Deck 10: Measuring a Nations Income

Question 1

Because every transaction has a buyer and a seller,

A) GDP is more closely associated with an economy's income than it is with an economy's expenditure.
B) every transaction contributes equally to an economy's income and to its expenditure.
C) the number of firms must be equal to the number of households in a simple circular-flow diagram.
D) firms' profits are necessarily zero in a simple circular­flow diagram.

Answer 1

B

Question 2

Which of the following statements about GDP is correct?

A) GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services.
B) Money continuously flows from households to firms and then back to households, and GDP measures this flow of money.
C) GDP is generally regarded as the best single measure of a society's economic well­being.
D) All of the above are correct.

Answer 2

D

Question 3

For an economy as a whole,

A) the market value of production must equal expenditure.
B) investment must equal the value of stocks and bonds purchased.
C) wages must equal income.
D) consumption must equal saving.

Answer 3

A

Question 4

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

A) Unemployment rate falls from 7.5 percent to 7.3 percent.
B) Real GDP falls by 0.4 percent in the third quarter.
C) Inflation was 2.4 percent last year.
D) The price of gasoline rises due to rising oil prices.

Question 5

In the GDP accounts production equals

A) income.
B) income + saving.
C) income - government expenditures.
D) income - imports.

Question 6

Which of the following is not a question that macroeconomists address?

A) Why is average income high in some countries while it is low in others?
B) Why does the price of oil rise when war erupts in the Middle East?
C) Why do production and employment expand in some years and contract in others?
D) Why do prices rise rapidly in some periods of time while they are more stable in other periods?

Question 7

GDP

A) is used to monitor the performance of the overall economy but is not the single best measure of a society's economic well-being.
B) is used to monitor the performance of the overall economy and is the single best measure of a society's economic well-being.
C) is not used to monitor the performance of the overall economy but is the single best measure of a society's economic well-being.
D) is not used to monitor the performance of the overall economy and is not the single best measure of a society's economic well­being.

Question 8

Income generated by a nation's domestic production

A) is less than its domestic production.
B) is equal to its domestic production.
C) is greater than its domestic production.
D) could be less than, equal to, or greater than its domestic production.

Question 9

Which of the following topics are more likely to be studied by a macroeconomist than by a microeconomist?

A) the effect of taxes on the prices of airline tickets, and the profitability of automobile-manufacturing firms
B) the price of beef, and wage differences between genders
C) how consumers maximize utility, and how prices are established in markets for agricultural products
D) the percentage of the labor force that is out of work, and differences in average income from country to country

Question 10

Macroeconomists study

A) the decisions of individual households and firms.
B) the interaction between households and firms.
C) economy-wide phenomena.
D) regulations imposed on firms and unions.

Question 11

For an economy as a whole, income must equal expenditure because

A) the number of firms is equal to the number of households in an economy.
B) individuals can only spend what they earn each period.
C) every dollar of spending by some buyer is a dollar of income for some seller.
D) every dollar of saving by some consumer is a dollar of spending by some other consumer.

Question 12

A macroeconomist is interested in

A) explaining how changes in sellers' behavior affect prices of a particular good.
B) explaining price changes in a particular market.
C) explaining why the unemployment rate is higher.
D) All of the above are correct.

Question 13

For an economy as a whole,

A) wages must equal profit.
B) consumption must equal income.
C) income must equal expenditure.
D) consumption must equal saving.

Question 14

The basic tools of supply and demand are

A) useful only in the analysis of economic behavior in individual markets.
B) useful in analyzing the overall economy, but not in analyzing individual markets.
C) central to microeconomic analysis, but seldom used in macroeconomic analysis.
D) central to macroeconomic analysis as well as to microeconomic analysis.

Question 15

Expenditures on a nation's domestic production

A) are less than its domestic production.
B) are equal to its domestic production.
C) are greater than its domestic production.
D) could be less than, equal to, or greater than its domestic production.

Question 16

Which of the following statistics is usually regarded as the best single measure of a society's economic well­being?

A) the unemployment rate
B) the inflation rate
C) gross domestic product
D) the trade deficit

Question 17

Which of the following is not a question addressed by macroeconomists?

A) Why is average income high in some nations but low in others?
B) What, if anything, can the government do to promote growth in incomes, low inflation, and stable employment?
C) What is the impact of foreign competition on the U.S. auto industry?
D) Why do production and employment expand in some years and contract in others?

Question 18

Which of the following questions is more likely to be studied by a microeconomist than a macroeconomist?

A) Why do prices in general rise by more in some countries than in others?
B) Why do wages differ across industries?
C) Why do national production and income increase in some periods and not in others?
D) How rapidly is GDP currently increasing?

Question 19

For the economy as a whole,

A) income must be greater than expenditure.
B) unemployment must rise when GDP rises.
C) expenditure must equal income.
D) consumption must be greater than investment.

Question 20

Gross domestic product measures

A) income and expenditures.
B) income but not expenditures.
C) expenditures but not income.
D) neither income nor expenditures.

Question 21

In a simple circular-flow diagram, total income and total expenditure are

A) never equal because total income always exceeds total expenditure.
B) seldom equal because of the ongoing changes in an economy's unemployment rate.
C) equal only when the government purchases no goods or services.
D) always equal because every transaction has a buyer and a seller.

Question 22

Figure 23-1.
Refer to Figure 23-1. Which of the following correctly identifies the flow of dollars?

A) W, X, Y and Z
B) K, M, L and N
C) C, K, M and D
D) A, L, N and B

Question 23

If an economy's GDP falls, then it must be the case that the economy's

A) income and saving fall.
B) income and market value of all production both fall.
C) income falls and market value of all production rises.
D) income rises and market value of all production falls.

Question 24

GDP is defined as the

A) value of all goods and services produced within a country in a given period of time.
B) value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.
C) value of all final goods and services produced within a country in a given period of time.
D) value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.

Question 25

According to the circular-flow diagram GDP

A) can be computed as the total income paid by firms or as expenditures on final goods and services.
B) can be computed as the total income paid by firms, but not as expenditures on final goods and services.
C) can be computed as expenditures on final goods and services, but not as the total income paid by firms.
D) cannot be computed as either total income paid by firms or expenditures on final goods and services.

Question 26

Total income from the domestic production of final goods and services equals

A) only household expenditures for these goods.
B) only household and business expenditures for these goods.
C) only household and government expenditures for these goods.
D) the expenditures for these goods whoever buys them.

Question 27

According to the circular-flow diagram GDP

A) can be computed as either the revenue firms receive from the sales of goods and services or the payments they make to factors of production.
B) can be computed as the revenue firms receive from the sales of goods and services but not as the payments they make to factors of production.
C) can be computed as payments firms make to factors of production but not as revenues they receive from the sales of goods and services.
D) cannot be computed as either the revenue firms receive or the payments they make to factors of production.

Question 28

In the actual economy, goods and services are purchased by

A) households, but not firms or the government.
B) households and firms, but not the government.
C) households and the government, but not firms.
D) households, firms, and the government.

Question 29

Which of the following is a way to compute GDP?

A) add up the wages paid to all workers
B) add up the quantities of all final goods and services
C) add up the market values of all final goods and services
D) add up the difference between the market values of all final goods and services and then subtract the costs of producing those goods and services

Question 30

Which of the following statements about GDP is correct?

A) GDP measures two things at once: the total income of everyone in the economy and the unemployment rate of the economy's labor force.
B) Money continuously flows from households to government and then back to households, and GDP measures this flow of money.
C) GDP is to a nation's economy as household income is to a household.
D) All of the above are correct.

Question 31

In a simple circular-flow diagram, firms use the money they get from a sale to

A) pay wages to workers.
B) pay rent to landlords.
C) pay profit to the firms' owners.
D) All of the above are correct.

Question 32

Figure 23-1.
Refer to Figure 23-1. Which of the following pairs correctly identify W and Y?

A) markets for factors of production and markets for goods and services
B) firms and households
C) expenditures and income
D) consumption and investment

Question 33

In the actual economy, households

A) spend all of their income.
B) divide their income among spending, taxes, and saving.
C) buy all goods and services produced in the economy.
D) Both a) and c) are correct.

Question 34

If an economy's GDP rises, then it must be the case that the economy's

A) income rises and saving falls.
B) income and saving both rise.
C) income rises and expenditure falls.
D) income and expenditure both rise.

Question 35

In a simple circular-flow diagram, firms

A) purchase resources from households.
B) purchase the output produced by households.
C) receive income by selling resources to households.
D) All of the above are correct.

Question 36

Figure 23-1.
Refer to Figure 23-1. Which of the following pairs correctly identify X and Z?

A) markets for factors of production and markets for goods and services
B) firms and households
C) GDP deflator and CPI
D) flow of dollars and flow of inputs and outputs

Question 37

In a simple circular-flow diagram,

A) households spend all of their income.
B) all goods and services are bought by households.
C) expenditures flow through the markets for goods and services, while income flows through the markets for the factors of production.
D) All of the above are correct.

Question 38

In a simple circular-flow diagram, households buy goods and services with the income they get from

A) wages.
B) rents.
C) profits.
D) All of the above are correct.

Question 39

If an economy's GDP falls, then it must be the case that the economy's

A) income falls and saving rises.
B) income and saving both fall.
C) income falls and expenditure rises.
D) income and expenditure both fall.

Question 40

According to the circular-flow diagram, GDP

A) can be computed as payments firms make to factors of production plus revenues they receive from the sales of goods and services.
B) can be computed as the revenue firms receive from the sales of goods and services minus the payments they make to factors of production.
C) can be computed as either the revenue firms receive from the sales of goods and services or as revenues they receive from the sales of goods and services.
D) can be computed as the payments firms make to factors of production, but not as revenues they receive from the sales of goods and services.

Question 41

Suppose that an economy produces 30,000 units of good A which sells at $3 a unit and 60,000 units of good B which sells at $2 per unit. Production of good A contributes

A) 1/2 times as much to GDP as the production of good B.
B) 3/2 times as much to GDP as the production of good B.
C) 3/4 times as much to GDP as the production of good B.
D) 4/3 times as much to GDP as production of good B.

Question 42

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

A) market prices do not change much over time, so it is easy to make comparisons between years.
B) market prices reflect the values of goods and services.
C) market prices reflect the quantity sold.
D) None of the above is correct; market prices are not used in computing GDP.

Question 43

The value of the housing services provided by the economy's owner-occupied houses is

A) included in GDP, and the estimated rental values of the houses are used to place a value on these housing services.
B) included in GDP, and the actual mortgage payments made on the houses are used to estimate the value of these rental services.
C) excluded from GDP since these services are not sold in any market.
D) excluded from GDP since the value of these housing services cannot be estimated with any degree of precision.

Question 44

Suppose an apartment complex converts to a condominium, so that the former renters are now owners of their housing units. Suppose further that a current estimate of the value of the condominium owners' housing services is the same as the rent they previously paid. What happens to GDP as a result of this conversion?

A) GDP necessarily increases.
B) GDP necessarily decreases.
C) GDP is unaffected because neither the rent nor the estimate of the value owner-occupied housing services is included in GDP.
D) GDP is unaffected because previously the rent payments were included in GDP and now the rent payments are replaced in GDP by the estimate of the value of owner occupied housing services.

Question 45

Estimates of the values of which of the following non-market goods or services are included in GDP?

A) unpaid housework but not the rental value of owner-occupied homes.
B) the rental value of owner-occupied homes but not unpaid housework.
C) unpaid housework and the rental value of owner-occupied homes.
D) Neither unpaid housework nor the rental value of owner-occupied homes.

Question 46

James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives in the other house. If he were to rent the house in which he lives, he could earn $12,000 per year in rent. How much do the housing services provided by the two houses contribute to GDP?

A) $0
B) $10,000
C) $12,000
D) $22,000

Question 47

Suppose that an economy produces 20,000 units of good A which sells at $3 a unit and 40,000 units of good B which sells at $1 per unit. Production of good A contributes

A) 1/3 times as much to GDP as the production of good B.
B) 3/2 times as much to GDP as the production of good B.
C) 3 times as much to GDP as the production of good B.
D) 2/3 times as much to GDP as production of good B.

Question 48

Ryan lives in an apartment where he pays $7,000 a year in rent. Sarah lives in a house that could be rented for $21,000 a year. How much do these housing services contribute to GDP?

A) $21,000
B) $28,000
C) $7,000
D) $14,000

Question 49

Most goods and services produced at home

A) and most goods and services produced illegally are included in GDP.
B) are included in GDP while most goods and services produced illegally are excluded from GDP.
C) are excluded from GDP while most goods and services produced illegally are included in GDP
D) and most goods and services produced illegally are excluded from GDP.

Question 50

If the price of a dress is three times the price of a pair of shoes, then a pair of shoes contributes

A) exactly one-third as much to GDP as does a dress.
B) more than one-third as much to GDP as does a dress.
C) less than one-third as much to GDP as does a dress.
D) exactly one-fourth as much to GDP as does a dress.

Question 51

Which of the following is a way to compute GDP?

A) total income earned.
B) total expenditures on final goods.
C) add up the market values of all final goods and services.
D) All of the above are correct.

Question 52

GDP includes the value of all

A) final goods and services produced within a country using primarily market prices to measure the value of goods and services.
B) final goods and services produced within a country using primarily a survey of consumers to measure the value of goods and services.
C) goods and services produced within a country using primarily market prices to measure the value of goods and services.
D) goods and services produced within a country using primarily a survey of consumers to measure the value of goods and services.

Question 53

GDP excludes most items that are produced and sold illegally and most items that are produced and consumed at home because

A) the quality of these items is not high enough to contribute value to GDP.
B) measuring them is so difficult.
C) the government wants to discourage the production and consumption of these items.
D) these items are not reported on income tax forms.

Question 54

In order to include many different goods and services in an aggregate measure, GDP is computed using, primarily,

A) values of goods and services based on surveys of consumers.
B) market prices.
C) quantities purchased by a typical urban household.
D) profits from producing goods and services.

Question 55

Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. To do this, GDP makes use of

A) market prices.
B) statistical estimates of the value of goods and services to consumers.
C) prices based on the assumption that producers make no profits.
D) the maximum amount consumers would be willing to pay.

Question 56

Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

A) caused measured GDP to fall.
B) not caused any change in measured GDP.
C) caused measured GDP to rise.
D) probably changed measured GDP, but in an uncertain direction; the direction of the change depends on the difference in the quality of the cleaning that has resulted.

Question 57

Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has

A) reduced measured GDP.
B) not affected measured GDP.
C) increased measured GDP by the value of the restaurant meals.
D) increased measured GDP by the value added by the restaurant's preparation and serving of the meals.

Question 58

Which of the following is included in GDP?

A) the market value of rental housing services, but not the market value of owner-occupied housing services.
B) the market value of owner-occupied housing services, but not the market value of rental housing services
C) both the market value of rental housing services and the market value of owner-occupied housing services
D) neither the market value of owner-occupied housing services nor the market value of rental housing services.

Question 59

Which of the following is included in the calculation of GDP?

A) The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country.
B) The purchase of a new edition of a foreign textbook that was produced in a different nation.
C) The purchase of ink and paper supplies by a textbook company for the production of new textbooks.
D) The purchase of a used textbook from a friend who took the same class last year.

Question 60

Estimates of the values of which of the following non-market goods or services are included in GDP?

A) the value of unpaid housework
B) the value of services provided by major household appliances purchased in a previous period
C) the estimated rental value of owner-occupied homes
D) All of the above are included in GDP.

Question 61

Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself. Which of the following is correct? The value of changing the oil is

A) included in GDP whether Susan pays Speedy Lube to change it or changes it herself.
B) included in GDP if Susan pays Speedy Lube to change it but not if she changes it herself.
C) included in GDP if Susan changes it herself, but not if she pays Speedy Lube to change it.
D) not included in GDP whether Susan pays Speedy lube to change it or she changes it herself.

Question 62

A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute

A) $150 to GDP.
B) $250 to GDP.
C) between $250 and $400 to GDP, depending on the profit earned by the bicycle company when it sold the bicycle.
D) $400 to GDP.

Question 63

One bag of flour is sold for $1.00 to a bakery, which uses the flour to bake bread that is sold for $3.00 to consumers. A second bag of flour is sold for $1 to a grocery store who sells it to a consumer for $2.00. Taking these four transactions into account, what is the effect on GDP?

A) GDP increases by $3.00.
B) GDP increases by $5.00.
C) GDP increases by $6.00.
D) GDP increases by $7.00.

Question 64

If a state made a previously-illegal activity, such as gambling or prostitution, legal, then, other things equal, GDP

A) decreases.
B) increases.
C) doesn't change because both legal and illegal production are included in GDP.
D) doesn't change because these activities are never included in GDP.

Question 65

Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian citizen, commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose value of services preparing meals is included in U.S. GDP?

A) Sam's and Ellen's.
B) Sam's but not Ellen's.
C) Ellen's but not Sam's.
D) Neither Sam's nor Ellen's.

Question 66

The purchase of rice produced this period is included in GDP if the rice is

A) used in a meal a restaurant sells during the same period they buy the rice.
B) purchased by a family who uses it to make tuna casserole for its supper.
C) purchased by a frozen food company to increase its inventory.
D) B and C are correct.

Question 67

Al's Aluminum Company sells $1 million worth of aluminum to Shiny Foil Company, which uses the aluminum to make aluminum foil. Shiny Foil Company sells $4 million worth of aluminum foil to households. The transactions just described contribute how much to GDP?

A) $1 million
B) $3 million
C) $4 million
D) $5 million

Question 68

Rachel babysits for her sister for no pay. When she babysits for someone else she charges $8 an hour. When is Rachel's babysitting included in GDP?

A) When she babysits for her sister and when she babysits for someone else.
B) When she babysits for her sister, but not when she babysits for someone else.
C) When she babysits for someone else, but not when she babysits for her sister.
D) Neither when she babysits for her sister nor for someone else.

Question 69

A painter pays $500 for paint he uses to repaint a house. He then presents a bill for $1200 that covers his time and expenses to the homeowner. How much do these transactions add to GDP?

A) $500
B) $700
C) $1200
D) $1700

Question 70

Joe and Jim purchase vegetables at a grocery store, but Jim also grows vegetables in his back yard. Regarding these two practices, which of the following statements is correct?

A) Only Joe's grocery store purchases are included in GDP.
B) Only Joe's and Jim's grocery store purchases are included in GDP.
C) Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value.
D) Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value, if Jim provides this information.

Question 71

Wholesome Wheat Bakery buys $10.00 worth of flour from Mikes' Mill and uses the flour to make bread. Wholesome Wheat sells the bread to the public for $22.00. Taking these two transactions into account, what is the effect on GDP?

A) GDP increases by $10.00
B) GDP increases by $12.00
C) GDP increases by $22.00
D) GDP increases by $32.00

Question 72

Grapes are considered intermediate goods

A) whether the purchaser uses them to make wine to sell or eats them.
B) if the purchaser uses them to make wine to sell others but not if the purchaser eats them.
C) if the purchaser eats them, but not if the purchaser uses to them to make wine to sell.
D) None of the above is correct.

Question 73

A farmer sells $25,000 worth of apples to individuals who take them home to eat, $50,000 worth of apples to a company that uses them all to produce cider, and $75,000 worth of apples to a grocery store that will sell them to households. How much of the farmer's sales will be included as apples in GDP?

A) $25,000
B) $150,000
C) $100,000
D) $125,000

Question 74

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) raises GDP.
B) 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 75

Gasoline is considered a final good if it is sold by a

A) gasoline station to a bus company that operates a bus route between San Francisco and Los Angeles.
B) pipeline operator to a gasoline station in San Francisco.
C) gasoline station to a motorist in Los Angeles.
D) All of the above are correct.

Question 76

Which of the following is not included in GDP?

A) carrots grown in your garden and eaten by your family
B) carrots purchased at a farmer's market and eaten by your family
C) carrots purchased at a grocery store and eaten by your family
D) None of the above are included in GDP.

Question 77

Which of the following is included in GDP?

A) medical marijuana purchased from a government-run pharmacy by a glaucoma patient
B) recreational marijuana purchased from a drug dealer by a college student
C) recreational marijuana produced and consumed by a man in his attic
D) All of the above are included in GDP.

Question 78

A farmer produces oranges and sells them to Fresh Juice, which makes orange juice. The oranges produced by the farmer are called

A) inventory goods.
B) transitory goods.
C) final goods.
D) intermediate goods.

Question 79

Darin grows and sells marijuana to Jennifer. Thomas is an organic farmer who sells broccoli to Jennifer. Marijuana is an illegal good and broccoli is a legal good. Assume that if Jennifer marries either, they give her what they use to sell her. Which of the following statements is consistent with the way GDP is computed?

A) GDP will fall if Jennifer marries either Darin or Thomas.
B) GDP will fall if Jennifer marries Darin but not if she marries Thomas.
C) GDP will fall if Jennifer marries Thomas but not if she marries Darin.
D) GDP remains the same whether Jennifer marries Darin or Thomas.

Question 80

A farmer sells five pounds of pecans to a Smith's Fresh Pecans for $10. Smith's Fresh Pecans resells three pounds for $4.50 per pound. The remaining pecans are shelled and canned and sold for a total of $8.00 Taking these transactions into account, how much is added to GDP?

A) $22.50
B) $29.50
C) $21.50
D) $31.50