Question 1

Answer the question on the basis of the following data.All figures are in billions of dollars: $\begin{array}{llcc}
  \text {Government Purchases  } &\$15  \
 \text {Consumption  } &90\
 \text { Gross Investment } &20\
 \text {  Consumption of Fixed Capital} &5\
 \text {  Exports} &8\
 \text { Imports } &12\
\end{array}$
 Refer to the data.GDP is:

Accepted Answer

A)   $116.
B)   $121.
C)   $125.
D)   $150.  B

Question 2

In the second quarter (three-month period)of 2001,U.S.nominal GDP increased but U.S.real GDP declined.We can conclude that:

Accepted Answer

A)   nominal income declined by more than personal income.
B)   the price level rose by more than nominal GDP.
C)   real wages declined by more than real GDP.
D)   the price level fell by more than real GDP. B

Question 3

NDP can be determined by adding taxes on production and imports to GDP.

Accepted Answer

A) True 
 B)False  False

Question 4

When an economy's production capacity is expanding:

Accepted Answer

A)   nominal GDP,but not necessarily real GDP,is rising.
B)   net exports is always a positive amount.
C)   DI exceeds PI.
D)   gross domestic investment exceeds depreciation.

Question 5

GDP excludes:

Accepted Answer

A)   the market value of unpaid work in the home.
B)   the production of services.
C)   the production of nondurable goods.
D)   positive changes in inventories.

Question 6

The largest component of national income is:

Accepted Answer

A)   compensation of employees.
B)   rents.
C)   interest.
D)   corporate profits.

Question 7

The National Income and Product Accounts (NIPA)help economists and policymakers to:

Accepted Answer

A)   determine which firms are likely to succeed or fail.
B)   follow the long-run course of the economy to determine whether it has grown or stagnated.
C)   measure what is occurring in each specific labor market.
D)   accomplish all of these.

Question 8

National income accountants can avoid multiple counting by:

Accepted Answer

A)   including transfer payments in their calculations.
B)   only counting final goods.
C)   counting both intermediate and final goods.
D)   only counting intermediate goods.

Question 9

Answer the question on the basis of the following data.All figures are in billions of dollars. $\begin{array}{llcc}
  \text {  Gross Private Domestic Investment} & \$46 \
 \text {  Exports of the U.S. } &9\
 \text {Disposable Income  } &190\
 \text { Personal Saving } &10\
 \text {Government Purchases  } &84\
 \text { Net Foreign Factor Income } &10\
  \text { Consumption of Fixed Capital } &52  \
 \text {Dividends  } &13\
 \text {  Imports of the U.S.} &12\
 \text {Taxes on Production and Imports  } &22\
 \text {  Personal Taxes} &38\
 \text {Social Security Contributions  } &23\
 \text {  Statistical Discrepancy} &0
\end{array}$
 Refer to the data.The national income is:

Accepted Answer

A)   $265.
B)   $223.
C)   $208.
D)   $346.

Question 10

Answer the question on the basis of the following information: Only three goods are produced in an economy in the following amounts: A = 10,B = 30,C = 5.The current year per unit prices of these three goods are A = $2,B = $3,and C = $1. (Advanced analysis)Refer to the information.If the per unit prices of the three goods were each $1 in a base year used to construct a GDP price index,then the GDP price index in the current year is:

Accepted Answer

A)   205.5.
B)   255.5.
C)   39.3.
D)   100.

Question 11

Answer the question on the basis of the following national income data for the economy.All figures are in billions of dollars. $\begin{array} { l r } 
\text { Personal Consumption Expenditures } & \$ 400 \
\text { Government Purchases } & 128 \
\text { Gross Private Domestic Investment } & 88 \
\text { Net Exports } & 7 \
\text { Net Foreign Factor Income } & 0 \
\text { Consumption of Fixed Capital } & 43 \
\text { Taxes on Production and Imports } & 50 \
\text { Compensation of Employees } & 369 \
\text { Rents } & 12 \
\text { Interest } & 15 \
\text { Proprietors' Income } & 52 \
\text { Corporate Income Taxes } & 36 \
\text { Dividends } & 24 \
\text { Undistributed Corporate Profits } & 22 \
\text { Statistical Discrepancy } & 0
\end{array}$ Refer to the data.The national income is:

Accepted Answer

A)   $561.
B)   $573.
C)   $580.
D)   $530.

Question 12

If real GDP falls from one period to another,we can conclude that:

Accepted Answer

A)   deflation occurred.
B)   inflation occurred.
C)   nominal GDP fell.
D)   None of these necessarily occurred.

Question 13

Use the following table for a hypothetical single-product economy. $\begin{array}{c}
\begin{array}{c}
\
\underline{\text { Year }} \
 1 \
2 \
3 \
4
\end{array}
\begin{array}{c}
\text {Units of}\
\underline{\text { Output}}\
10\
12\
15\
20
\end{array}
\begin{array}{c}
\text { Price of Bagel}\
\underline{\text {  Per Unit}}\
\$ 10\
20\
 30\
 40
\end{array}
\begin{array}{c}
\text {Price Index}\
\underline{\text {( Year 1=100)}}\
100\
200\
300\
400
\end{array}
\end{array}$
 Refer to the data.Nominal GDP in year 3 is:

Accepted Answer

A)   $100.
B)   $450.
C)   $225.
D)   $150.

Question 14

Answer the question on the basis of the following data.All figures are in billions of dollars. $\begin{array} { l r } 
\text { Gross Investment } & \$ 18 \
\text { National Income } & 100 \
\text { Net Exports } & 2 \
\text { Personal Income } & 85 \
\text { Personal Consumption Expenditures } & 70 \
\text { Saving } & 5 \
\text { Government Purchases } & 20 \
\text { Net Domestic Product } & 105 \
\text { Statistical Discrepancy } & 0
\end{array}$ Refer to the data.From this information we can conclude that the net foreign factor income is:

Accepted Answer

A)   negative $5 billion.
B)   zero.
C)   positive $5 billion.
D)   positive $15 billion.

Question 15

A large underground economy results in an:

Accepted Answer

A)   understated GDP.
B)   overstated GDP.
C)   understated GDP price index.
D)   overstated GDP price index.

Question 16

Answer the question on the basis of the following data.All figures are in billions of dollars: $\begin{array}{llcc}
  \text {Government Purchases  } &\$15  \
 \text {Consumption  } &90\
 \text { Gross Investment } &20\
 \text {  Consumption of Fixed Capital} &5\
 \text {  Exports} &8\
 \text { Imports } &12\
\end{array}$
  Refer to the data.NDP (net domestic product)is:

Accepted Answer

A)   $116.
B)   $121.
C)   $125.
D)   $150.

Question 17

Which of the following activities is excluded from GDP,causing GDP to understate a nation's production?

Accepted Answer

A)   The services of health care workers.
B)   The services of military personnel.
C)   The construction of new buildings.
D)   Goods and services produced in the underground economy.

Question 18

Welfare payments to low-income families are included in national income.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following best defines national income?

Accepted Answer

A)   Income received by households less personal taxes.
B)   The before-tax income received by households.
C)   Incomes earned by U.S.resource suppliers plus taxes on production and imports.
D)   The market value of the annual output net of consumption of fixed capital.

Question 20

Tom Atoe grows fruits and vegetables for home consumption.This activity is:

Accepted Answer

A)   excluded from GDP in order to avoid double counting.
B)   excluded from GDP because an intermediate good is involved.
C)   productive but is excluded from GDP because no market transaction occurs.
D)   included in GDP because it reflects production.

Exam 26: Measuring Domestic Output and National Income

In the second quarter (three-month period) of 2001,U.S.nominal GDP increased but U.S.real GDP declined.We can conclude that: