"Measuring National Output and National Income - DOC"
Quiz 3 - Chapter 7 Measuring Domestic Output and National Income 1. GDP excludes expenditures for: a. additions to inventories b. new housing c. government purchases of military equipment d. corporate stock Answer: d Feedback: Corporate stock is a certificate of ownership of a firm and does not represent production of final goods and services. 2. The ―G‖ term in C + Ig + G + Xn includes all of the following except: a. state government purchases of new computers b. Social Security checks received by retirees c. salaries received by members of the military d. local government expenditures for new school construction Answer: b Feedback: Social Security checks are transfer payments—transfers of income from taxpayers to recipients—that does not represent a contribution to current production. 3. A nation’s capital stock was valued at $400 billion on January 1st and $420 billion on December 31st. If consumption of private fixed capital was $15 billion during the year: a. net investment was $35 billion b. net investment was $5 billion c. gross investment was $20 billion d. gross investment was $35 billion Answer: d Feedback: Net investment is measured by the growth in the capital stock. Gross investment is this amount plus any depreciation. 4. Refer to the following data: Personal consumption expenditures $ 4500 Gross private domestic investment $ 800 Consumption of fixed capital $ 150 Government purchases $ 950 Exports $ 65 Imports $ 85 Net domestic product in this economy is: a. $6,080 b. $6,230 c. $6,295 d. $6,270 Answer: a Feedback: Net domestic product is the sum of C + In + G + Xn: $4,500 + ($800 – $150) + $950 + ($65 – $85) = $6,080. 5. The income approach to GDP sums the total income earned by resource suppliers and adds: a. net transfer payments and personal taxes b. net investment and depreciation c. depreciation, indirect business taxes, and net factor income earned abroad d. net transfer payments, depreciation, and net factor income earned in the U.S. Answer: c Feedback: The expenditure approach sums the value of all expenditures on domestically produced output. To match this, the income approach begins with national income—income earned by U.S.- supplied resources. However, it must also include depreciation, indirect business taxes and net factor income earned abroad. 6. Refer to the following data: Year Units of Output Price per unit 1 4 $3 2 5 $4 3 8 $5 4 9 $6 5 10 $7 This economy produces only one product; price and output data are shown for a five-year period. Year 3 is the base year. The price index for year 4 is: a. 80 b. 120 c. 20% d. 1.2 Answer: b Feedback: The price index is the ratio of the value of output in year 4 to the value of that same output in year 3, multiplied by 100. In this example, the price index is [(9 x $6) / (9 x $5)] x 100, or 120. 7. Refer to the following data: Year Units of Output Price per unit 1 4 $3 2 5 $4 3 8 $5 4 9 $6 5 10 $7 This economy produces only one product; price and output data are shown for a five-year period. Year 3 is the base year. Real GDP in year 5 is: a. $40 b. $50 c. $56 d. $70 Answer: b Feedback: Real GDP measures the value of output using constant prices. In this example, year 5 output is 10 and the base year price is $5, so real GDP is $50. Alternatively, one could calculate the price index for year 5 as 140, then calculate real GDP as year 5 nominal GDP ($70) deflated by the index: real GDP = ($70 /140) x 100 = $50. 8. In a given year, nominal GDP increased by 12% while the GDP price deflator rose from 150 to 156. Over this period, real GDP: a. remained constant b. rose by approximately 6% c. rose by approximately 8% d. rose by approximately 12% Answer: c Feedback: The price level rose by 4%, from 150 to 156. Real GDP increased approximately by the difference in the growth of nominal GDP and the growth in the price deflator. 9. The change in real GDP is not an accurate measure of the change in economic welfare because: a. improvements in product quality are overstated b. expenditures for personal services are excluded c. the price level changes over time d. some production creates pollution Answer: d Feedback: To the extent that increased production degrades the environment, measured changes in output will fail to account for changes in economic well-being. 10. True or false: If imports exceed exports, the ―net exports‖ term in GDP is positive. a. True b. False Answer: b Feedback: ―Net exports‖ is defined as exports minus imports. If imports exceed exports, this term will be negative.