Deck 6: Tracking the Useconomy

Question 1

The value of tires purchased by a company to use on its cars is not included when calculating the gross domestic product (GDP).​

Answer 1

True

Question 2

Net taxes are indirect business taxes plus transfer payments.​

Answer 2

False

Question 3

A nation's aggregate expenditure decreases with an increase in imports,other things constant.​

Answer 3

True

Question 4

Gross domestic product (GDP)understates total economic activity because it ignores household production of goods and services.​

Question 5

Gross domestic product (GDP)does not reflect many things that individuals do for themselves.​

Question 6

Gross domestic product (GDP)decreases if the quantity of illegal drugs sold decreases.​

Question 7

If a firm's inventory decreases,the gross domestic product (GDP)also decreases.​

Question 8

Inventories help manufacturers cope with unexpected changes in the supply of their resources or in the demand for their products.​

Question 9

Leakages cause diversion of income from the domestic spending stream.​

Question 10

Transfer payments are an injection into the circular flow of income and expenditure model.​

Question 11

Taxes are injections into the circular flow of income and expenditure model.​

Question 12

Gross domestic product (GDP)will increase if illegal drugs are made legal.​

Question 13

The value added method to measure GDP does not avoid double counting.​

Question 14

Disposable income equals personal income minus net taxes.​

Question 15

A net increase in inventories is considered as investment for the current year.​

Question 16

A decrease in gross domestic product (GDP)necessarily means that consumer welfare has decreased.​

Question 17

The value added at all stages of production sums to the market value of the final good,and the value added for all final goods sums to GDP based on the income approach.​

Question 18

Imports are leakages from the circular flow of income and expenditure model.​

Question 19

An increase in household production will increase gross domestic product (GDP).​

Question 20

Gross domestic product (GDP)is a good measure of social welfare since it includes the value of leisure time.​

Question 21

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 22

A fixed-weight price index uses a process that adjusts the weights continuously year by year.​

Question 23

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 a nation at a particular point in time.
B)It can be measured by the stock of capital goods in a nation at a particular point in time.
C)It can be measured either by calculating 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 24

If the real gross domestic product (GDP)is $5 trillion for a particular year and the GDP price index is 140,then the nominal GDP is $7 trillion.​

Question 25

A fixed-weight price index provides less accurate changes than a chain-weighted system.​

Question 26

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.

Question 27

If the consumer price index (CPI)rises over a year from 220 to 230,then the inflation rate is 10 percent.​

Question 28

Whenever there is inflation,increase in nominal gross domestic product (GDP)overstates the growth rate of the economy.​

Question 29

If the GDP price index rises from 100 to 110 to 115 over three consecutive years,it can be concluded that the inflation rate is decreasing.​

Question 30

The gross domestic product (GDP)of a country measures the _____.​

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

Question 31

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 payment 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 themselves and once as part of the final output

Question 32

The consumer price index (CPI)tends to understate the true rate of inflation.​

Question 33

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 money​
D)The balance of trade with other nations​
E)The value of the final goods and services produced in the nation​

Question 34

Nominal gross domestic product (GDP)is a better measure of growth in production than real GDP.​

Question 35

If the nominal gross domestic product (GDP)is $6 trillion for a particular year,and the real GDP is $3 trillion,then the GDP price index is 167.​

Question 36

A chain-weighted index recognizes the fact that the composition of output changes over time.​

Question 37

If the nominal gross domestic product (GDP)for a particular year is $4 trillion and the real GDP for that year is $3 trillion,then the GDP price index is 133.​

Question 38

If the price of a good increases compared to the base year,then the price level also increases.​

Question 39

The consumer price index (CPI)overstates the true inflation rate because it ignores changes in consumers' purchasing patterns as relative prices change.​

Question 40

Chain-weighted indexes have less bias compared to fixed-weight indexes.​

Question 41

Rhonda sells a house she has owned for 15 years and starts living in a rented apartment.To make it 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 furnitures 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 for carpet and wallpaper,and the installation fee for the carpet​

Question 42

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 43

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 44

Which of the following actions would increase the consumption spending component of the gross domestic product (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 45

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 furnitures​
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 46

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​

Question 47

The value of the films starring Charlie Chaplin produced in the United States that still exist 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 48

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 49

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 50

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 51

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 government​
E)Unemployment compensation benefits​

Question 52

Gross private domestic investment consists of _____.​

A)spending by individual households on automobiles and durable goods
B)spending by businesses on labor resources​
C)net additions to business inventories​
D)spending by government on welfare benefits​
E)spending by households on stocks and bonds​

Question 53

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 54

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 55

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 56

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 57

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 58

If a toy store overestimates the demand for a toy in 2004 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 2004.
B)investment in 2005.
C)consumption in 2004.
D)consumption in 2005.
E)a part of GDP when the toys are sold.

Question 59

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 60

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.

Question 61

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 62

The largest component of aggregate expenditure is _____.​

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

Question 63

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

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

Question 64

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 the 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 65

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 investment made by the firm to manufacture the refrigerator.
C)the stock of inventories used by the firm to manufacture the refrigerator.
D)the cost of raw materials used by the firm to manufacture the refrigerator.
E)the sum of the wages,interest,and rent paid by the firm's owners and the profit of the firm.

Question 66

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 67

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

Question 68

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

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

Question 69

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 70

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 71

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 72

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 73

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 74

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 75

If consumption = $2,000,investment = $600,government purchases = $500,net exports = −$40,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 76

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 77

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 and exports are subtracted from a nation's gross domestic product (GDP).
D)Exports are added 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 78

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 79

Net exports equals _____.​

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 80

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​