Deck 6: Production, Income, and Employment

Question 1

What is the difference between an intermediate good and a final good?

A) Final goods are adjusted for depreciation,intermediate goods are not.
B) Final goods are adjusted for changes in the value of the dollar,intermediate goods are not.
C) In GDP calculations,final goods are counted as consumption spending,intermediate goods are counted as private investment spending.
D) There is no meaningful difference between them.
E) Final goods are finished and ready for sale;intermediate goods require further processing.

Answer 1

Final goods are finished and ready for sale;intermediate goods require further processing.

Question 2

Which of the following would be included in a year's GDP?

A) Susan cleans the fuel injectors on her car.
B) A private individual purchases 100 shares of IBM stock.
C) A timber company purchases land in Oregon.
D) A man buys an antique desk from his neighbor.
E) A college professor purchases a new computer.

Answer 2

A college professor purchases a new computer.

Question 3

A Texas oil company extracts petroleum and sells it to a refinery for $1,000.After processing,the refinery sells the gasoline to a wholesaler for $1,500,who then sells it to a gas station for $1,700.The gas station sells it to customers for $2,500.In these transactions,how much has been added to GDP?

A) $1,000
B) $1,500
C) $1,700
D) $2,500
E) $6,700

Answer 3

$2,500

Question 4

Using dollar values to calculate GDP is advantageous because

A) people can most easily understand dollar amounts
B) it employs a common unit of measurement for very different things
C) less valuable goods count the same as more valuable goods
D) other methods of calculating production are not as intuitively clear
E) money is a universal yardstick for measurement

Question 5

An example of a good whose production is counted in this year's GDP is

A) a share of corporate stock
B) a used book
C) an acre of farm land
D) a used car
E) a new shirt

Question 6

If we included the purchases of used goods in GDP,

A) we would be overestimating GDP
B) we would be underestimating GDP
C) we would be accurately measuring GDP
D) the effect on GDP would vary depending on what year the goods were sold new
E) we could offset any measurement problems by also including purchases of stocks and bonds

Question 7

In 2008,the nominal GDP of the United States was approximately

A) $11.0 trillion
B) $14.4 trillion
C) $10.1 trillion
D) $12.0 trillion
E) $7.5 trillion

Question 8

The sale of which of the following would appear without any modification in GDP?

A) Used automobiles
B) Iron ore mined from the ground
C) Maid services
D) Aluminum rods used in construction
E) Wood pulp

Question 9

When people buy land,their purchases are included in GDP.

Question 10

GDP measures the output produced within a nation's borders.

Question 11

This year,Tom sold his 1998 minivan to Honest John's Used Car Emporium for $5,000.Honest John then sold the van to Bob for $7,000.How much would be recorded in GDP this year from these transactions?

A) $0
B) $2,000
C) $5,000
D) $7,000
E) $12,000

Question 12

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

A) a new fighter jet purchased by the federal government
B) tires purchased by an automobile manufacturer for installation on new cars
C) a new saw purchased by a carpenter
D) screwdrivers purchased by a homeowner for home repairs
E) aprons purchased by restaurant chefs

Question 13

Which of the following units is used to measure nominal GDP in the United States?

A) U.S.dollars
B) gold
C) percentages
D) international monetary units
E) units of physical goods and services

Question 14

GDP is a flow variable because it measures the process of production and is independent of time.

Question 15

When measuring GDP,economists count only the values of final goods and services because

A) the final value is taxable
B) adding the values of intermediate products is too difficult a task
C) the value of all intermediate products is automatically included in the value of those final goods
D) intermediate products are overpriced
E) the final cost is the selling price,which is what economists want to know

Question 16

The precise definition of GDP is the total value of all

A) goods and services produced by a nation,minus household labor
B) goods and services produced by a nation,minus depreciation
C) goods and services produced for the marketplace during a given period
D) final goods and services produced for the marketplace during a given period,within a nation's borders
E) final goods and services produced within a nation's borders and by this nation's citizens abroad during a given period

Question 17

Used car dealerships add nothing to GDP because the cars they sell were already recorded in GDP when they were new.

Question 18

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

A) military uniforms purchased by the government
B) flour purchased by a bakery for the production of bread
C) a new computer purchased by a software developer
D) screwdrivers purchased by a homeowner for home repairs
E) aprons purchased by restaurant chefs

Question 19

Gross domestic product (GDP)is

A) the total value of all goods and services produced for the marketplace during a given period,within a nation's borders
B) the total value of all final goods and services produced for the marketplace during a given period,by a nation's citizens and businesses,both within a nation's borders and abroad
C) the total value of all final goods and services produced for the marketplace during a given period,within a nation's borders
D) the total value of all goods and services produced for the marketplace during a given period,by a nation's citizens and businesses
E) the total value of all goods,services and inputs produced for the marketplace during a given period,within a nation's borders

Question 20

A midwestern farmer grows wheat and sells it to a miller for $500.After processing,the miller sells the flour to a baker for $800,who then sells it to a grocery store for $1,000.The grocery store sells it to customers for $1,200.In these transactions,how much has been added to GDP?

A) $500
B) $800
C) $1,000
D) $1,200
E) $3,500

Question 21

Purchases of stocks and bonds are examples of investment spending.

Question 22

In the expenditure approach to measuring GDP,we add the values of all

A) intermediate goods in addition to all final goods purchased
B) goods and services purchased by each type of final user
C) goods and services purchased in the United States
D) goods and services purchased by intermediate and final users
E) goods and services purchased by the private sector.

Question 23

Which of the following would be classified as consumption spending?

A) A family's purchase of a new home
B) A family's purchase of a used car
C) A family's payment for a child's hospitalization
D) A family's purchase of Microsoft stock
E) A family's purchase of a swing set for their home day-care business

Question 24

Private investment expenditure,adds to the nation's existing stock of capital.

Question 25

Which of the following would be classified as private investment spending?

A) A family's purchase of a new home
B) An automobile producer's purchase of steel for use in building new cars
C) A paper company's purchase of timber
D) A household's purchase of AT&T stock
E) The government's purchase of a new office building

Question 26

Changes in business inventories are part of private investment spending.

Question 27

Increases in inventories are subtracted from GDP because they reflect output that is produced but not sold.

Question 28

The term investment,in the language of economists,refers to the purchases of stocks,bonds,and other financial instruments.

Question 29

Which of the following would be counted in U.S.GDP?

A) A new U.S.-produced radio bought by a Japanese citizen living in Kyoto
B) A used U.S.-produced computer bought by a French citizen living in Kansas
C) A new Japanese radio bought by a U.S.citizen in Rhode Island
D) A U.S.pianist's concert sales in Britain
E) Stock in Microsoft Corporation bought by a Russian citizen

Question 30

Which of the following is a flow variable?

A) the number of cars registered in the U.S.
B) the number of unemployed workers this week
C) your total net worth yesterday
D) the government debt this year
E) a salary of $4,000 per month

Question 31

Which of the following four elements contribute to GDP in the expenditure approach?

A) Consumption spending,private investment,government purchases,net exports
B) Consumption spending,business investment,government purchases,imports
C) Consumption of services,private investment,government consumption,exports
D) Consumption of goods,private investment,government investment,government consumption
E) Consumption of durable goods,private investment,government purchases,net exports

Question 32

Which of the following would be counted in U.S.GDP?

A) the purchase of an old house
B) the purchase of a new textbook
C) the purchase of a $1,000 government savings bond
D) washing your car in the driveway
E) the purchase of 50 shares of IBM stock

Question 33

Everything that consumers purchase during a period is included as part of consumption when calculating GDP.

Question 34

Susie grows corn in her backyard garden to feed her family.The corn she grows is not counted in GDP because

A) it was not produced for the marketplace
B) it is an intermediate good that Susie will process further before feeding her family
C) goods produced using land are not included in GDP
D) the corn has low value
E) it reduces the amount of corn she will buy at the store

Question 35

Transfer payments are included in government budgets as spending,but are not included in the government purchases category of GDP.

Question 36

An example of a flow variable is

A) the number of cars in the United States today
B) the current value of your wealth
C) the population of Mexico
D) income
E) the number of sweaters a clothing store has on its shelves

Question 37

Private investment expenditure,which is a flow,affects the stock of capital.

Question 38

GDP is a flow variable because

A) all macroeconomic aggregates are flow variables
B) it measures the production that takes place over a period of time
C) it measures the amount of goods and services that exist at the end of a time period
D) the number of goods and services produced is usually a fixed number
E) it accounts for the goods and services transferred from one firm to another

Question 39

An example of a service counted in this year's GDP is

A) buying shampoo to give your pet a bath
B) cleaning your house
C) trimming your own hair
D) hiring a gardener to weed your garden
E) polishing your friend's car as a friendly gesture

Question 40

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

A) U.S.GDP in 2008
B) The daily sales of economics textbooks
C) Bill Gates' annual salary from Microsoft Corporation
D) The total wealth of the 50 richest U.S.citizens
E) U.S.government purchases during 2008

Question 41

The largest component of private investment expenditure is

A) inventories
B) the capital stock
C) new home construction
D) purchases of newly-produced plant and equipment
E) government investment in private industries

Question 42

Personal consumption spending now comprises approximately what fraction of GDP?

A) One-third
B) One-sixth
C) Three-quarters
D) One-quarter
E) One-half

Question 43

Assume net exports are -$220,consumption is $5,000,tax revenues are $1,000,government purchases are $1,500,and 2003 GDP,calculated by the expenditure approach,is $8,000.We can conclude that

A) private investment was $1,940
B) public investment was $310
C) private investment was $320
D) private investment was $1,720
E) public investment was $1,730

Question 44

An example of a capital good is

A) food produced by U.S.farmers in 2008
B) the car that your friend drives to school
C) a house owned and occupied by a family
D) the rent your friend paid last year for a college apartment
E) a share of General Electric Company stock

Question 45

The most volatile component of GDP is

A) tax revenue
B) government purchases of goods and services
C) the nation's capital stock
D) private investment spending
E) private consumption expenditures

Question 46

Private investment during a year includes

A) the value of inventories plus the values of stocks and bonds
B) spending on plant and equipment,new housing construction,and changes in inventories
C) stocks and bonds purchased by firms
D) spending on plant and equipment plus government spending plus household spending on stocks and bonds
E) spending on plant and equipment

Question 47

Fun Time Toys produced $60 million worth of toys in 2008.Because of a slow Christmas shopping season,only $50 million worth was sold to consumers,and the remaining $10 million worth went into inventories.Based on this information,how was GDP affected in 2008?

A) $60 million was added to GDP;$50 million was classified as consumption spending and $10 million was classified as private investment
B) $60 million was added to GDP,all classified as consumption spending
C) $50 million was added to GDP,all classified as consumption spending
D) $40 million was added to GDP;$50 million was classified as consumption and -$10 million was classified as private investment
E) $40 million was added to GDP,all classified as consumption

Question 48

When we add the up value of all capital goods,we determine

A) private investment
B) the capital stock
C) a flow phenomenon
D) GDP
E) inventory

Question 49

Inventories - goods produced but not sold - are included in GDP because we want to measure total production,not just what is purchased

Question 50

Even though households do not actually purchase certain items,the government estimates and adds to the consumption component what the household would pay for these items in the marketplace.An example of this type of item is

A) a car that an individual builds from parts of old cars
B) food that a farm family grows for themselves
C) a pond that a household member digs by hand
D) police and fire protection
E) a barn that a household builds on their own property

Question 51

Which of the following would not be included in the consumption component of GDP?

A) Movie ticket sales
B) Purchase of a new home
C) Medical bills
D) Clothing purchases
E) Home electricity bills

Question 52

Which of the following is the most volatile component of private investment?

A) Plant and equipment purchases
B) New home construction
C) Purchases of services
D) Changes in business inventories
E) Consumption of nondurables

Question 53

Which of the following describes the relationship between GDP and government spending?

A) Government spending = GDP + consumption + private investment - exports - imports
B) Government spending = GDP - consumption - private investment - exports - imports
C) Government spending = GDP - consumption - private investment + exports + imports
D) Government spending = GDP - consumption - private investment - exports + imports
E) Government spending = GDP + consumption - private investment + exports - imports

Question 54

Assume that the telephone company built a new plant this year.The value of the new plant is

A) counted in GDP as public investment
B) not counted in GDP
C) not included in private investment spending
D) an intermediate good,but it is not counted in GDP
E) included in GDP

Question 55

In 2008,Computers,Inc.produced personal computers worth $20 million.If $16 million worth were sold and $4 million worth remained unsold at year end and were added to inventories,how much did Computers,Inc.contribute to GDP in 2008?

A) $0
B) $4 million
C) $12 million
D) $16 million
E) $20 million

Question 56

If private investment increased by $50 billion while GDP remained the same,which of the following could have occurred,all else being the same?

A) Consumption spending decreased by $50 billion
B) Exports increased by $50 billion
C) Imports decreased by $50 billion
D) Net exports increased by $50 billion
E) Government spending increased by $50 billion

Question 57

If the boat industry produced $20 billion worth of boats,but $50 billion worth of boats were sold to consumers,the decrease in inventory would lead to

A) an increase in the nation's capital
B) more individuals investing in the automobile market
C) a decrease in the nation's capital stock
D) fewer individuals buying cars
E) an overestimation of boat production

Question 58

In 2008,the Ace Card Company produced $10 million worth of playing cards.Because of strong consumer demand for their product in 2008,Ace sold $12 million worth of cards,reducing their inventories by $2 million.How much value did Ace add to GDP in 2008?

A) $2 million
B) $8 million
C) $10 million
D) $12 million
E) $14 million

Question 59

Which of the following would be included in the consumption component of GDP?

A) Movie ticket sales
B) Purchase of a new home
C) Purchase of used clothes
D) Purchase of a baseball card collection at a yard sale
E) Purchase of a chain saw at an auction

Question 60

The largest component of GDP is

A) tax revenue
B) government purchases of goods and services
C) the nation's capital stock
D) private investment spending
E) private consumption expenditures

Question 61

Suppose that in 2009,private investment spending was $500 billion,government investment was $300 billion,and depreciation was $250 billion.How much did the capital stock increase in 2009 (assume there were no other changes that affect the capital stock)?

A) $300 billion
B) $500 billion
C) $550 billion
D) $800 billion
E) $1.05 trillion

Question 62

What is the main factor that explains why government spending typically exceeds government purchases?

A) Imports exceed exports
B) Transfer payments
C) The federal debt
D) Government budget deficits
E) Construction of schools

Question 63

Transfer payments are important for society because

A) the government needs to perform acts of goodwill to maintain citizens' support
B) we could not count GDP without them
C) they serve to redistribute money from one group of citizens to another
D) government investment is an important component of GDP
E) they result in lower taxes for citizens

Question 64

Which of the following would be classified as a consumer nondurable?

A) New clothing
B) A new central heating system
C) A new car
D) A new bedroom suite
E) A new riding mower

Question 65

Which of the following would be included in the income approach to calculating U.S.GDP?

A) Wage and salary payments to U.S.workers
B) Purchases of automobiles by households
C) Government purchases of guns and tanks and bombs
D) Purchases of new trucks by Federal Express
E) Purchases of new tractors by farmers

Question 66

In the language of economics,which of the following would be defined as investment?

A) The purchase of a U.S.savings bond
B) The purchase of 100 shares of Ford Motor Company stock
C) The deposit of $1,000 into a savings account
D) The purchase of $500 worth of gold
E) The accumulation of inventories by a firm

Question 67

As of 2008,approximately what fraction of U.S.GDP does government purchases now represent?

A) One-half
B) Three-quarters
C) None;it is not included in GDP
D) Two-thirds
E) One-fifth

Question 68

If imports increased by $100 million while GDP remained the same,which of the following could have occurred,all else being the same?

A) Exports decreased by $100 million.
B) Consumption increased by $100 million.
C) Government spending decreased by $100 million.
D) Net exports increased by $100 million.
E) Private investment decreased by $100 million.

Question 69

Using the table below,calculate GDP for a particular year.
$\begin{array}{l|r}\text { Wages and salaries } & \$ 2,000 \\\hline \text { Government purchases of goods and services } & \$ 500 \\\hline \text { Exports } & \$ 800 \\\hline \text { Rental income } & \$ 300 \\\hline \text { Consumption spending } & \$ 3,000 \\\hline \text { Transfer payments } & \$ 300 \\\hline \text { Private investment spending } & \$ 600 \\\hline \text { Profit } & \$ 1,200 \\\hline \text { Imports } & \$ 600 \\\hline \text { Interest income } & \$ 800 \\\hline \text { Purchases of corporate stock } & \$ 500\end{array}$

Based on the above information,GDP in this year was

A) $4,100
B) $4,300
C) $4,400
D) $4,600
E) $4,900

Question 70

Transfer payments are

A) payments for goods or services that individuals provide
B) funds given to people or organizations when no good or service is received in exchange
C) included in the government purchases category of GDP
D) examples of government investment
E) used to pay state employees

Question 71

To measure the annual increase in the capital stock most broadly,we should include

A) business purchases of plant and equipment,changes in inventory,and new home construction
B) private investment spending plus government investment spending
C) stocks and bonds purchased by firms,total investment,and human capital
D) purchases of durable goods and human capital
E) net private investment spending,net government investment spending,purchases of durable goods,and investment in human capital

Question 72

Although economists use different methods to calculate GDP,each method should lead to the same number for GDP.

Question 73

Which of the following would be included in the expenditures approach to calculating U.S.GDP?

A) Wage and salary payments to U.S.workers
B) Interest paid on borrowed funds
C) Government payments of social security benefits
D) Purchases of new trucks by Federal Express
E) Wage payments to U.S.citizens working outside the U.S.

Question 74

Which of the following would be considered a component of government purchases?

A) Both d and e
B) All of the following
C) Welfare payments
D) Police salaries
E) Social security payments

Question 75

The equation GDP = C + I + G + NX best describes the

A) the output approach to measuring GDP
B) the factor payments approach to measuring GDP
C) the value added approach to measuring GDP
D) the expenditures approach to measuring GDP
E) the exchanges approach to measuring GDP

Question 76

Using the table below,calculate GDP for a particular year.
$\begin{array}{|l|r|}\hline \text { Consumption spending } & \$ 1,000 \\\hline \text { Wages and salaries } & \$ 800 \\\hline \text { Rent } & \$ 100 \\\hline \text { Government purchases } & \$ 200 \\\hline \text { Profit } & \$ 300 \\\hline \text { Expoits } & \$ 400 \\\hline \text { Interest } & \$ 250 \\\hline \text { Private investment spending } & \$ 400 \\\hline \text { Imports } & \$ 550\end{array}$
Based on the above information,GDP in this year was

A) $1,450
B) $2,000
C) $2,550
D) $2,900
E) $4,000

Question 77

In the value-added approach,GDP is the sum of revenue received by all firms in the economy.

Question 78

Which of the following would not be considered a consumer durable?

A) A sofa
B) A personal computer
C) Dinner each month at a nice restaurant
D) An automobile
E) A refrigerator

Question 79

Which of the following describes the relationship between net exports and imports?

A) Net exports = imports + exports
B) Net exports = exports - imports
C) Net exports = imports - exports
D) Imports = net exports - exports
E) Imports are not related to net exports

Question 80

Which of the following describes the relationship between net investment and total investment?

A) Net investment = total investment - depreciation
B) Total investment = net investment + private investment - depreciation
C) Net investment = government investment - private investment - depreciation
D) Total investment = net investment - depreciation
E) Net investment = government investment - depreciation