Deck 7: Ataking the Nations Economic Pulse

Question 1

Gross domestic product is a measure of both

A)the market value of a nation's capital assets (physical capital)and the costs that were incurred producing those assets.
B)the expenditures on and sales revenues derived from all goods and services exchanged during a period.
C)the market value of the output produced during a period and the cost of producing that output.
D)the asset holdings of people and the happiness that they derived from the ownership of those assets.

Answer 1

C

Question 2

The primary value of real GDP is its ability to measure year to year changes in

A)real output.
B)income inequality.
C)real social welfare.
D)the general level of prices.

Answer 2

A

Question 3

A firm purchases $600,000 worth of raw materials and pays wages and salaries of $100,000 and dividends of $200,000.If the firm sells its output for $1 million,the firm's value added to GDP is

A)$300,000.
B)$400,000.
C)$900,000.
D)$1,000,000.

Answer 3

B

Question 4

The GDP deflator is designed to

A)adjust nominal GDP for changes in the unemployment rate.
B)adjust nominal GDP so as to include the problem of externalities.
C)adjust nominal GDP for changes in the price level.
D)calculate changes in the price of food and other consumer goods.

Question 5

When the expenditure approach is used to measure GDP,the major components of GDP are

A)consumption,investment,indirect business taxes,and depreciation.
B)employee compensation,rents,interest,self-employment income,and corporate profits.
C)employee compensation,corporate profits,depreciation,and indirect business taxes.
D)consumption,investment,government consumption and gross investment,and net exports.

Question 6

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal.Most of his income was,and continues to be,from gambling.His move

A)necessarily raises GDP.
B)necessarily decreases GDP.
C)doesn't change GDP because gambling is never included in GDP.
D)doesn't change GDP because in either case his income is included.

Question 7

A real estate salesperson sells a house in 2009 that was built in 1990.How does this transaction get counted in the GDP statistics?

A)The price of the house and the real estate salesperson's commission are both included in 2009's GDP.
B)Neither the price of the house or the commission is included in 2009's GDP.
C)The real estate salesperson's commission but not the price of the house is included in 2009's GDP.
D)The price of the house would be included in both 1990's GDP and the GDP for 2009.

Question 8

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

A)the value of a used car,at its sale price
B)the value of a new domestic automobile,at its sale price
C)a sale of Microsoft stock from one individual to another
D)the face value of a life insurance policy paid to a woman at the death of her husband

Question 9

The economist responsible for developing the basic concepts of the national income accounting system is

A)John Maynard Keynes.
B)Alfred Marshall.
C)Simon Kuznets.
D)Adam Smith.

Question 10

Which one of the following transactions would be included in GDP?

A)Ms.Kim pays $50 for a used picture frame at a neighborhood garage sale.
B)Mr.Doe donates $500 to his town's junior college scholarship fund.
C)Ms.Bartolini pays $500 to fix the front end of her car damaged in a recent accident.
D)Ms.Smith pays $5,000 to purchase 100 shares of Microsoft stock.

Question 11

If national income accountants fail to make an adequate adjustment for increases in the quality of goods and services over time,

A)real GDP will overstate the growth rate of real output.
B)the GDP deflator will underestimate inflation.
C)the GDP deflator will overestimate inflation.
D)real GDP will overstate the growth of real output,and the GDP deflator will understate inflation.

Question 12

A firm purchases $400,000 worth of raw materials and pays wages and salaries of $300,000 and dividends of $100,000.If the firm sells its output for $1 million,the firm's value added to GDP is

A)$400,000.
B)$600,000.
C)$800,000.
D)$1,000,000.

Question 13

Which of the following is GDP designed to measure?

A)the total market value of goods and services produced domestically during the year
B)changes in the cost of purchasing the typical consumer market basket of goods from one year to another
C)the total size of the domestic underground economy
D)the standard of living of the average citizen

Question 14

Gross domestic product is

A)the market value of all goods and services exchanged within a country during a time period.
B)the market value of all domestic assets,regardless of whether they are owned by citizens or foreigners.
C)the compensation received during a period for labor services plus interest,rents,and corporate profits.
D)the market value of final goods and services produced within a country during a time period.

Question 15

Gross domestic product is equal to the market value of all goods and services

A)exchanged during a period.
B)produced domestically during a period.
C)produced by the citizens of a nation during a period.
D)produced domestically during a period minus the depreciation of productive assets.

Question 16

If you wanted to measure whether the output of an economy was increasing or decreasing across time periods,you would use the real GDP data rather than the nominal GDP data because

A)exports are excluded from real GDP but not nominal.
B)real GDP incorporates the impact of federal budget deficits and surpluses;nominal GDP does not.
C)real GDP reflects the impact of transfer payments on the economy,but nominal GDP does not.
D)real GDP adjusts for changes in the general level of prices,but nominal GDP does not.

Question 17

Gross domestic product

A)is the sum of all exchanges of goods and services during a period.
B)includes financial transactions such as the purchase of stocks or bonds traded during a period.
C)is the sum of expenditures for both intermediate and final user goods.
D)is the sum of the total spending on all final-user goods and services produced domestically during a period.

Question 18

Suppose that the nominal value of GDP increased by approximately 2 percent during a given year,but real GDP decreased by 3 percent.Which of the following best explains these events?

A)The money supply decreased by approximately 5 percent.
B)Prices fell by approximately 5 percent.
C)Prices increased by approximately 5 percent.
D)The real productive capacity of the economy increased by approximately 5 percent.

Question 19

Last year your job at the university cafeteria paid you $9 an hour and the price of a ten-minute long distance call to your girlfriend in California was $4.This year your cafeteria job pays $9.90 per hour and the ten-minute phone call now costs $4.10.You are clearly

A)worse off because of inflation.
B)worse off because the phone call is now relatively more expensive.
C)better off because your wage rate went up.
D)better off because the phone call now costs less work.

Question 20

Simon Kuznets,winner of the 1971 Nobel Prize in economics,is famous for his contributions in

A)changing the United States from gross national product to gross domestic product accounting.
B)explaining the importance of international trade in determining output.
C)pointing out the superiority of the expenditure approach to measuring GDP.
D)developing the basic concepts and measurement procedures used in national income accounting.

Question 21

U.S.imports are

A)not added to U.S.GDP because they are produced abroad
B)added to U.S.GDP because they are consumed domestically
C)added to U.S.GDP because they represent an increase in inventories
D)added to U.S.GDP as government purchases because the government decides what goods may be imported
E)not added to U.S.GDP because they are intermediate goods

Question 22

U.S.exports are

A)not included in U.S.GDP because they are consumed abroad
B)included in U.S.GDP because they are produced domestically
C)included in U.S.GDP because they represent an increase in inventories
D)included in U.S.GDP as government purchases because the government decides what goods may be exported
E)not included in U.S.GDP because they are not subject to a tariff

Question 23

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

A)Johnson purchases a five-year-old house from Smith.
B)Johnson rents a five-year-old house from Smith.
C)Johnson purchases 100 shares of AT&T stock from Smith.
D)Johnson purchases an antique at Smith's garage sale.

Question 24

Which of the following does not contribute to GDP?

A)You lose $50 playing cards with friends.
B)You pay a doctor $200 to treat an arm that you broke in an accident.
C)You pay $300 for this month's rent on your apartment.
D)Your economics textbook is revised,and you buy the new edition.

Question 25

Suppose a country had net exports of $8.3 billion and sold $52.4 billion of goods and services abroad.This country had

A)$60.7 billion of imports and $52.4 billion of imports.
B)$60.7 billion of exports and $52.4 of imports.
C)$52.4 billion of imports and $44.1 billion of exports.
D)$52.4 billion of exports and $44.1 billion of imports.

Question 26

If Honda (a Japan-based firm)produces a car in Ohio and exports it to Japan,in which country's GDP will the car be counted?

A)Japan's,because Honda is a Japanese company
B)Japan's because that is where the car is purchased
C)The GDP of the United States because that is where it was built
D)Both Japan and the United States

Question 27

If U.S.net exports are negative,

A)U.S.consumers are spending less on foreign goods than foreign consumers are spending on U.S.goods
B)U.S.consumers are spending more on foreign goods than foreign consumers are spending on U.S.goods
C)the government must promote imports to balance international trade
D)U.S.consumers are spending more on foreign goods than they are spending on U.S.goods
E)U.S.disposable income is low

Question 28

General Motors Corporation (a U.S.-based firm)produces a Saab vehicle in Sweden,and sells it in the United States.In which country's GDP is it included?

A)Sweden and the United States
B)The United States because it was sold there
C)The United States because GM is a U.S.company
D)Sweden because it was produced there

Question 29

Gross private domestic investment includes business

A)purchases of capital goods,all new construction,and purchases of consumer durable goods.
B)purchases of capital goods,all new construction,and inventory investment.
C)purchases of capital goods,all new commercial construction,and inventory investment.
D)purchases of capital goods,all new residential construction,and inventory investment.
E)purchases of all types of durable goods,all new construction,and inventory investment.

Question 30

Which of the following would increase the GDP of the United States?

A)A resident of California buys a case of wine from a winery in France.
B)A resident of Germany buys a software program from a company in Washington.
C)A resident of Florida spends $3,000 on a vacation in Mexico.
D)A Japanese investor purchases 100 shares of a computer company located in Illinois.

Question 31

Gross private domestic investment

A)excludes all investment in the United States by foreign firms.
B)includes all capital in the United States.
C)includes net additions to the capital stock plus all new corporate stocks and bonds.
D)includes business expenditures on new factories,tools,and machinery.

Question 32

Suppose a country had $2.4 billion of net exports and bought $4.8 billion of goods and services from foreign countries.This country would have

A)$7.2 billion of exports and $4.8 billion of imports.
B)$7.2 billion of imports and $4.8 billion of exports.
C)$4.8 billion of exports and $2.4 billion of imports.
D)$4.8 billion of imports and $2.4 billion of exports.

Question 33

A business produced $10 million of goods in 2010 but sold only $9 million.Is the $1 million increase in inventory counted as part of the 2010 gross domestic product?

A)No,because inventories are intermediate goods.
B)No,because if these inventories were sold in 2011,they would be counted twice.
C)Yes,because these inventories are part of the output of the economy in 2010.
D)Yes,but they will be added to the 2010 GDP only if they are sold in 2011.

Question 34

U.S.GDP and U.S.GNP are related as follows:

A)GNP = GDP - Income earned by foreigners in the U.S.+ Income earned by U.S.citizens abroad.
B)GNP = GDP + Income earned by foreigners in the U.S.- Income earned by U.S.citizens abroad.
C)GNP = GDP + Value of exported goods - Value of imported goods.
D)GNP = GDP - Value of exported goods + Value of imported goods.

Question 35

Which of the following expenditures are not included in the consumption component of GDP?

A)maid service
B)purchase of a new home
C)a new videocassette recorder
D)a restaurant meal
E)tax preparation service

Question 36

Which of the following would not affect this year's GDP?

A)the paint you purchased when painting your house
B)the new car your parents purchased and gave to you as a birthday present
C)a Gateway computer purchased by the U.S.government
D)the value of a used car you purchased,at its sale price

Question 37

In computing GDP,market prices are used to value final goods and services because

A)market prices reflect the values of goods and services to the buyer.
B)market prices do not change much over time,so it is easy to make comparisons between years.
C)if market prices are out of line with how people value goods,the government sets price ceilings and price floors.
D)None of the above is correct;market prices are not used in computing GDP.

Question 38

New residential housing is counted in GDP as a(n)

A)durable consumption good.
B)household durable good.
C)investment good.
D)inventory expansion.
E)long-term durable good.

Question 39

The amount of U.S.exports purchased by the rest of the world is primarily determined by

A)real disposable income in the United States
B)real disposable income in other nations
C)the real interest rate in other nations
D)the real interest rate in the United States
E)the government budget deficits in other nations

Question 40

Which of the following would count as an investment expenditure in national income accounting?

A)General Motors hires 10 electrical engineers.
B)Boeing purchases a new metal stretching machine used to produce airplane wings.
C)Ms.Quantum buys 100 shares of Microsoft stock.
D)A large corporation spends $10,000 per month on long-distance phone charges.

Question 41

You buy 100 shares of IBM stock at $100 per share and pay $150 commission.How much will this transaction add to GDP?

A)zero
B)$150
C)$10,000
D)$10,150

Question 42

Which of the following would not be included in GDP?

A)the real estate commission on the sale of a used home
B)an attorney's fee for handling the sale of a used home
C)the value of a used home,at its sale price
D)fees paid to have the house cleaned

Question 43

Which of the following will contribute to GDP?

A)Your spouse cleans your house every Thursday.
B)You sell an old bicycle for $100.
C)You find your lost economics textbook.
D)You pay a doctor $200 to treat an arm that you broke in an accident.

Question 44

Which of the following events will reduce GDP?

A)A hurricane destroys your house.
B)You lose $500 playing poker.
C)You pay $500 to repair the damage done to your house by a hurricane.
D)You work 15 hours less this month so that you can repair the damage done to your home by a hurricane.

Question 45

The Liebowitz family purchased a used two-year-old sofa at Swanson's Used Furniture Store in March of 2011.How will this affect the 2011 GDP?

A)Only the sale value of the used sofa will be included in the 2011 GDP.
B)Only the commission received by the salesman will be included in the 2011 GDP.
C)The sale will have no effect on the 2011 GDP.
D)Both the sale value of the sofa and the commission will be included in the 2011 GDP.

Question 46

Which one of the following transactions would be included in this year's GDP?

A)Todd purchases a used CD at a neighborhood garage sale.
B)Mrs.Rock purchases $500 of common stock of Quick-Gro Foods,Inc.
C)Mr.I.V.League donates $300 to his town's junior college scholarship fund.
D)An American buys a Honda manufactured at a plant in Ohio.

Question 47

If a local shop buys a used motorcycle for $1,000,refurbishes it,and resells it for $2,500,the

A)shop contributes value added equal to $1,500,but nothing is added to GDP.
B)shop contributes value added equal to $1,500,and consequently $1,500 is added to GDP.
C)shop contributes nothing to production because only existing goods are involved.
D)shop contributes value added equal to $2,500,but only $1,500 is added to GDP.

Question 48

Which of the following events will leave GDP unchanged?

A)You purchase 100 shares of Wal-Mart stock.
B)You pay $500 to repair the damage done to your car by an uninsured motorist.
C)You decide to work five more hours per week at your job to pay for the repairs performed on your car.
D)You purchase a new car at an auction.

Question 49

Which of the following activities is not counted in our calculations of GDP?

A)the purchase of a hammer for household repairs
B)the labor services of a volunteer group building a home for a poor widow
C)the purchase of new,domestically-produced tires for your old foreign car
D)a haircut received and paid for at a beauty salon

Question 50

Which of the following transactions would enter directly into the determination of GDP?

A)a bicycle you purchased at a garage sale
B)the retirement check your uncle received for spending 25 years in the Marine Corps
C)the DVD player you purchased from Best Buy
D)the five shares of Microsoft stock your grandparents gave you for making an A in economics

Question 51

If a used car dealer purchases a used car for $3,000,refurbishes it,and sells it for $8,000,the

A)dealer contributes value added equal to $5,000,but nothing is added to GDP.
B)dealer contributes value added equal to $5,000,and consequently $5,000 is added to GDP.
C)dealer contributes nothing to production because only existing goods are involved.
D)dealer contributes value added equal to $8,000,but only $5,000 is added to GDP.

Question 52

Which of the following would increase GDP?

A)buying a 10-year-old house
B)purchasing 100 shares of McDonald's stock
C)a $1,000 expenditure on roof repairs after a Florida hurricane
D)a $1,000 contribution to the Red Cross to assist the victims of a Florida hurricane

Question 53

Which of the following would increase GDP?

A)buying a used car
B)buying a newly constructed house
C)buying an imported rug
D)giving a domestically produced rug to charity

Question 54

Which one of the following events will leave GDP unchanged?

A)You pay $500 to repair your car damaged in an accident.
B)You buy a new domestic car to replace one that was stolen.
C)You lose $500 playing blackjack with friends.
D)You work extra hours this month to help make up for the money you lost playing blackjack.

Question 55

Which of the following events will increase GDP?

A)losing $500 playing blackjack in your dorm
B)selling an antique writing desk for $500 cash
C)a burglar stealing your CD player
D)the police department hiring an extra detective to track down the burglar who stole your CD player

Question 56

Which of the following would increase GDP?

A)You buy 100 shares of Wal-Mart stock.
B)Your car is destroyed by a fire,and you purchase a two-year-old car to replace it.
C)Your car is damaged by a fire,and you hire a mechanic to repair it.
D)Your car is damaged by a fire,and you reduce the number of hours you work to repair the car yourself.

Question 57

You buy 50 shares of stock in a telecommunications company for $20 a share and pay $100 commission.How much will this transaction add to GDP?

A)zero
B)$100
C)$1,000
D)$1,100

Question 58

Which of the following transactions would increase GDP?

A)a new tricycle purchased at a department store sale by the parents of a three-year-old child
B)the retirement check your uncle received for spending 25 years in the Marine Corps
C)the five shares of Microsoft stock your grandparents gave you for making an A in economics
D)the $200 you lost when your wallet was stolen

Question 59

Which of the following will increase this year's GDP?

A)the sale of a used economics textbook to the college bookstore
B)family lawn services provided by a 16-year-old son or daughter
C)$60,000 of income earned by an American college professor teaching in England
D)a $100 sales commission to a broker for a purchase of 100 shares of stock
E)$10 billion of damage caused by a hurricane that hit the coast of Florida

Question 60

Which one of the following events will reduce GDP?

A)Mrs.Lee hires a housekeeper.
B)You buy the ingredients to bake a loaf of bread,but you burn the bread and throw it away.
C)You decide to work five more hours per week at your bookkeeper job,even though you need more time to study.
D)An automobile manufacturer lays off 200 workers as the result of a fire in the paint shop.

Question 61

Greg,a U.S.citizen,works only in Canada.The value that his labor contributes to U.S.output is

A)included in both U.S.GDP and U.S.GNP.
B)included in U.S.GDP,but it is not included in U.S.GNP.
C)included in U.S.GNP,but it is not included in U.S.GDP.
D)included in neither U.S.GDP nor U.S.GNP.

Question 62

Anna,a U.S.citizen,works only in Germany.The value she adds to production in Germany is included

A)in U.S.GDP,but it is not included in German GDP.
B)in German GDP,but it is not included in U.S.GDP.
C)in both German GDP and U.S.GDP.
D)in neither German GDP nor U.S.GDP.

Question 63

Which of the following would contribute to GDP?

A)An American company buys stock in another American company.
B)An American company produces goods in Canada.
C)A Canadian company buys stock in an American company.
D)A Canadian company produces goods in the United States.

Question 64

One bag of flour is sold for $1.50 to a bakery,which uses the flour to bake bread that is sold for $4.00 to consumers.A second bag of flour is sold to a consumer in a grocery store for $2.00.Taking these three transactions into account,what is the effect on GDP?

A)GDP increases by $1.50.
B)GDP increases by $3.50.
C)GDP increases by $6.00.
D)GDP increases by $7.50.

Question 65

The GDP of a country can be derived by summing

A)the expenditures on final user goods and services produced domestically during the year.
B)the payments to employees and owners of capital resources and then subtracting depreciation and indirect business taxes.
C)the market value of all goods and services produced domestically during the period and then subtracting net exports from that figure.
D)the income payments to the resource suppliers and net exports.

Question 66

In 2008 in the U.S. ,the four components of GDP matched up with their relative importance as follows:

A)C: 50 percent of GDP;I: 18 percent of GDP;G: 27 percent of GDP;X: 5 percent of GDP.
B)C: 60 percent of GDP;I: 9 percent of GDP;G: 33 percent of GDP;X: -2 percent of GDP.
C)C: 70 percent of GDP;I: 12 percent of GDP;G: 21 percent of GDP;X: -3 percent of GDP.
D)C: 77 percent of GDP;I: 14 percent of GDP;G: 17 percent of GDP;X: -8 percent of GDP.

Question 67

Which of the following would increase GDP?

A)The state of Florida buys paper from a German paper mill.
B)A German buys stock in Citibank.
C)Honda produces cars in Ohio.
D)An American buys art on a trip to Japan.

Question 68

Which of the following transactions would be included in this year's GDP for the United States?

A)Jennifer buys a rug imported from Mexico.
B)Melissa buys stock in an American textile company.
C)Jennifer purchases a table over the Internet from a North Carolina furniture manufacturer.
D)Melissa purchases a table over the Internet from a Mexican manufacturer.

Question 69

Using the resource cost-income approach,indirect business taxes have to be added to get gross domestic product because the

A)selling price of a product includes these taxes,which are income to the government .
B)selling price of a product includes these taxes,which are resource payments.
C)selling price of a product excludes these taxes and therefore they have to be added.
D)selling price includes these taxes which are actually not income to any sector of the economy.

Question 70

Until recently,George lived in a home that was newly constructed in 2005.In 2005,he paid $200,000 for the brand new house.He sold the house in 2006 for $225,000.Which of the following statements is correct regarding the sale of the house?

A)The 2006 sale increased 2006 GDP by $225,000 and had no effect on 2005 GDP.
B)The 2006 sale increased 2006 GDP by $25,000 and had no effect on 2005 GDP.
C)The 2006 sale increased 2006 GDP by $225,000;furthermore,the 2006 sale caused 2005 GDP to be revised upward by $25,000.
D)The 2006 sale affected neither 2005 GDP nor 2006 GDP.

Question 71

Gross domestic product during a period is measured by adding

A)incomes received by households minus the sale of factor services supplied domestically.
B)factor payments made by domestic firms minus retained earnings and indirect business taxes.
C)expenditures on new final goods and services produced domestically.
D)the market value of all goods and services produced domestically and then subtracting net exports from that figure.

Question 72

Which of the following would be counted in this year's GDP?

A)your donation today of $100 to the Red Cross
B)the rental payment you made today on a house built last year
C)your purchase today of a house built last year
D)your purchase of 100 shares of Wal-Mart stock

Question 73

Double counting in the resource cost-income approach to GDP refers to

A)corporate income being taxed twice
B)the amount of income taxes paid to states that is taxable by the federal government
C)calculating GDP twice using the income and expenditures methods
D)adding the value of exports to GDP and subtracting the value of imports
E)counting the total value of a final output in addition to the value of the inputs used to make it

Question 74

A wealthy stamp collector recently sold a rare stamp for $80,000 that he purchased two years earlier for only $10,000.What impact will this transaction have on GDP?

A)GDP increases by $80,000.
B)GDP increases by $70,000.
C)GDP declines by $70,000.
D)There is no change in GDP.

Question 75

Government purchases include spending on goods and services by

A)the federal government only.
B)state and federal governments only.
C)local,state and federal governments.
D)local,state and federal governments,as well household spending by employees of those governments.

Question 76

GDP during a period can be calculated by summing either

A)the purchases of domestically produced final goods and services or the cost incurred in the production of those goods.
B)the amount received by business firms for consumer goods and services or the spending of business firms on investment goods and services.
C)all household expenditures on final goods and services or all business purchases of factors of production.
D)sales of goods and services to foreigners or the purchase of goods and services from foreigners

Question 77

Double counting in the resource cost-income approach to GDP statistics is avoided by

A)correct accounting of the values of exports and imports
B)choosing only one method to calculate GDP--either the income or the expenditures method
C)counting only the value added at each stage of a good's production process
D)counting the value of final and intermediate goods and services
E)subtracting the total value of intermediate goods and services from the total value of final goods and services

Question 78

To encourage formation of small businesses,the government could provide subsidies;these subsidies would be

A)included in GDP because they are part of government expenditures.
B)included in GDP because they are part of investment expenditures.
C)omitted from GDP because they are transfer payments.
D)omitted from GDP because the government raises taxes to pay for them.

Question 79

A Minnesota farmer buys a new tractor made in Iowa by a German company.As a result,

A)U.S.investment and GDP increase,but German GDP is unaffected.
B)U.S.investment and German GDP increase,but U.S.GDP is unaffected.
C)U.S.investment,U.S.GDP,and German GDP are unaffected,because tractors are intermediate goods.
D)U.S.investment,U.S.GDP,and German GDP all increase.

Question 80

Which of the following transactions would be included in this year's GDP for the United States?

A)Deion sends $100 to a hotel in Costa Rica as a deposit for his vacation.
B)Deion buys a travel guide written by a Costa Rican woman living in the United States.
C)Deion buys a shirt while on vacation in Costa Rica.
D)Deion spends money in an American-owned restaurant in Costa Rica.