Deck 7: Tracking the Us Economy

Question 1

Which of the actions below will not increase GDP?

A)Bears prowl suburban areas, overturning garbage cans so that the town must hire more sanitation workers to clean up.
B)Vandals spray paint all over brick buildings, increasing business for paint removal services.
C)An installer of automobile tires takes a knife to the tires of cars parked in his neighborhood.
D)A homemaker spends $20 taking the family to lunch at Burger King instead of spending the $20 to buy food to prepare at home.
E)A consumer has a tune-up done on his pick-up truck at the local garage.

Answer 1

C

Question 2

Rhonda sells a house she has owned for 15 years. To make it more marketable, she buys carpeting and has it professionally installed, and buys wallpaper that her daughter hangs. Which items would be included in this year's GDP?

A)the sale price of the house
B)the sale price of the house, carpeting, and wallpaper and the installation fee for the carpet
C)the sale price of the house, carpeting, and wallpaper, the installation fee for the carpet, and the opportunity cost of Rhonda's daughter's time
D)the sale price of the house, carpeting, and wallpaper, the installation fee for the carpet, and the opportunity cost of Rhonda's time
E)the sale price of the wallpaper and carpeting and the installation fee for the carpet

Answer 2

E

Question 3

Which of the following is not true about Gross Domestic Product?

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 may be measured by totalling the spending by each group in society.
E)It includes transfer payments.

Answer 3

E

Question 4

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

A)any good bought by a household, rather than a firm
B)pizzas bought at a restaurant
C)legal services hired by a public accounting firm
D)sunglasses worn on a summer vacation in Florida
E)a professional performance of "The Phantom of the Opera"

Question 5

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

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

Question 6

The value of the films produced in the United States starring Charlie Chaplin that still exist will not be included in this year's U.S. GDP because

A)Charlie Chaplin was not an American citizen
B)Charlie Chaplin did not make the films this year
C)the films are no longer being shown and earning revenue
D)the films no longer have any value except for collectors
E)films are intermediate goods

Question 7

The Lee family won a $50 million jackpot and made several major purchases this year, listed below. Which of these would be counted as investment when calculating GDP by the expenditure approach?

A)the former Hollywood home of Gwyneth Paltrow that they bought for $5 million
B)the villa they just built in the Swiss Alps for $2 million
C)the secondhand yacht that Mr. Lee purchased for $1 million and expects to sell for a profit before year's end
D)the vintage Rolls Royce that Mrs. Lee purchased in London for $500,000
E)the new house that Mrs. Lee had built in Pittsburgh for $200,000 to serve as living quarters for her ten new servants

Question 8

Which of the following actions would not increase GDP?

A)Tom's alarm clock breaks, so he buys a new one.
B)Tom buys a new alarm clock because he routinely sleeps through the first alarm.
C)Tom's alarm clock breaks; now he oversleeps long enough that he buys a cup of coffee on the way to work instead of making it for himself at home.
D)Tom gets fired for being late so often after his alarm clock breaks, so he moves off to the wilderness.
E)Tom sells his broken alarm clock and uses the revenue to buy some French fries.

Question 9

Which of the following would not be included in GDP as a form of consumption spending?

A)Ann takes Tim out to a restaurant for dinner.
B)Ann and Tim buy a microwave oven.
C)Ann and Tim buy vegetables to prepare soup at home.
D)Ann prepares Tim's income tax return.
E)Tim buys Ann flowers.

Question 10

Gross Domestic Product measures the

A)market value of all final goods and services produced by a nation's citizens, residents and firms of a nation regardless of the location of production
B)market value of all final goods and services produced by resources located within a nation regardless of who owns those resources
C)market value of all goods and services produced by resources located within a nation regardless of who owns those resources
D)market values of all goods and services produced by a nation's citizens and firms regardless of the location of production
E)market value of all goods and services produced within a nation by resources owned by residents and firms of that nation

Question 11

Which of the following is true regarding Gross Domestic Product?

A)It can only be measured from the flow of total spending.
B)It can only be measured from the flow of total income in the economy.
C)It can be measured either from total spending or total expenditure.
D)It is calculated by computing total spending and total income; the larger of the two figures is counted as GDP.
E)It can only be measured from the stock of total wealth.

Question 12

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

A)the federal government budget deficit
B)the stock of capital goods (machinery) in the nation
C)the size of the nation's stock of money
D)the balance of trade with other nations
E)the flow of new goods and services produced in the nation

Question 13

GDP does not include the

A)increase in business inventories in the period
B)expenditures by government for newly produced goods and services in a given period
C)value of all transactions in the economy during a given period
D)value of final output during a given period
E)household spending on electricity

Question 14

Gross Domestic Product includes final goods and services, but not intermediate goods because

A)intermediate goods are not part of investment spending
B)the value of the intermediate goods is already included in the value of the final goods
C)the value of the intermediate goods is already included as inventory investment
D)intermediate goods are only produced by government
E)intermediate goods are not current production

Question 15

Gross Domestic Product equals the

A)total output of all goods and services produced by resources located in the U.S.
B)market value of all goods and services produced by resources located in the U.S.
C)market value of all final goods and services produced by resources located in the U.S.
D)value added to the economy by intermediate goods and services minus original cost
E)value of total sales of goods and services produced in the U.S.

Question 16

In double-entry GDP accounting,

A)the value of output produced must equal the value of resource payments generated in producing that output
B)government is not counted because most of government spending is for transfer payments
C)payments to resources must equal the value of goods sold to households
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 final output

Question 17

Which of the following would be included in GDP?

A)payment of the monthly telephone bill by Mr. Laconic
B)the purchase of corporate stock by Steven Jones
C)the purchase of a used limousine by Harold Abel
D)the value of a pair of mittens your mother knitted for you
E)the $300 George saved because he painted his own garage

Question 18

Which of the following best describes an intermediate good?

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

Question 19

Which of the following would not be an expenditure on a final good or service?

A)a farmer's purchase of a pound of hamburger
B)a medical clinic's purchase of flu vaccine
C)a factory's purchase of a spot welding machine
D)the purchase of a cup of coffee at a restaurant
E)a college student's purchase of a textbook for a medieval history class

Question 20

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

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

Question 21

Suppose that storage costs increase, so that firms decide to hold less output in inventory, other things constant. Which of the following is true?

A)consumption spending will increase
B)consumption spending will decrease
C)investment will increase
D)investment will decrease
E)GDP for this year is not affected

Question 22

Which of the following is included in GDP as government purchases?

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 23

Which of the following would not be included in GDP as government purchases?

A)The local township repairs the roads.
B)The state government funds a state university.
C)The federal government sends out Social Security checks.
D)The federal government pays a lawyer as a public defender.
E)The state government buys computer time.

Question 24

Which of the following is not considered a component of government purchases in calculating GDP?

A)the cost of a new federal prison
B)the cost of building a new road
C)unemployment compensation payments
D)payments made to plow public roads after a snowstorm
E)the cost of police protection

Question 25

Which of the following would not be included in the calculation of GDP?

A)Jim purchases a new automobile.
B)Joe pays a plumber $100 to fix a broken pipe.
C)Sandy, who is on welfare, receives $100 in food stamps.
D)Kurt purchases an airline ticket for $500 just before a big reduction in fares.
E)Laurie pays $15 for a haircut.

Question 26

If toy stores overestimate the demand for a toy in 2004 and, as a result, have an unexpectedly large number of them on hand at the end of the year, the value of the increased inventory of those toys will be counted as

A)investment in 2004
B)investment in 2005
C)consumption in 2004
D)consumption in 2005
E)part of GDP only when the toys are sold

Question 27

Which of the following is not considered a component of investment when calculating GDP?

A)new residential construction
B)construction of new factories
C)net increases in inventory
D)purchases of corporate stock
E)production of new equipment

Question 28

Which of the following would not be included in an economist's definition of investment spending?

A)the purchase of robots by Motor Magic Manufacturing
B)the construction of a new office building by the Mountain City Real Estate Company
C)the purchase of General Motors stock by Donald Trump
D)the purchase of a new pizza oven by H and R Pizza
E)an unexpected rise in inventories at Randle Manufacturing

Question 29

In GDP measurement, consumer spending includes

A)spending by businesses on labor resources
B)spending by government on office buildings
C)spending by individual households on automobiles and durables
D)exchanges in business inventories
E)a firm's purchase of a radio made in Taiwan

Question 30

The immediate effect on GDP of Ibrahim's purchase of a government bond is

A)a decrease in consumption because Ibrahim has less money to spend
B)an increase in government spending
C)an increase in investment
D)a decrease in investment because less money is available to him for further investment
E)nonexistent, since no real goods and services have been produced

Question 31

Investment spending is a flow variable; inventories are a stock variable.

Question 32

In GDP measurement, Investment spending includes

A)spending by individual households on automobiles and durable goods
B)spending by businesses on labor resources
C)changes in business inventories
D)spending by government on salaries
E)spending by households on stocks and bonds

Question 33

A firm run by a rational entrepreneur would want to hold inventories.

Question 34

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 35

If a firm's inventory decreases, the GDP counts the net decrease as a reduction in investment.

Question 36

Consumption in the expenditures approach to calculating GDP includes

A)spending by businesses on plant and equipment
B)spending by government on office buildings
C)spending by households on new single-family houses
D)changes in business inventories
E)purchases of medical services at the local clinic

Question 37

Other things equal, increased imports decrease GDP.

Question 38

Which of the following is the best example of an investment as defined by economists?

A)a household's purchase of 100 shares of Apple computer stock
B)a firm's purchase of 100 shares of General Electric stock
C)a firm's purchase of a bond issued by General Mills
D)a firm's purchase of a U.S. savings bond
E)a firm buying personal computers for its secretarial staff

Question 39

Which of the following would not be counted in this year's GDP?

A)Midwest Tractor Company's inventory of brand new farm equipment, which will remain unsold by year's end
B)the inventory of new baseballs ordered by the Detroit Tigers
C)the new house the Barnabys had constructed this year
D)the vacation that the Cartiers enjoyed in France this winter
E)Bruno's meal at the local La Casa Caliente

Question 40

Which of the following would directly reduce GDP?

A)An unscrupulous disposal company dumps barrels of toxic waste near a suburban water supply.
B)The switch from home-cooked meals to restaurant meals lowers the nutritional value of the average diet.
C)The town of Council Bluffs decides to fire the lifeguards at the local swimming pool.
D)Pollution of international waters increases.
E)Damage claims filed with auto insurance companies increase.

Question 41

Double counting in the value added 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 42

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 43

Use the following data to calculate GDP: consumption = $5,000; gross investment = $800; government purchases = $700; exports = $30; imports = $60; transfer payments = $340.

A)GDP = $7,400
B)GDP = $7,740
C)GDP = $3,140
D)GDP = $6,470
E)GDP cannot be determined due to insufficient data

Question 44

Net exports is the value of

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

Question 45

Which of the following is not included in GDP?

A)the value of the restoration of an old painting
B)interest payments on the national debt
C)the cost of a new vending machine
D)government expenditure on a new bridge
E)a purchase of legal services by a household

Question 46

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

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

Question 47

Katrina pays $40 for a meal at a fancy restaurant. The ingredients used in it probably cost the restaurant $10. The value added to GDP by the purchase of this meal is

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

Question 48

Double counting in the value added 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 49

When a refrigerator worth $1,000 is produced and sold, its contribution to the GDP is measured on the expenditure side by its sale price and on the income side by

A)the wages earned by the workers in the firm that produced it
B)the wages earned by the workers and the profits earned by the owners of the firm that produced it
C)wages, interest, and rent paid by the firm's owners to those who contributed to making the refrigerator
D)wages, interest, and rent paid by the firm's owners to those who contributed to making the refrigerator, less taxes
E)wages, interest, and rent paid by the firm's owners, plus the profit they kept for themselves

Question 50

If exports total $6.5 billion and imports total $8.0 billion in a year, then

A)together imports and exports add $1.5 billion to GDP
B)together exports and imports add $6.5 billion to GDP
C)together exports and imports subtract $1.5 billion from GDP
D)together exports and imports subtract $8.0 billion from GDP
E)together exports and imports add nothing to GDP

Question 51

The largest component of aggregate expenditure is

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

Question 52

Which of the following statements about exports and imports is true?

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

Question 53

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

A)consumption expenditures
B)investment
C)imports
D)rent
E)government purchases

Question 54

A problem inherent in using value added to measure GDP is that the method does not avoid double counting.

Question 55

If an economy produces final output worth $5 trillion, then the amount of gross income generated by that production

A)is $5 trillion
B)is more than $5 trillion
C)is $5 trillion minus taxes
D)would be $5 trillion if profits were zero
E)would be $5 trillion if costs of production were zero

Question 56

Aggregate income is defined as

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 total income of all individuals who contribute resources to the market production of output
D)total income after all income taxes but before paying other payroll taxes
E)total income after purchases of necessities

Question 57

Which of the following would not increase U.S. GDP?

A)increased demand in Costa Rica for California-made personal computers
B)increased demand in Alabama for California-made personal computers
C)increased production of computers in California, but no increase in the number sold
D)increased shipments of computers from the U.S. to Canada
E)increased shipments of Ghanian cocoa to the United States on Greek vessels

Question 58

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 59

Exhibit 6-1

Given the data in Exhibit 6-1, calculate aggregate expenditure in equilibirum.

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

Question 60

Use the following data to calculate GDP: consumption = $2,000; gross investment = $600; government purchases = $500; net exports = -$40; transfer payments = $340.

A)GDP = $2,720
B)GDP = $3,060
C)GDP = $3,140
D)GDP = $3,400
E)GDP cannot be determined due to insufficient data

Question 61

A wholesale nursery purchases six dozen gladiolus bulbs for $5. The nursery sells the six dozen resulting flowers to a wholesale florist for $10. The wholesale florist delivers the flowers to a retail florist for $15. The flowers are sold by the retail florist for $75 to the bereaved Jones family to use at great-grandfather Jones's wake. What is the value added by the retail florist?

A)$10
B)$15
C)$25
D)$60
E)$75

Question 62

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

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

Question 63

The main function of financial markets is to direct consumers' saving to firms that use it for investment spending.

Question 64

The ultimate goal of studying the circular flow model is to understand the flow of

A)money through the market system
B)consumer spending through the economy
C)goods and services through the product market
D)resources, goods, and money through the economy
E)resources through the resource markets and their allocation in production

Question 65

In the circular flow model,

A)the flow of expenditures measures the dollar value on purchases of resources in the product market
B)the flow of expenditures measures the dollar value of purchases of both goods and services
C)the flow of income to the owners of labor only
D)the flow of expenditures as they move through the loanable funds market
E)the flow of funds from the product to the resource market

Question 66

The circular flow model

A)measures identical flows through the different markets
B)shows how firms maximize profits and minimize costs
C)shows how competitive markets interact with noncompetitive markets
D)measures the value of income earned by the public sector
E)measures the value added by the business sector as it uses funds

Question 67

Net taxes are indirect business taxes minus transfer payments.

Question 68

Jimmy Earl, a farmer, sells $20 worth of peanuts to a factory that turns them into peanut butter, which is then sold 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 69

Disposable income equals personal income minus indirect business taxes.

Question 70

Ann's Adventures, Inc. organizes and leads backpacking trips for $160. The business spends $30 on first aid equipment and $10 on maps. The amount of value added to GDP is

A)$160 of backpacking trips
B)$200 of backpacking trips, $30 of first aid equipment, and $10 of maps
C)$160 of backpacking trips, $30 of first aid equipment, and $10 of maps
D)$120 of backpacking trips
E)$30 of first aid equipment and $10 of maps only

Question 71

The final market value of a good is

A)the sum of values 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)less than the price for which it is sold

Question 72

Value added is

A)the sum of all income earned by resource suppliers
B)actual investment minus planned investment
C)any payment of income that adds to the domestic spending stream
D)the value of a product minus the cost of materials
E)the increase in the value of a financial asset such as a stock or bond

Question 73

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

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

Question 74

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

A)The value added by the distributor is $30.
B)The supermarket contributed more, in value added, than the bakery.
C)As a result of this activity, GDP rises by $50 minus the value added at each stage of production.
D)Counting the value added at each stage instead of the final selling price creates a serious 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 75

In the resource market,

A)businesses borrow money to buy the capital resources they need
B)businesses sell services to the households
C)firms provide the resources to the households
D)households sell the resources to firms in return for factor payments
E)resources flow from the business sector to the household sector

Question 76

It is not possible for the government to spend more than it collects in taxes.

Question 77

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

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

Question 78

The simple circular flow model shows that

A)households are on the demand side of both the product and resource market
B)firms are on the demand side of both the product and resource market
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 79

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

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

Question 80

The two basic markets in the simple circular flow model are the

A)product and resource market
B)export and product market
C)export and import market
D)household market and the business market
E)business market and the government market