
D) It depends on whether John gives Mary any money as an allowance.

Answer 3

C

Question 4

Assume that there is a devastating wildfire in Northern California. Putting out the fire is very expensive, and many homes have to be rebuilt. How does this affect GDP?

A) GDP will go up.
B) GDP will go down.
C) GDP will be unaffected.
D) It depends on whether the government borrowed money to pay for the cost of containing the fire.

Question 5

National or aggregate income includes

A) profits, rent, and interest income.
B) wages, salaries, and profits.
C) wages, salaries, rent, and interest income.
D) wages, salaries, rent, profits, and interest income.

Question 6

The basic definition of GDP used in the Keynesian framework is:

A) GDP = C + I + S + X
B) GDP = C + I + G + X
C) GDP = C + I + G + NX
D) GDP = C + S + B + NX

Question 7

A government transfer payment is defined as

A) when the government engages private contractors to provide a service previously performed by government employees.
B) when the government borrows funds from private investors.
C) when the government pays money to individuals that is not a payment for a current good or service.
D) when the government purchases goods and services from the business sector.

Question 8

Which of the following would be considered a transfer payment?

A) Purchases of oil for the strategic petroleum reserve.
B) Purchases of military goods for the army.
C) Payments to a private subcontractor providing services to the military.
D) Payments to wheat farmers when wheat prices fall below $3.80 per bushel.

Question 9

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

A) Unemployment compensation.
B) Military spending.
C) Spending by state and local governments on roads.
D) Spending in excess of current tax revenues.

Question 10

A corporation is defined as

A) a business enterprise with significant monopoly power.
B) a business enterprise owned by a single individual.
C) a business enterprise owned by the government.
D) a business enterprise with many investors each owning a share of the assets.

Question 11

During the Great Depression, unemployment reached a high of _______ during 1933.

A) 11.2%
B) 25%
C) 41%
D) 4.8%

Question 12

Which of the following would be classified as Consumption spending?

A) New plant and equipment bought by Ford Motor Company in Michigan.
B) Money spent by the U.S. government to provide assistance to flood victims.
C) Money spent by individuals for food and clothing.
D) Money spent by state and local governments on new school building.

Question 13

Gross Domestic Product consists of spending on

A) Consumption, Investment, Government spending, and Net Exports.
B) Consumption, Investment, Government spending on goods and services, and Transfer payments.
C) Consumption, Investment, Government spending, and Imports.
D) Consumption, Depreciation, Government spending, and Employee compensation.

Question 14

What is included in employee compensation?

A) Wages, salaries, commissions, and interest.
B) Wages, salaries, bonuses, commissions, and fringe benefits.
C) Wages and salaries only.
D) Wages, salaries, and bonuses but not fringe benefits.

Question 15

When exports are less than imports, the United States has

A) a trade surplus.
B) a trade deficit.
C) an income surplus.
D) a government deficit.

Question 16

Property income includes

A) bonuses, commissions, rent, and fringe benefits.
B) bonuses, rent, interest, and fringe benefits.
C) rent, interest, profit, and bonuses.
D) rent, interest, and profit.

Question 17

What is the definition of the term, "labor share"?

A) The share of labor costs in a firm's total costs.
B) The share of labor income in national income.
C) The share of federal taxes paid by employees rather than by capitalists.
D) The share in total business revenues that employees receive.

Question 18

What are net exports?

A) Exports after all taxes have been paid.
B) Exports minus imports.
C) Exports plus imports.
D) Exports before payment of taxes.

Question 19

Holding everything else constant, if exports are greater than imports

A) there is a net inflow of money from foreign countries.
B) there is a net outflow of money to foreign countries.
C) there is a net inflow of goods from foreign countries.
D) there is a trade deficit.

Question 20

What is disposable personal income?

A) Income that is spent rather than saved.
B) Income after taxes.
C) Income not including fringe benefits.
D) Income received from the government.

Question 21

A "progressive" tax is

A) one that is proposed by a progressive economist.
B) one in which the percentage rises as the level of income rises.
C) one in which the amount rises as the level of consumption rises.
D) one in which the percentage rises as the level of wealth rises.

Question 22

Inflation is defined as

A) an increase in the quantity of goods in the consumer's basket.
B) an increase in the level of GDP.
C) an increase in the price of an important good like gasoline.
D) an increase in the overall level of prices.

Question 23

What is gross investment?

A) Investment in additional buildings and equipment to expand the capital beyond the present level.
B) Investment in capital goods that have worn out or become obsolete.
C) The dollar value of worn-out plants and equipment.
D) The total value of all capital goods produced in a year.

Question 24

What is net investment?

A) Investment in additional buildings and equipment to expand the capital beyond the present level.
B) Investment in capital goods that have worn out or become obsolete.
C) The dollar value of worn-out plants and equipment.
D) The total value of all capital goods produced in a year.

Question 25

What is replacement investment?

A) Investment in additional buildings and equipment to expand the capital beyond the present level.
B) Investment in capital goods that have worn out or become obsolete.
C) The dollar value of worn-out plants and equipment.
D) The total value of all capital goods produced in a year.

Question 26

Assume that gross investment is $1.6 trillion and depreciation is $2.1 trillion. How much is new net investment?

A) $0.4 trillion.
B) - $ 0.4 trillion.
C) $3.7 trillion.
D) $1.6 trillion.