Deck 6: Tracking the U. S. Economy.

Question 1

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

A) the flowers that Mr. Grover buys at a local nursery
B) the flowers that Timmy picks from a neighbor's garden and brings to Mrs. Grover
C) the flour that Grandma buys to bake a birthday cake
D) the flour that Joe buys so that he can eat pizza three nights a week
E) the flour that Amy orders each month for the bakery she manages

Answer 1

the flour that Amy orders each month for the bakery she manages

Question 2

Which approach to GDP adds up spending on all final goods and services produced in the United States during the year?

A) the intermediate goods and services approach
B) the final goods and services approach
C) the income approach
D) the expenditure approach
E) the double-counting approach

Answer 2

the expenditure approach

Question 3

Which of the following is true of an intermediate good?

A) It is of no value to the seller.
B) It is of no value to the buyer.
C) It is purchased for household production.
D) It helps produce another good.
E) It is sold at a discounted price by firms.

Answer 3

It helps produce another good.

Question 4

Which of the following would not be included in GDP?

A) production of the Ford plant in Mexico
B) Production of the Toyota plant in Kentucky
C) chicken that is prepared, fried, and sold by KFC in Buffalo
D) membership in Pilates classes in New York
E) a bus ticket to Miami

Question 5

In the double-entry bookkeeping system used to track the economy, _____

A) the value of aggregate output equals the aggregate income paid for the resources used to produce that output.
B) government spending on transfer payments is recorded.
C) the earnings of all shareholders in the economy from the sale of shares are recorded.
D) inventories are counted twice, once as investment and once as output.
E) intermediate goods are counted twice, once as a type of output and once as part of the final output.

Question 6

Which of the following is the best definition of gross domestic product (GDP)?

A) the market value of all intermediate goods and services
B) the market value of all goods and services produced by resources located outside the country
C) the market value of all final goods and services produced by resources located within the country
D) the value added to the economy by intermediate goods and services minus the original cost
E) the value of the total sales of financial assets

Question 7

Which of the following is not true about gross domestic product (GDP)?

A) It includes only final goods and services.
B) It reflects production in a particular year.
C) Intermediate goods and services are excluded to prevent double-counting.
D) It excludes purchases of financial assets.
E) It includes transfer payments such as Social Security.

Question 8

Which approach adds up earnings during the year by those who produce all that output?

A) the intermediate goods and services approach
B) the final goods and services approach
C) the income approach
D) the expenditure approach
E) the double-counting approach

Question 9

Which of the following is an example of a final good or service?

A) bricks purchased by a company for constructing houses
B) wheat purchased by a bakery
C) steel purchased by a company for manufacturing cars
D) a cup of coffee bought at a restaurant
E) a used car bought by a person

Question 10

The value of the films starring Charlie Chaplin, produced in the United States and still aired, will not be included in this year's U.S. gross domestic product (GDP) because _____

A) Charlie Chaplin was not an American citizen.
B) Charlie Chaplin did not make the films this year.
C) the films earn less revenue.
D) the films no longer have any value except to collectors.
E) films are intermediate goods.

Question 11

Which of the following is the best indicator of the performance of the national economy?

A) the budget deficit of the federal government
B) the stock of capital goods (machinery) in the nation
C) the nation's stock of precious metals
D) the balance of trade with other nations
E) the value of the final goods and services produced in the nation

Question 12

_____ is counting an item's value more than once.

A) Intermediate goods and services
B) Final goods and services
C) The income approach
D) The expenditure approach
E) Double-counting

Question 13

_____ are purchased for additional processing and resale.

A) Intermediate goods and services
B) Final goods and services
C) Inventories
D) Physical capital
E) Value

Question 14

_____ are goods and services sold to final, or end, users.

A) Intermediate goods and services
B) Final goods and services
C) Inventories
D) Physical capital
E) Value

Question 15

Huge quantities of data collected from a variety of sources across the United States are organized under which system?

A) the budget deficit of the federal government
B) the stock of capital goods (machinery) in the nation
C) the national income accounting system
D) the balance of trade with other nations
E) the value of the final goods and services produced in the nation

Question 16

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

A) sugar bought by a bakery
B) sugar bought by a family
C) furniture bought by a family
D) burgers bought at a restaurant
E) medicines bought at a pharmacy

Question 17

Which of the following is not an example of intermediate goods or services?

A) steel used in the manufacture of cars
B) pizzas bought at a restaurant
C) legal services hired by a public accounting firm
D) glass used to manufacture sunglasses
E) vegetables used by a restaurant

Question 18

Who won the Nobel Prize in 1971 for "giving quantitative precision to economic entities"?

A) John Maynard Keynes
B) Adam Smith
C) Milton Friedman
D) Simon Kuznets
E) François Quesnay

Question 19

Which of the following is true of the gross domestic product (GDP) of a nation?

A) It can be measured by the stock of consumer goods in the nation at a particular point in time.
B) It can be measured by the stock of capital goods in the nation at a particular point in time.
C) It can be measured by calculating either the total spending on production or the total income from that production.
D) It is the sum of total spending on production and total income from that production.
E) It can be measured from the stock of wealth in the nation.

Question 20

Which of the following would be included in this year's gross domestic product (GDP)?

A) one hundred shares of IBM stock that Tony sold this May
B) a used car that Tracey sold to Justin
C) George's purchase of a fishing rod and reel at a garage sale
D) Sharon giving Dennis $20 as a reward for finding her ring
E) a bucket of Kentucky Fried Chicken that Kate bought this July

Question 21

Gross private domestic investment consists of _____

A) spending by individual households on automobiles and durable goods.
B) spending by businessman on office furniture.
C) net additions to business inventories.
D) spending by government on welfare benefits.
E) spending by households on stocks and bonds.

Question 22

Net exports equal _____

A) the value of exports minus the value of imports.
B) the value of imports minus the value of exports.
C) the value of imports minus tariffs.
D) the value of exports minus tariffs.
E) the value of exports plus the value of imports minus depreciation.

Question 23

If the value of exports equals $6.5 billion and the value of imports equals $8.0 billion in a year, then _____

A) together imports and exports add $1.5 billion to the GDP.
B) together exports and imports add $6.5 billion to the GDP.
C) together exports and imports reduce the gross domestic product (GDP) by $1.5 billion.
D) together exports and imports add $14.5 billion to the GDP.
E) together exports and imports add nothing to the GDP.

Question 24

Which of the following expenditures is included in the consumption component of the gross domestic product (GDP)?

A) the money spent on the purchase of stocks
B) the money spent on the purchase of used furniture
C) the money spent on the purchase of a used car
D) the money spent on the purchase of kitchen appliances
E) the money spent on the purchase of bonds issued by the government

Question 25

Which of the following actions will decrease the gross domestic product (GDP)?

A) Tom's alarm clock breaks, so he buys a new one.
B) Tom buys a new alarm clock because he tends to sleep through the first alarm.
C) Tom's alarm clock breaks. He now oversleeps and has to buy a cup of coffee on the way to work instead of making it at home.
D) Tom gets fired for being late often after his alarm clock breaks.
E) Tom sells his broken alarm clock and uses the money to buy some French fries.

Question 26

Which of the following would be excluded from the gross domestic product (GDP)?

A) The mayor of a city hiring more workers to improve the sanitation of the city.
B) The sale of mobiles decreasing significantly.
C) The government reducing welfare benefits.
D) A homemaker spending $20 taking the family out to lunch instead of cooking food.
E) A consumer having his pickup truck tuned up at the local garage.

Question 27

Which of the following would be included in the gross domestic product (GDP)?

A) the monthly telephone bill paid by Mr. Jones
B) the corporate stock purchased by Steven
C) the used limousine purchased by Harold
D) the bricks purchased by a construction company to build a house
E) the $300 George saved because he painted his own garage

Question 28

The gross domestic product (GDP) excludes _____

A) the increase in inventories during a given period.
B) the expenditures by government for newly produced goods and services during a given period.
C) the value of intermediate goods produced in an economy during a given period.
D) the value of final output during a given period.
E) household expenditure on durable goods.

Question 29

Which of the following is included as government purchases in gross domestic product (GDP)?

A) Social Security payments to elderly citizens
B) welfare benefits distributed to the poor
C) outright grants from government to recipients
D) payments to clerical workers hired by the government
E) unemployment compensation benefits

Question 30

Which of the following would be included in the calculation of gross domestic product (GDP)?

A) the value of a used automobile purchased by Jim
B) the sale price of a new house purchased by Joe
C) the receipt of $100 in food stamps by Sandy
D) the $200 that Kurt spends on the purchase of bonds
E) the amount of money that Laurie receives as unemployment benefit after losing her job

Question 31

If consumption = $5,000; investment = $800, government purchases = $700, exports = $30, imports = $60, and transfer payments = $340, then _____

A) GDP = $7,400.
B) GDP = $7,740.
C) GDP = $3,140.
D) GDP = $6,470.
E) GDP = $6,840.

Question 32

Which of the following will be included in the current year's gross domestic product (GDP)?

A) the sale price of equipment produced last year but sold this year
B) the money spent by Kate on the purchase of new furniture
C) the money spent by Barney on the purchase of his uncle's house
D) the sale price of the stock purchased by John
E) the opportunity cost of the time spent by Bruno cooking lunch for his neighbor

Question 33

Which of the following actions would increase the consumption spending component of GDP?

A) Ann cooking dinner for Tim instead of going out
B) Ann and Tim buying a used microwave oven
C) Ann and Tim buying vegetables to prepare soup at home
D) Tim buying Ann a dress
E) Tim and Ann painting the garage themselves

Question 34

Net exports have averaged a minus 3 percent of GDP during the last decade. This means that _____

A) the sum of exports exceeds GDP.
B) the sum of consumption and government purchases exceeds GDP.
C) consumption's share of total spending decreased and government purchases increased.
D) imports exceeded exports.
E) the sum of consumption, investment, and government purchases was less than GDP.

Question 35

If a toy store overestimates the demand for a toy in 2016 and, as a result, has an unexpectedly large number of toys in stock at the end of the year, the value of the inventory of these toys will be considered as _____

A) investment in 2016.
B) investment in 2017.
C) consumption in 2016.
D) consumption in 2017.
E) a part of GDP when the toys are sold.

Question 36

Rhonda sells a house she has owned for 15 years and starts living in a rented apartment. To make the house more marketable, she buys carpeting that she has professionally installed and buys wallpaper that her daughter hangs. Which items would be included in this year's gross domestic product (GDP)?

A) The sale price of the house.
B) The cost of transporting all her furniture to the new apartment.
C) The opportunity cost of Rhonda's daughter's time.
D) The opportunity cost of Rhonda's time.
E) The purchase price of the carpet and wallpaper and the installation fee for the carpet.

Question 37

The immediate effect of a purchase of a government bond on the gross domestic product (GDP) is _____

A) a decrease in consumption.
B) an increase in government spending.
C) an increase in investment.
D) a decrease in investment.
E) nonexistent, since no real goods and services have been produced.

Question 38

The gross domestic product (GDP) excludes _____

A) the value of a new building.
B) the value of new stocks and shares.
C) the cost of a new vending machine.
D) government expenditure on a new bridge.
E) the money spent on the purchase of legal services by a household.

Question 39

Which of the following is true of exports and imports?

A) Both imports and exports are added to a nation's gross domestic product (GDP).
B) Both imports and exports are subtracted from a nation's gross domestic product (GDP).
C) Imports are added to and exports are subtracted from a nation's gross domestic product (GDP).
D) Exports are added to and imports are subtracted from a nation's gross domestic product (GDP).
E) Neither imports nor exports are included in a nation's gross domestic product (GDP).

Question 40

If consumption = $2,000, investment = $600, government purchases = $500, net exports = −$40, and transfer payments = $340, then _____

A) GDP = $2,720.
B) GDP = $3,060.
C) GDP = $3,140.
D) GDP = $3,400.
E) GDP = $3,340.

Question 41

If a firm hires labor for $4,000, pays rent of $1,500, buys raw materials for $6,000 from another firm, earns profits of $500, and sells its output for $14,000, the value added by the firm is _____

A) $12,000.
B) $8,000.
C) $6,000.
D) $2,000.
E) $500.

Question 42

If a firm hires labor for $8,000, pays rent of $4,000, buys raw materials for $13,000 from another firm, earns profits of $1,200, and sells its output for $31,000, the value added by the firm is _____

A) $4,800.
B) $10,000.
C) $18,000.
D) $25,000.
E) $26,200.

Question 43

Which of the following is true of leakages and injections in the circular-flow model?

A) Leakages minus injections equals gross domestic product (GDP).
B) Injections minus leakages equals gross domestic product (GDP.
C) Leakages minus injections equals zero in equilibrium.
D) Leakages must be less than injections for an economy to be in equilibrium.
E) Leakages must be greater than injections for an economy to be growing.

Question 44

Which of the following equations equals aggregate expenditure?

A) I = GDP - C + G
B) GDP = I - G
C) GDP = C + I + G
D) GDP = C + I + G + (X-M)
E) GDP = C + I + G - (X-M)

Question 45

If a firm hires labor for $6,000, pays rent of $2,000, buys raw materials for $10,000 from another firm, earns profits of $800, and sells its output for $25,000, the value added by the firm is _____

A) $6,200.
B) $9,000.
C) $15,000.
D) $18,000.
E) $18,800.

Question 46

The value added by a firm is defined as _____

A) the sum of all income earned by the workers in the firm.
B) the firm's actual investment minus planned investment.
C) the value of the product manufactured by the firm plus the transaction costs incurred by the firm.
D) the value of the firm's product minus the cost of materials it bought from other firms.
E) the increase in the value of the firm's stock or bond.

Question 47

The final market value of a good is _____

A) the sum of the value added at all stages of production.
B) the value added at one stage of production.
C) greater than the sum of all the values added at all stages of production.
D) less than the sum of all the values added at all stages of production.
E) the value added at the final stage of production.

Question 48

Which of the following is not a component of aggregate expenditure?

A) Consumption expenditures
B) Investment
C) Imports
D) Rent
E) Government purchases

Question 49

When a firm produces and sells a refrigerator worth $1,000, its contribution to the gross domestic product (GDP) on the income side is measured by _____

A) the price paid by the consumer.
B) the cost to the consumer of forgoing another product.
C) the stock of inventories used by the firm to manufacture the refrigerator.
D) the cost to the producer of not producing another product.
E) the sum of the wages, interest, and rent paid by the firm's owners and the profit of the firm.

Question 50

Aggregate income equals _____

A) the sum of income earned by all laborers in the world economy.
B) the sum of income earned by all workers in the private sector.
C) the sum of income earned by all the resource suppliers in an economy.
D) the total income of all employees after payment of income tax.
E) the total income of all employees after purchases of necessities.

Question 51

The largest component of aggregate expenditure is _____

A) government purchases.
B) transfer payments.
C) imports.
D) consumption.
E) investment.

Question 52

Katrina pays $40 for a meal at a fancy restaurant. The ingredients used cost $10. The value added by the restaurant is _____.

A) $30
B) $40
C) $70
D) $40 plus the wages paid to the chef and waiters
E) $40 plus the profit earned by the restaurant owner

Question 53

When calculating gross domestic product (GDP), double-counting can be avoided by _____

A) taxing corporate income.
B) adding all income taxes to GDP.
C) calculating GDP using the income as well as the expenditure method.
D) adding the value of exports to GDP and subtracting the value of imports.
E) summing the value added at each stage of production.

Question 54

If a firm hires labor for $20,000, pays rent of $12,000, buys raw materials for $6,000 from another firm, earns profits of $3,000, and sells its output for $41,000, the value added by the firm is _____

A) $0.
B) $15,000.
C) $35,000.
D) $38,000.
E) $41,000.

Question 55

The circular-flow model shows the flow of _____

A) money in the banking sector of the economy.
B) financial assets in the economy.
C) goods and services in the product market.
D) resources and money in the economy.
E) resources through the resource markets and their allocation in the product market.

Question 56

Table 6.1
? $$\begin{array}{l}\text { Table } 6.1\\\begin{array} { c c c c } \text { Real GDP (\$) } & \text { Consumption (\$) } & \begin{array} { c } \text { Planned } \\\text { Investment } ( \$ )\end{array} & \begin{array} { c } \text { Government } \\\text { Purchases (\$) }\end{array} \\\hline 1,800 & 1,540 & 100 & 200 \\1,900 & 1,620 & 100 & 200 \\2,000 & 1,700 & 100 & 200 \\2,100 & 1,780 & 100 & 200 \\2,200 & 1,860 & 100 & 200 \\2,300 & 1,940 & 100 & 200\end{array}\end{array}$$

-Refer to Table 6.1, which shows the real gross domestic product (GDP), consumption, planned investment, and government purchases for an economy. The aggregate expenditure in equilibrium is _____.

A) $1,800.
B) $1,900.
C) $2,000.
D) $2,200.
E) $2,300.

Question 57

If an economy produces final output worth $5 trillion, then the aggregate income generated by that production _____

A) will be $5 trillion.
B) will be more than $5 trillion.
C) will be $5 trillion minus taxes.
D) will be less than $5 trillion.
E) will be $5 trillion plus transaction costs.

Question 58

Jimmy Earl, a farmer, sells $20 worth of peanuts to a factory that manufactures peanut butter, which sells it for $45. Which of the following is true?

A) Total value added is $65.
B) The value of final sales is $65.
C) The value of final sales is $25.
D) Total value added is $25.
E) Total value added is $45.

Question 59

The circular-flow model shows that _____

A) households are on the demand side of the resource market.
B) firms are on the demand side of both the product and resource markets.
C) households are on the supply side of the resource market and the demand side of the product market.
D) firms and governments are on the supply side of the loanable funds market.
E) governments are on the demand side of the product market and the supply side of the resource market.

Question 60

A farmer grows wheat and sells it to a bakery for $5. The bakery uses the wheat to bake bread and sells it to a distributor for $20. The distributor sells the bread to a supermarket for $30, which then sells the bread to customers for $50. Which of the following is true?

A) The value added by the distributor is $30.
B) The value added by the supermarket is more than that added by the bakery.
C) GDP rises by $50 plus the value added at each stage of production.
D) Counting the value added at each stage instead of counting the final selling price creates a problem of double-counting.
E) The value added by the farmer is $20 because the wheat, which is worth $5, is necessary for each of the three remaining stages of production.

Question 61

Which of the following is true of leakages and injections in the circular-flow model?

A) Leakages minus injections equal gross domestic product (GDP).
B) Injections minus leakages equal gross domestic product (GDP).
C) Leakages minus injections equal zero in equilibrium.
D) Leakages must be less than injections for an economy to be in equilibrium.
E) Leakages must be greater than injections for an economy to be growing.

Question 62

Which of the following is an example of a leakage into the circular flow of income and expenditure?

A) savings
B) exports
C) government expenditure on goods
D) transfer payments
E) investment by firms

Question 63

The circular-flow model of income and expenditures in the economy includes _____

A) only governments.
B) only households and firms.
C) only governments, and foreign firms.
D) only households, firms, and governments.
E) households, firms, governments, and the rest of the world.

Question 64

Which of the following is an example of a leakage from the circular flow of income and expenditure?

A) investment
B) imports
C) government purchases
D) exports
E) transfer payments

Question 65

Which of the following is an example of an injection into the circular flow of income and expenditure?

A) government spending
B) imports
C) disposable income
D) net taxes
E) saving

Question 66

Any diversion of income from the domestic spending stream is known as _____

A) government purchases.
B) investments.
C) injections.
D) leakages.
E) exports.

Question 67

Which of the following formulas is correct for disposable income?

A) DI = C- NT
B) DI = S + NT
C) DI = C+S
D) DI = C+I
E) DI = C + S - NT

Question 68

Which of the following statements is true regarding leakages and injections?

A) Government transfer payments must equal exports because one is a leakage and the other is an injection.
B) Imports must equal exports since both are leakages.
C) Government purchases, investment, and exports are leakages from the circular flow of income and expenditure.
D) Savings and net taxes are leakages from the circular flow of income and expenditure.
E) Net taxes are an injection into the circular flow, while exports are a leakage.

Question 69

The circular-flow model shows that _____

A) households are on the demand side of the resource market.
B) firms are on the demand side of both the product and resource markets.
C) households are on the supply side of the resource market and the demand side of the product market.
D) firms and governments are on the supply side of the loanable funds market.
E) governments are on the demand side of the product market and the supply side of the resource market.

Question 70

Which of the following formulas is correct for aggregate income?

A) Aggregate income = DI - NT
B) Aggregate income = DI + NT
C) Aggregate income = C+S
D) Aggregate income = C+I
E) Aggregate income = C + S - NT

Question 71

Any spending other than by households or any income other than from resource earnings is known as _____

A) savings.
B) net taxes.
C) injections.
D) leakages.
E) imports.

Question 72

Which of the following correctly illustrates the leakages-injections approach to GDP?

A) DI + (NT) = C + I + G + (X ‒ M)
B) S + C + NT = DI
C) S + C + (NT) = I + G + (X ‒ M)
D) S + (NT) + M = I + G + X
E) S + (NT) = I + G + (X ‒ M)

Question 73

The circular-flow model shows the flow of _____

A) money in the banking sector of the economy.
B) financial assets in the economy.
C) goods and services in the product market.
D) resources and money in the economy.
E) resources through the resource markets and their allocation in the product market.

Question 74

_____ is the income households have available to spend or to save after paying taxes and receiving transfer payments.

A) Gross income
B) Net income
C) Taxable income
D) Disposable income
E) Net taxes

Question 75

Which of the following is an example of an injection into the circular flow of income and expenditure?

A) net taxes
B) saving
C) transfer payments
D) government borrowing
E) disposable income

Question 76

Which of the following is an example of a leakage from the circular flow of income and expenditure?

A) government purchases of goods and services
B) taxes
C) investment
D) exports
E) consumption expenditures

Question 77

_____ are taxes minus transfer payments.

A) Gross income
B) Net income
C) Taxable income
D) Disposable income
E) Net taxes

Question 78

Which of the following is an example of an injection into the circular flow of income and expenditure?

A) consumption
B) exports
C) taxes
D) saving
E) government borrowing

Question 79

_____ are banks and other financial institutions that facilitate the flow of funds from savers to borrowers.

A) Financial markets
B) Commodity markets
C) Stock markets
D) Bond markets
E) Foreign exchange markets

Question 80

The circular-flow model shows that _____

A) households are on the demand side of the resource market.
B) firms are on the demand side of both the product and resource markets.
C) for each flow of money, there is an equal and opposite flow of products or resources.
D) firms and governments are on the supply side of the loanable funds market.
E) governments are on the demand side of the product market and the supply side of the resource market.