Deck 7: Measuring Domestic Output and National Income

Question 1

The total volume of business sales in our economy is several times larger than GDP because:

A) The GDP does not take taxes into account
B) The GDP excludes intermediate transactions
C) The GDP grossly understates the value of our annual output
D) Total sales are in money terms and GDP is always stated in real terms

Answer 1

The GDP excludes intermediate transactions

Question 2

A business buys $5,000 worth of inputs from other firms in order to produce a product. The business makes 100 units of the product and each of them sells for $65. The value added by the business to these products is:

A) $5,000
B) $6,500
C) $1,500
D) $1,000

Answer 2

$1,500

Question 3

Adding the market value of all final and intermediate goods and services in an economy in a given year would result in:

A) The calculation of GDP for that year
B) The calculation of NDP for that year
C) An amount less than GDP for that year
D) An amount greater than GDP for that year

Answer 3

An amount greater than GDP for that year

Question 4

To avoid multiple counting in national income accounts:

A) Only final goods and services should be counted
B) Intermediate goods and services should be counted
C) Both final and intermediate goods and services should be counted
D) Primary, intermediate, and final goods and services should be counted

Question 5

The gross domestic product (GDP) concept accounts for society's valuation of the relative worth of goods and services by using:

A) A measure of physical weight
B) A measure of volume
C) A utility measure
D) A monetary measure

Question 6

GDP is the market value of:

A) Resources (land, labor, capital, and entrepreneurship) in an economy in a given year
B) All final goods and services produced in an economy in a given year
C) Consumption and investment spending in an economy in a given year
D) All output produced and accumulated over the years

Question 7

Which of the following is a private transfer payment?

A) Unemployment benefits received by newly laid-off workers
B) The sale of used clothing at a thrift store
C) The Social Security benefits paid to a retired worker
D) A check for $250 sent by a parent to a daughter at college

Question 8

An example of intermediate goods would be:

A) Bricks bought by a homeowner for constructing a patio
B) Sacks of groceries bought by a dentist for his family
C) Cars bought by a car-rental company
D) Paper and ink bought by a publishing company

Question 9

All of the following are examples of intermediate goods, except:

A) Flour bought by a bakery
B) Oven bought by a bakery
C) Office supplies bought by an accounting firm
D) Gasoline bought by a trucking company

Question 10

Value added by a firm is the market value of the firm's output minus the:

A) Total wages paid to its employees
B) Value of inputs bought from other firms
C) Profits that the firm's owners earn
D) Total costs of all inputs used

Question 11

Consider the following data for a firm over a period of time. The contribution of the firm to domestic output by the value-added method is:

A) $5,000
B) $40,000
C) $45,000
D) $50,000

Question 12

The following are examples of final goods in national income accounting, except:

A) Lumber and steel beams purchased by a construction company
B) Tractor purchased by a construction company
C) Laptop computer purchased by an executive for personal use
D) Desktop computer purchased by an executive for business use

Question 13

Firm A produces something that Firm B uses as an input. The product of Firm B, in turn, is purchased and used as an input by Firm C, and so on down the line through Firm E, which produces the end product. The total value added by Firms A-E from the production of the end product described here is:

A) $3,000
B) $3,800
C) $6,500
D) $10,300

Question 14

An example of final goods in national income accounts would be:

A) New lawn mowers purchased by Cut-Rite Lawn Equipment & Supplies
B) Flowers and pots purchased by homeowner Joe Smith
C) Chemicals purchased by Green Grass Lawn Care Services
D) Seedlings and saplings purchased for resale by Wendy's Garden Center

Question 15

U.S. GDP in 2012 was about:

A) $8.1 trillion
B) $15.7 trillion
C) $890 billion
D) $1200 billion

Question 16

The National Income and Product Accounts (NIPA) for the U.S. are compiled by the:

A) National Bureau of Economic Research
B) Bureau of Economic Analysis
C) National Census Bureau
D) Council of Economic Advisers

Question 17

The sale of a used automobile would not be included in GDP of the current year because it is a:

A) Nonmarket transaction
B) Nonproduction transaction
C) Purely financial transaction
D) Private transfer payment

Question 18

Which of the following is included in GDP?

A) Welfare payments received by some households
B) Fees received by stockbrokers
C) Cash gifts from relatives during the holidays
D) Payments received from selling stocks in one's portfolio

Question 19

Subtracting the purchase of intermediate products and supplies from the value of the sales of final products determines the amount of:

A) Net investment for a business
B) Profit and cost
C) Value added from the economic activity
D) Surplus or deficit from the economic activity

Question 20

Which of the following is a primary use for national income accounts?

A) To analyze the environmental cost of economic growth
B) To assess the economic efficiency of specific industries in the economy
C) To measure changes in the value of production and income in the economy
D) To determine whether there is a fair and equitable distribution of income in the economy

Question 21

A nation's capital stock was valued at $500 billion at the start of the year and $575 billion at the end. Consumption of private fixed capital in the year was $35 billion. Assuming stable prices, net investment was:

A) $35 billion
B) $40 billion
C) $45 billion
D) $75 billion

Question 22

When gross investment is positive, net investment:

A) Is always zero
B) Must be negative
C) Must be positive
D) May be either positive or negative

Question 23

Business inventories increase when firms produce:

A) More than they sell, and the inventory increase is added to GDP
B) Less than they sell, and the inventory increase is added to GDP
C) More than they sell, and the inventory increase is subtracted from GDP
D) Less than they sell, and the inventory increase is subtracted from GDP

Question 24

The consumption of fixed capital in each year's production is called:

A) Indirect business taxes
B) Inventory reduction
C) Depreciation
D) Net investment

Question 25

In an economy that is experiencing a shrinking production capacity:

A) Gross domestic investment is negative
B) Net private domestic investment is zero
C) Depreciation is negative
D) Depreciation exceeds gross investment

Question 26

In November 2009, Econland Motors produced an automobile that was delivered to a local dealership in December 2009. The auto was then sold to Sharon Smith for personal use in February of 2010. Following national income accounting practices, this auto would be counted as part of:

A) Consumption in 2009 and consumption in 2010
B) Consumption in 2009 and investment in 2010
C) Negative investment in 2009 and consumption in 2010
D) Investment in 2009 and negative investment in 2010

Question 27

Gross domestic private investment, as defined in national income accounts, would include the following, except:

A) Changes to business inventories
B) All domestic construction done by the private sector
C) Government construction of new highways and dams
D) The value of all capital goods bought by business firms

Question 28

A nation's capital stock was valued at $300 billion at the start of the year and $350 billion at the end. Consumption of private fixed capital in the year was $25 billion. Assuming stable prices, gross investment was:

A) $25 billion
B) $50 billion
C) $75 billion
D) $90 billion

Question 29

The value of corporate stocks and bonds traded in a given year is:

A) Included in the calculation of GDP because they make a contribution to the current production of goods and services
B) Excluded from the calculation of GDP because they make no contribution to current production of goods and services
C) Included in the calculation of net private domestic investment
D) Included in the calculation of gross private domestic investment

Question 30

When gross private domestic investment exceeds depreciation, it can be concluded that:

A) Net investment is positive
B) Net investment is negative
C) The economy is exporting more than it imports
D) The economy is importing more than it exports

Question 31

Disinvestment occurs when:

A) Businesses sell machinery and equipment to one another
B) The prices of investment goods rise faster than the prices of consumer goods
C) Businesses have larger inventories at the end of the year than they had at the start
D) The consumption of private fixed capital exceeds gross private domestic investment

Question 32

Which of the following is not included in personal consumption expenditures?

A) New furniture and appliances bought by homeowners
B) Payments for cable and Internet services to homes
C) Purchases of mutual funds by consumers
D) Food purchased at supermarkets

Question 33

Which of the following is not a component of GDP in the expenditures approach?

A) Government purchases
B) Workers' wages and other compensation
C) Gross private domestic investment
D) The difference between exports and imports

Question 34

The two ways of looking at GDP are the:

A) Output approach and expenditures approach
B) Income approach and saving approach
C) Expenditures approach and income approach
D) Output approach and consumption approach

Question 35

Money spent on the purchase of a new house is included in the GDP as a part of:

A) Household expenditures on durable goods
B) Personal consumption expenditures
C) Personal saving
D) Gross domestic private investment

Question 36

In an economy, the value of inventories was $75 billion in 2009 and $63 billion in 2010. In calculating total investment for 2010, national income accountants would:

A) Decrease it by $75 billion
B) Increase it by $63 billion
C) Decrease it by $12 billion
D) Increase it by $138 billion

Question 37

Which would be considered an investment according to economists?

A) A fishing-company owner buys Google shares
B) A fishing-company buys a few boats from another fishing company that was closing out
C) A fishing-company owner buys new fishing gear
D) A fishing-company owner buys fuel to run the boats

Question 38

The largest expenditure component of GDP is:

A) Government purchases
B) Personal consumption expenditures
C) Gross private domestic investment
D) Net exports

Question 39

Which of the following is included in the expenditures approach to GDP?

A) Spending on meals by consumers at restaurants
B) Expenditures on used clothing at garage sales
C) Value of stocks and bonds bought by businessmen
D) Government spending on welfare payments

Question 40

In an economy that has stationary production capacity:

A) GDP is zero
B) Capital consumption (or depreciation) is zero
C) Net investment is zero
D) Gross investment is zero

Question 41

(The following national income data for an economy are in billions of dollars.) Refer to the above data. The national income in this economy can be estimated by adding items:

A) 1 through 7
B) 8 through 11
C) 2 through 7
D) 1 through 13

Question 42

In the reservoir analogy of stock and flow for the economy:

A) Gross investment is an outflow and depreciation is an inflow
B) The stock of capital is an outflow and depreciation is an inflow
C) Net investment is an inflow and the stock of capital is an outflow
D) Gross investment is an inflow and depreciation is an outflow

Question 43

A distinguishing characteristic of public transfer payments is that:

A) They include wages to government workers
B) They are counted as part of government purchases in the calculation of the gross domestic product
C) They include the cost of maintaining public parks
D) They involve no contribution to current production in return

Question 44

Computation of GDP by the expenditures method would include the purchase of:

A) Fertilizer by a farmer
B) Cement by a construction company
C) Land by the U.S. Department of Interior
D) Government bonds by a commercial bank

Question 45

In the reservoir analogy for stock versus flow, the stock of capital is similar to the:

A) Quality of water
B) Outflow of water
C) Inflow of water
D) Level of water

Question 46

The expenditures or output approach to GDP measures it by summing up:

A) Compensation of employees, rents, interest, dividends, undistributed corporate profits, proprietors' income, indirect business taxes paid, consumption of fixed capital, and net foreign factor income earned in the United States
B) Compensation of employees, rents, interest, dividends, corporate profits, proprietors' income, and indirect business taxes, and subtracting the consumption of fixed capital
C) The total spending for consumption, investment, net exports, and government purchases
D) The total spending for consumption and government purchases, but subtracting public and private transfer payments

Question 47

The following data about a hypothetical economy are in billions of dollars. Refer to the above data. GDP in this economy is:

A) $6,080 billion
B) $6,230 billion
C) $6,380 billion
D) $6,400 billion

Question 48

If inflows to the capital stock are greater than outflows, then:

A) Net investment is positive
B) Net investment is negative
C) Depreciation equals gross investment
D) Depreciation is greater than gross investment

Question 49

In 2011, the three largest economies in the world were (listed in order, from largest):

A) The U.S., China, Germany
B) China, the U.S., Japan
C) The U.S., China, Japan
D) China, the U.S., Germany

Question 50

GDP in an economy is $11,050 billion. Consumer expenditures are $7,735 billion, government purchases are $1,989 billion, and gross investment is $1,410 billion. Net exports must be:

A) +$53 billion
B) -$47 billion
C) -$84 billion
D) -$161 billion

Question 51

(The following national income data are in billions of dollars.) Refer to the above data. This nation's GDP is:

A) $315 billion
B) $324 billion
C) $305 billion
D) $367 billion

Question 52

The following data about a hypothetical economy are in billions of dollars. Refer to the above data. How much are net exports of this economy?

A) +$150 billion
B) -$20 billion
C) +$20 billion
D) -$65 billion

Question 53

(The following national income data for an economy are in billions of dollars.) Refer to the above data. The expenditures approach to GDP calculation can be done by adding:

A) 1 through 7
B) 2 through 7
C) 8 through 11
D) 8 through 13

Question 54

When local police and fire departments buy new cars for their operations, these are counted as part of:

A) C
B) I_g
C) G
D) X_n

Question 55

The following are national income account data for a hypothetical economy in billions of dollars: government purchases ($1,050); personal consumption expenditures ($4,800); imports ($370); exports ($240); gross private domestic investment ($1,130). Personal consumption expenditures are approximately what percentage of this economy?

A) 60 percent
B) 65 percent
C) 70 percent
D) 75 percent

Question 56

Government purchases in national income accounts would include payments for:

A) Social Security checks to retirees
B) Salaries for current U.S. military officers
C) Public assistance for welfare recipients
D) Unemployment benefits

Question 57

Net exports is a positive number when:

A) A nation's exports of goods and services are increasing
B) A nation exports goods and services to other nations
C) A nation's exports of goods and services exceed its imports
D) A nation's exports of goods and services fall short of its imports

Question 58

In the expenditures approach of national income accounting, C, I_g, and G include expenditures for:

A) Domestically produced goods and services only
B) Domestically produced as well as imported goods and services
C) Exported goods and services
D) The private sector of the economy only

Question 59

The following are national income account data for a hypothetical economy in billions of dollars: gross private domestic investment ($320); imports ($35); exports ($22); personal consumption expenditures ($2,460); and, government purchases ($470). What is GDP in this economy?

A) $3,250 billion
B) $3,263 billion
C) $3,237 billion
D) $3,290 billion

Question 60

(The following national income data are in billions of dollars.) Refer to the above data. This nation's exports are:

A) $9 billion
B) $16 billion
C) $24 billion
D) $28 billion

Question 61

Personal income (PI) refers to all income:

A) Received
B) Earned
C) Earned but not received
D) Received but not earned

Question 62

(The following national income data are in billions of dollars.) Refer to the above data. Gross domestic product in this economy is:

A) $1,049 billion
B) $1,079 billion
C) $1,090 billion
D) $1,101 billion

Question 63

The following are incomes earned but not received by the nation's households, except:

A) Corporate income taxes
B) Social security contribution
C) Transfer payments
D) Undistributed corporate profits

Question 64

(The following national income data are in billions of dollars.) Refer to the above data. Personal income in this economy is:

A) $621 billion
B) $656 billion
C) $705 billion
D) $716 billion

Question 65

Personal income will equal disposable income when:

A) Corporate profits are zero
B) Personal taxes are zero
C) Transfer payments are zero
D) Social Security contributions are zero

Question 66

"Net foreign factor income" in the national income accounts refers to the difference between:

A) The income Americans gain from supplying resources abroad and the income that foreigners earn by supplying resources in the U.S.
B) The value of products sold by Americans to other nations and the value of products bought by Americans from other nations
C) The value of investments that Americans made abroad and the value of investments made by foreigners in the U.S.
D) The income earned by Americans in the U.S. minus the income earned by foreigners in the U.S.

Question 67

The "statistical discrepancy" that the NIPA includes in the data is to account for the following, except:

A) To equalize GDP totals produced by the expenditures approach and the income approach
B) Errors due to people misrepresenting their incomes on their tax returns
C) Difficulty in accurately estimating depreciation
D) Household production, or "do-it-yourself" activities of households

Question 68

(The following national income data for an economy are in billions of dollars.) Refer to the above data. The net private domestic investment in this economy is equal to:

A) $1,793 billion
B) -$424 billion
C) $200 billion
D) $1,643 billion

Question 69

(The following national income data are in billions of dollars.) Refer to the above data. National income in this economy is:

A) $804 billion
B) $940 billion
C) $975 billion
D) $1,019 billion

Question 70

That portion of corporate profits which is included in personal income is:

A) Dividends
B) Corporate income taxes
C) Consumption of fixed capital
D) Undistributed corporate profits

Question 71

(The following national income data for an economy are in billions of dollars.) Refer to the above data. Net exports are equal to:

A) -$155 billion
B) $288 billion
C) -$424 billion
D) $1483 billion

Question 72

Depreciation is all of the following, except:

A) The difference between GDP and NDP
B) The difference between gross investment and net investment
C) The accumulation of capital stock
D) The consumption of fixed capital

Question 73

(The following national income data for an economy are in billions of dollars.) Refer to the above data. Which items need to be accounted for in going from National Income to GDP?

A) 1, 12, and 13
B) 2, 11, and 12
C) 13 only
D) 1 and 2

Question 74

(The following national income data for an economy are in billions of dollars.) Refer to the above data. Corporate profits are equal to:

A) $442 billion
B) $532 billion
C) $621 billion
D) $788 billion

Question 75

"Corporate profits" in the national income accounts consists of the following, except:

A) Retained earnings
B) Interest
C) Dividends
D) Corporate income taxes

Question 76

Which of the following represents an income flow in the circular flow of domestic output and national income?

A) Net exports
B) Investment expenditures
C) Government purchases
D) Corporate profits

Question 77

(The following national income data are in billions of dollars.) Refer to the above data. Net domestic product equals:

A) $1,039 billion
B) $1,044 billion
C) $1,054 billion
D) $1,076 billion

Question 78

The total income earned through the use of resources, plus taxes on production and on imports, equals:

A) National income
B) Gross domestic product
C) Personal income
D) Disposable income

Question 79

(The following national income data are in billions of dollars.) Refer to the above data. Disposable income in this economy is:

A) $611 billion
B) $659 billion
C) $667 billion
D) $686 billion

Question 80

National income is the sum of employee compensation, profits, and the following items, except:

A) Rent
B) Interest
C) Depreciation or consumption of fixed capital
D) Taxes on production and imports