Question 1

A Japanese worker, working in the U.S., deposits some money in his bank account, and his son collects the money from a branch of the same bank in Japan. This activity reduces the U.S. GDP.

Accepted Answer

A) True 
 B)False

Question 2

Use the following to answer questions .
Exhibit: Circular Flow Model 
-(Exhibit: Circular Flow Model) The exhibit shows a simplified circular flow model where only consumption goods are being produced. The arrow marked "B" represents the flow of:

Accepted Answer

A)  factors of production. 
B)  factor incomes. 
C)  personal consumption expenditures. 
D)  consumer goods and services.

Question 3

Government expenditure is the largest single category of GDP.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is NOT true of the circular model of the economy?

Accepted Answer

A)  Personal consumption spending flows from households to firms. 
B)  The production of goods and services generates income for households. 
C)  Consumers finance their personal consumption spending by supplying factors of production to firms. 
D)  Payments to factors of production flows from households to firms.

Question 5

Which of the following is an advantage of a value added tax (VAT) compared to a final tax on retail sales?

Accepted Answer

A)  The VAT may lead to higher revenue collected because even if no sales takes place, the government collects tax revenue at earlier stages of production. 
B)  The VAT is a more equitable tax system because the tax burden is shared by every participant in the production process and by the final consumer. 
C)  The VAT encourages productive behavior because each producer bears a smaller portion of the total tax imposed on a product. 
D)  The VAT reduces a nation's trade deficit.

Question 6

Goods and services produced and but not sold in the current period are not included in current period GDP.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is included in gross private domestic investment in the computation of GDP?

Accepted Answer

A)  The sale of some Safeway stocks to another company 
B)  Safeway's purchase of three new delivery trucks 
C)  Your purchase of groceries at Safeway 
D)  An annual bonus given to Safeway employees

Question 8

The cost of producing goods and services includes:

Accepted Answer

A)  only the cost of the factors of production used to produce output. 
B)  the cost of factors of production and depreciation but excludes sales tax. 
C)  the cost of factors of production, depreciation, and other production-related taxes. 
D)  the cost of the inputs used to produce the product, all production-related taxes, and profit.

Question 9

GDP is the total market value of all final goods and services produced within an economy during a year.

Accepted Answer

A) True 
 B)False

Question 10

Vikram, an Indian national working for Microsoft in New York, sends $300 every month to his elderly parents who live in Bangalore, India. This activity will:

Accepted Answer

A)  increase India's GNP and decrease U.S. GNP. 
B)  decrease U.S. GNP but does not affect U.S. GDP. 
C)  increase U.S. GNP and India's GNP. 
D)  not affect the GDP or GNP of either country.

Question 11

In the generation of GDP, pollution often occurs. So, we can infer that

Accepted Answer

A)  the value of nominal GDP will always be greater than the value of real GDP. 
B)  the value of real GDP will always be greater than the value of nominal GDP. 
C)  GDP is not always a good measure of economic or social welfare. 
D)  the value of GDP is underestimated.

Question 12

Double counting occurs when both intermediate and final goods are included in the GDP.

Accepted Answer

A) True 
 B)False

Question 13

The largest expenditure category in U.S. GDP in 2011 was:

Accepted Answer

A)  government purchases. 
B)  personal consumption. 
C)  net exports. 
D)  gross private domestic investment.

Question 14

Use the following to answer questions .
Exhibit: Components of GDP for an Economy 2
 
-(Exhibit: Components of GDP for an Economy 2) What is the value of exports?

Accepted Answer

A)  $130 billion 
B)  -$130 billion 
C)  $230 billion 
D)  -$230 billion

Question 15

Suppose the clothing manufacturer, Eddie Bauer, produced 10,000 pairs of jeans in 2005 but sold only 9,200 pairs. How will this be recorded in GDP accounts?

Accepted Answer

A)  The 9,200 pairs that were sold will be counted under the consumption component of GDP in 2005 and the 800 pairs that were not sold will not be included in GDP. 
B)  The 10,000 pairs of jeans produced would be counted as investment and will be included in GDP in 2005. 
C)  The 9,200 pairs sold will be counted as consumption and the 800 pairs that were not sold will counted as investment and both items will be included in GDP in 2005. 
D)  The 9,200 pairs sold will be counted under the consumption component of GDP in 2005 and the 800 pairs that were not sold will be included in GDP in 2006.

Question 16

The equality between GDP and GDI in an economy implies that the income generated by final goods and services is equal to:

Accepted Answer

A)  expenditures on intermediate goods and services. 
B)  gross private domestic investment. 
C)  the total value of final goods and services produced. 
D)  total wages and other employee compensation.

Question 17

All of the following are included in gross domestic income EXCEPT:

Accepted Answer

A)  wages. 
B)  welfare payments. 
C)  net interest. 
D)  rental income.

Question 18

Which of the following is a reason for the discrepancy between GDP and GDI?

Accepted Answer

A)  GDP is measured from a sample of household figures while GDI is measured from tax returns filed by firms and households. 
B)  The sample size used to estimate these figures is very large leading to more statistical errors. 
C)  GDP is estimated using estimated sales provided by business while GDI is based on actual expenditures incurred by households. 
D)  GDP is measured from sales and inventory figures collected from a sample of business while GDI is collected from a sample of household figures.

Question 19

Use the following to answer questions .
Exhibit: Stages of Production of Toy Model Airplanes
 
-(Exhibit: Stages of Production of Toy Model Airplanes) The final value of a model airplane is _____.

Accepted Answer

A)  $5 
B)  $21 
C)  $56 
D)  $77

Question 20

Which of the following is a shortcoming of GDP accounts?

Accepted Answer

A)  They tend to overstate the trade balance as only exports are considered. 
B)  They do not take into account the unemployment level. 
C)  They include only production by the private sector and not government production. 
D)  They ignore the impact of pollution on the environment.

Exam 6: Measuring Total Output and Income

A Japanese worker, working in the U.S., deposits some money in his bank account, and his son collects the money from a branch of the same bank in Japan. This activity reduces the U.S. GDP.

Use the following to answer questions . Exhibit: Circular Flow Model -(Exhibit: Circular Flow Model) The exhibit shows a simplified circular flow model where only consumption goods are being produced. The arrow marked "B" represents the flow of:

Government expenditure is the largest single category of GDP.

Which of the following is NOT true of the circular model of the economy?

Which of the following is an advantage of a value added tax (VAT) compared to a final tax on retail sales?

Goods and services produced and but not sold in the current period are not included in current period GDP.

Which of the following is included in gross private domestic investment in the computation of GDP?

The cost of producing goods and services includes:

GDP is the total market value of all final goods and services produced within an economy during a year.

Vikram, an Indian national working for Microsoft in New York, sends $300 every month to his elderly parents who live in Bangalore, India. This activity will:

In the generation of GDP, pollution often occurs. So, we can infer that

Double counting occurs when both intermediate and final goods are included in the GDP.

The largest expenditure category in U.S. GDP in 2011 was:

Use the following to answer questions . Exhibit: Components of GDP for an Economy 2 -(Exhibit: Components of GDP for an Economy 2) What is the value of exports?

Suppose the clothing manufacturer, Eddie Bauer, produced 10,000 pairs of jeans in 2005 but sold only 9,200 pairs. How will this be recorded in GDP accounts?

The equality between GDP and GDI in an economy implies that the income generated by final goods and services is equal to:

All of the following are included in gross domestic income EXCEPT:

Which of the following is a reason for the discrepancy between GDP and GDI?

Use the following to answer questions . Exhibit: Stages of Production of Toy Model Airplanes -(Exhibit: Stages of Production of Toy Model Airplanes) The final value of a model airplane is _____.

Which of the following is a shortcoming of GDP accounts?