Deck 8: Gdp: Measuring Total Production and Income

Question 1

Macroeconomics,as opposed to microeconomics,includes the study of what determines the level of

A) employment in a specific industry.
B) employment in the economy.
C) output of a specific firm.
D) output of a specific industry.

Answer 1

employment in the economy.

Question 2

Suppose,in 2012,you purchased a house built in 2003.Which of the following would be included in the gross domestic product for 2012?

A) the value of the house in 2012
B) the value of the house in 2003
C) the value of the house in 2012 minus depreciation
D) the value of the services of the real estate agent

Answer 2

the value of the services of the real estate agent

Question 3

Macroeconomics seeks to understand

A) economic growth, business cycles, and inflation.
B) industry sales, marketing strategies and corporate growth.
C) product demand, product cost, and profit maximization.
D) public choices, private choices, and consumer maximization.

Answer 3

economic growth, business cycles, and inflation.

Question 4

The nominal GDP of the U.S.in 2010 was approximately $14.6 trillion.This means that

A) the value of output in 2010 was around $14.6 trillion.
B) total income in 2010 was around $14.6 trillion.
C) total spending in 2010 was around $14.6 trillion.
D) all of the above are true.

Question 5

Which of the following transactions represents the purchase of a final good?

A) Starbucks purchases coffee beans.
B) Delta buys a new European-made jetliner.
C) Apple computer buys computer processors from Intel.
D) Your father buys a new John Deere riding lawn mower.

Question 6

In the circular flow model,the value of total income for an economy ________ the value of total production.

A) equals
B) is greater than
C) is less than
D) may be greater than or less than

Question 7

In May 2009,the U.S.auto industry experienced a 34 percent decline in sales compared to May 2008.The automobile industry was experiencing the effects of

A) deflation.
B) the underground economy.
C) the business cycle.
D) depreciation.

Question 8

Which of the following would be directly counted in GDP in 2012?

A) kitchen cabinets purchased from Home Depot in 2012 to be installed in a house built in 1997
B) kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a brand new country-style home
C) kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a farm house built in 1950
D) none of the above

Question 9

In the circular flow model,the value of total production for an economy ________ the value of total expenditures on final goods and services.

A) equals
B) is greater than
C) is less than
D) may be greater than or less than

Question 10

Macroeconomics,as opposed to microeconomics,includes the study of what determines the

A) average price levels of goods and services in the economy.
B) price charged for laptop computers by Dell.
C) wages paid to employees by Dell.
D) quantity of Dell employees.

Question 11

In calculating gross domestic product,the Bureau of Economic Analysis uses the sum of the market value of final goods and services produced.This means that the BEA

A) simply counts the total number of goods produced in the market place and then adds them up.
B) values goods at their market prices, multiplies them by the quantity produced, and then adds them up.
C) simply counts the total number of goods and services produced in the marketplace and then adds them up.
D) values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.

Question 12

During a business cycle expansion,total production ________ and total employment ________.

A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question 13

Gross domestic product is calculated by summing up

A) the total quantity of goods and services in the economy.
B) the total quantity of goods and services produced in the economy during a period of time.
C) the total market value of goods and services in the economy.
D) the total market value of final goods and services produced in the economy during a period of time.

Question 14

Table 19-2

Refer to Table 19-2.Suppose that a simple economy produces only four goods and services: shoes,DVDs,tomatoes,and ketchup.Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households.Using the information in the above table,nominal GDP for this simple economy equals

A) $7,400.
B) $6,400.
C) $5,800.
D) 2,440 units.

Question 15

In May 2009,Ford Motor Company's sales were down 20 percent from a year earlier.These events were caused by

A) an economic recession.
B) an economic expansion.
C) a reduction in advertising.
D) declining quality of service.

Question 16

Which of the following headlines would be more closely related to what macroeconomists study than what microeconomists study?

A) Avocado prices rise due to a late frost in California.
B) The United Auto Workers sign a contract raising wages and benefits 7% over the next 3 years.
C) Real GDP grows by 2.3% in the second quarter.
D) Airlines raise ticket prices in response to rising fuel costs.

Question 17

Which of the following goods is directly counted in GDP?

A) the lettuce that Subway purchases for its sandwiches
B) the bread that Subway purchases for its sandwiches
C) a 12-inch Subway sandwich purchased by a student
D) the plastic bags that Subway purchases to wrap its sandwiches

Question 18

Which of the following is not directly counted in GDP?

A) investment expenditures
B) government purchases
C) intermediate goods
D) consumer goods

Question 19

Value added equals the market price of the firm's product minus

A) wages and salaries.
B) the price of intermediate goods.
C) the price of all factors of production.
D) depreciation on plant and equipment.

Question 20

Table 19-1

Refer to Table 19-1.Suppose that a simple economy produces only four goods and services: sweatshirts,dental examinations,coffee drinks,and coffee beans.Assume all of the coffee beans are used in the production of the coffee drinks.Using the information in the above table,nominal GDP for this simple economy equals

A) 3,090 units.
B) $7,250.
C) $8,750.
D) $9,750.

Question 21

In the first half of 2011,automobile sales in the United States were lower than they were in the first half of 2010.The decrease in auto sales impacts GDP because new automobiles are counted as ________ when purchased by households and ________ when purchased by businesses.

A) nondurable goods; durable goods
B) consumption; investment
C) investment; consumption
D) durable goods; nondurable goods

Question 22

In the United States since the mid-1980s,consumption as a percentage of GDP has

A) increased.
B) slowly decreased.
C) remained the same.
D) dropped by more than half.

Question 23

The purchase of a new house is included in

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

Question 24

The purchase of a new automobile is included in

A) consumption expenditures on services.
B) consumption expenditures on nondurable goods.
C) consumption expenditures on durable goods.
D) investment expenditures.

Question 25

Which of the following is not a durable good?

A) furniture
B) automobile
C) clothing
D) refrigerator

Question 26

To calculate GDP by the expenditure method,one must add

A) wages, rents, interest, and profits.
B) consumption spending, investment spending, government spending and net exports.
C) consumption spending, investment spending, government spending and exports.
D) labor, natural resources, entrepreneurship, and capital.

Question 27

When consumers are less confident about their jobs or incomes,they are more likely to

A) reduce purchases of durable goods than nondurable goods.
B) reduce purchases of nondurable goods and increase purchases of durable goods.
C) increase investment spending and decrease consumption spending.
D) increase consumption spending and decrease investment spending.

Question 28

What is the largest component of spending in the United States?

A) consumption spending
B) investment spending
C) government spending
D) net investment spending

Question 29

Table 19-3

Refer to Table 19-3.Consider the data above (in billions of dollars)for an economy: Gross domestic product (in billions of dollars)for this economy equals

A) $2,200.
B) $1,600.
C) $1,400.
D) $1,200.

Question 30

Table 19-4

Refer to Table 19-4.Consider the data above (in billions of dollars)for an economy: Gross domestic product (in billions of dollars)for this economy equals

A) $2,200.
B) $2,100.
C) $1,600.
D) $1,400.

Question 31

In 2011,Kendall Ford,an automobile dealership,spent $20,000 on a new car lift for its repair shop,$2,000 on a new copy machine for its sales division,and $600,000 on Ford Motor company stock.Unsold cars and trucks were valued at $400,000 on January 1,2011 and unsold cars and trucks were valued at $900,000 on December 31,2011.What is Kendall Ford's total investment spending in 2011?

A) $22,000
B) $322,000
C) $522,000
D) $1,022,000

Question 32

In 2010,which component of GDP had a negative value?

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

Question 33

An example of business fixed investment spending is

A) a purchase of a home by a household.
B) a purchase of a computer by an accounting firm.
C) a purchase of a bond by General Electric Corporation.
D) $200 million of unsold cars at a car dealership.

Question 34

Investment,as defined by economists,would not include which of the following? Ford

A) buys a new robotic machine (from a plant in Ohio) to assemble cars.
B) adds 1,000 new cars to inventories.
C) builds another assembly plant in the United States.
D) buys U.S. government bonds.

Question 35

Which of the following is not an example of a transfer payment?

A) unemployment insurance payments
B) health insurance payments to an army private
C) social security payments to retirees
D) social security payments to disabled persons

Question 36

The purchase by a household in China of a CD produced in the United States is included in U.S.

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

Question 37

The factors of production include

A) wages.
B) capital.
C) investment.
D) transfers.

Question 38

Investment,as defined by economists,would include the purchase of a

A) corporate bond.
B) government bond.
C) share of stock in ExxonMobil.
D) computer by an accounting firm.

Question 39

The purchase by a foreign government of an airplane produced in the United States is included in U.S.

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

Question 40

In the United States,households were saving about ________ of their income in the mid 1980s,and by 2005,saving ________.

A) 5 percent; increased to 25 percent
B) 10 percent; dropped to about 1 percent.
C) 2 percent; dropped to negative 15 percent.
D) 64 percent; increased to 70 percent.

Question 41

Residential investment includes spending by firms on office buildings.

Question 42

Table 19-5

Consider the table above showing three stages of production of an automobile.
Refer to Table 19-5.The value of each automobile in gross domestic product equals

A) $7,000.
B) $15,000.
C) $18,000.
D) $25,000.

Question 43

Why do we not count the value of intermediate goods and services in gross domestic product? Does the value of intermediate goods and services show up in gross domestic product? If so,how?

Question 44

People complain that inflation increases the cost of goods and services and therefore reduces their purchasing power.If inflation and income grow at the same rate,is this complaint valid? Explain carefully.

Question 45

The size of the underground economy would tend to decrease if the government of a country

A) decreased government regulations on businesses.
B) made over-the-counter drugs illegal.
C) increased income tax rates.
D) increased business taxes.

Question 46

Gross domestic product understates the total production of final goods and services because of the omission of

A) exports.
B) inflation.
C) intermediate goods.
D) household production.

Question 47

Gross domestic product understates the total production of final goods and services because of the omission of

A) the underground economy.
B) intermediate goods.
C) inflation.
D) exports.

Question 48

Scenario 19-1
CANOES-R-US makes canoes. It buys the shell of the canoe from another firm for $300 and uses its labor and intermediate goods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoe to a consumer for $1,200.
Refer to Scenario 19-1.The value of each canoe in gross domestic product equals

A) $1,200.
B) $800.
C) $500.
D) $400.

Question 49

High-income countries such as the United States spend a greater amount on services as compared to goods.

Question 50

Table 19-6

Refer to Table 19-6.Suppose that a simple economy produces only four goods and services: iPods,t-shirts,bottled water,and oranges.Calculate nominal GDP for this simple economy.

Question 51

Scenario 19-1
CANOES-R-US makes canoes. It buys the shell of the canoe from another firm for $300 and uses its labor and intermediate goods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoe to a consumer for $1,200.
Refer to Scenario 19-1.The value added of CANOES-R-US for each canoe equals

A) $1,200.
B) $800.
C) $500.
D) $400.

Question 52

The size of the underground economy would tend to increase if the government of a country

A) decreased government regulations on businesses.
B) increased income tax rates.
C) legalized prostitution.
D) legalized marijuana.

Question 53

In the circular flow diagram,the value of all the income in the economy is greater than the value of goods and services produced in the economy.

Question 54

The Philippines and Vietnam have roughly the same size population.Suppose the GDP of the Philippines is $1,000 billion and the GDP of Vietnam is $10,000 billion.You should conclude

A) a typical person in Vietnam is 10 times as well off as the typical person in the Philippines.
B) a typical person in Vietnam is more than 10 times as well off as the typical person in the Philippines.
C) a typical person in Vietnam is less than 10 times as well off as the typical person in the Philippines.
D) it is not possible to make a good comparison of the economic well being of a typical individual in the 2 countries without additional information.

Question 55

Which of the following is not true about the composition of GDP in 2010?

A) The majority of consumer spending is on durable goods.
B) Purchases made by state and local governments are greater than purchases made by the federal government.
C) Imports are greater than exports.
D) Business fixed investment is the largest component of investment.

Question 56

The sum of the value added of every firm involved in producing all final goods and services ________ gross domestic product.

A) equals
B) is greater than
C) is less than
D) is sometimes greater than and other times less than

Question 57

Table 19-5

Consider the table above showing three stages of production of an automobile.
Refer to Table 19-5.The value added by the automobile dealer equals

A) $7,000.
B) $15,000.
C) $18,000.
D) $25,000.

Question 58

Table 19-7

Refer to Table 19-7.Suppose that a simple economy produces only four goods and services: sweaters,CDs,sugar,and soft drinks.Assume one half of the sugar is used in making the soft drinks and the other half of the sugar is purchased by households.Calculate nominal GDP for this simple economy.

Question 59

How can a firm have a negative valued added,as supposedly some state-owned businesses did in the former Soviet Union? What has to be true for value added to be negative?

Question 60

If the value added of a firm is positive,will the firm necessarily have positive profits?

Question 61

The underground economy the informal sector can be a significant drag on the economies of developing countries.Why are firms in the informal sector often less efficient than firms in the formal sector?

Question 62

The U.S.work week has declined from 60 hours in 1890 to 40 hours today.The impact of the decline in working hours

A) increases U.S. GDP and increases the well-being of a typical working person in the U.S.
B) increases U.S. GDP and decreases the well-being of a typical working person in the U.S.
C) decreases U.S. GDP and increases the well-being of a typical working person in the U.S.
D) decreases U.S. GDP and decreases the well-being of a typical working person in the U.S.

Question 63

Developing countries with large informal sectors tend to have firms that invest less in capital equipment.

Question 64

The informal sector can be a significant drag on the economies of developing countries because the firms in the informal sector

A) produce goods and services no one wants.
B) sell their goods and services to citizens in other countries.
C) do not pay taxes to the government.
D) employ illegal immigrants from other countries.

Question 65

Recent estimates put the size of the underground economy in the United States at ________ of measured GDP.

A) 2 percent
B) 8 percent
C) 13 percent
D) over 50 percent

Question 66

Presently,GDP is ________ to compensate for the costs of environmental damage.

A) fully adjusted
B) partially adjusted
C) adjusted on a chain-weight basis
D) not adjusted

Question 67

A sharp increase in the divorce rate increases the number of lawyers hired to determine divorce settlements.This will

A) increase GDP and increase well being in the economy.
B) increase GDP and decrease well being in the economy.
C) decrease GDP and increase well being in the economy.
D) decrease GDP and decrease well being in the economy.

Question 68

Statistics on real GDP during World War II may give a misleading indication of whether World War II was a period of prosperity because

A) inflation may have been considerably higher than estimated.
B) most of the increased production was for military goods, not consumption goods.
C) government agents purposely inflated the production numbers to maintain American support for the war.
D) government agencies were shorthanded and did a particularly poor job of collecting data.

Question 69

Even though it is generally true that the more goods and services people have,the better off they are,GDP provides only a rough measure of well-being.Assuming language is not an issue,what other factors besides GDP might you consider when deciding where to live and work?

Question 70

Which of the following statements is true?

A) A decrease in the crime rate increases GDP as people will spend more on security.
B) Household production is counted in GDP as it amounts to real production.
C) GDP accounting rules do not adjust for production that pollutes the economy.
D) GDP growth distributes income equally to people in the economy.

Question 71

Suppose Bob works for Mary as a proofreader.Mary and Bob fall deeply in love,marry and have eight children.Bob stops working for Mary in order to care for the children.What will be the effect on GDP?

A) GDP will decrease.
B) GDP will increase.
C) GDP will not change.
D) GDP may increase or may decrease depending on inflation.

Question 72

Increases in real GDP would understate the well-being of a country over time if,over that time period,the

A) crime rate increased.
B) percentage of people addicted to illegal drugs increased.
C) amount of pollution decreased.
D) average hours worked per week decreased.

Question 73

If income is unequally distributed in an economy,increases in GDP may not raise well-being in an economy.

Question 74

Which of the following is likely to increase measured GDP?

A) A greater number of women decide to stay at home and provide day care for their children under age 5.
B) Marijuana becomes legal to grow and sell.
C) Tax rates increase and more people attempt to underreport their income for tax purposes.
D) More people decide to do their own lawn maintenance and give up using a professional service.

Question 75

Increases in real GDP would overstate the increase in the well-being of a country over time if,over that time period,the

A) average hours worked per week increased.
B) amount of pollution decreased.
C) price level increased.
D) crime rate decreased.

Question 76

Legalizing all forms of illegal activities

A) reduces GDP and the size of the underground economy.
B) reduces GDP and increases the size of the underground economy.
C) increases GDP and reduces the size of the underground economy.
D) increases GDP and increases the size of the underground economy.

Question 77

Real GDP per capita is calculated by dividing the value of real GDP for a country by the country's adult population.

Question 78

If GDP calculations included measurements of pollution and environmental damage,GDP values would most likely be

A) greater than their values without these measurements.
B) less than their values without these measurements.
C) unchanged from their values without these measurements.
D) meaningless, since GDP values without these measurements would no longer be of value.

Question 79

Which of the following statements about the underground economy is true?

A) The underground economy in developing countries amounts to less than 10% of measured GDP.
B) Most transactions that occur in the underground economy are included in the calculation of GDP.
C) Excluding underground economy production from measured GDP causes errors in GDP growth estimates in the long run.
D) Income that is earned but not reported as income for tax purposes is included in the calculation of GDP.

Question 80

Which of the following is not a true statement about the impact of World War II on the U.S.economy?

A) U.S. GDP increased dramatically from 1941 to 1945.
B) The war time years were a period of prosperity for U.S. consumers.
C) More than 40% of the labor force was in the military or producing war goods.
D) Increased production of tanks, ships, planes, and munitions accounted for most of the increase in GDP.