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					Measuring a Nation’s Production and Income


1. Which of the following is NOT a primary goal of macro policy?
a. Economic growth
b. Full employment
c. Low inflation
d. A trade surplus

2. The majority of spending in most of the countries is purchases made by:
a. Government
b. Consumers
c. Businesses
d. Foreign consumers

3. Low unemployment is a widely accepted goal of macro policy.
a. True
b. False

4. In the circular flow of money:
a. households supply resources to the product market
b. households supply money for goods and services to the product market
c. firms supply goods and services to the product market
d. households are not viewed as suppliers
e. the resource market supplies resources to firms for production

5. The circular flow of GDP shows the movement of ___ from firms to households.
a. income
b. revenue
c. resources
d. goods and services
e. wealth

6. GDP is the total market value of:
a. all final goods and services sold in an economy in a given year
b. all final goods and services produced within the borders of a country in a given year
c. all goods and services purchased by households and businesses in a given year
d. all final goods and services produced within an economy since 2000
e. intermediate and final goods produced in a given year

7. Under the expenditure approach to calculating GDP, a personal consumption expenditures are:
a. excluded from the calculation to avoid double counting
b. expenditures for all goods and services (intermediate and final) are added together
c. exports are not included in the final total
d. only intermediate goods are included in the final total
e. expenditures on all final goods and services are added together

8. A loaf of french bread is used by a bakery to cut into croutons that are sold to Bridgette. The value
    of the loaf of french bread is not counted in GDP because it is a(n) ___ good. The value of the
    croutons are counted in GDP because they are a(n) ___ good.
a. final; intermediate
b. intermediate; final
c. consumption; investment
d. investment; consumption

9. The consumption spending portion of GDP includes:
a. durable goods, nondurable goods, and services
b. goods, services, and new houses
c. intermediate goods, but not final goods
d. about 90 percent of all production that occurs in the economy

10.      Which one of the following would NOT be included in current GDP?
a. the purchase of a used car
b. services rendered by a financial planner
c. a trip to Hilton Head
d. the purchase of a a new set of Ping golf clubs
e. the purchase of flour by a househusband or housewife
11.    Which one of the following would give a correct measure of GDP? (C = consumption
   expenditures, I = gross investment expenditures, G = government expenditures, EX = exports, and
   IM = imports)
a. GDP = C + I + G + EX + IM.
b. GDP = C + I + G.
c. GDP = C + I + G + EX - IM.
d. GDP = C + I + G - EX - IM.
e. GDP = C + I - G + EX + IM.

12.     Net exports are computed as:
a. exports minus depreciation
b. exports minus imports
c. exports minus GDP
d. imports minus exports

13.     Changes in inventories would be included in which of the following expenditure categories?
a. Gross private domestic investment
b. Net exports
c. Government purchases
d. Personal consumption on durable goods
e. Personal consumption on nondurable goods

14.     A consumer purchases a new car with a value of $15,000. The car comes equipped with tires,
    which are worth $2,000 and a battery, which is worth $200. The amount that would be included in
    GDP is:
a. $15,000
b. $15,000 + $2,000 + $200= $17,200
c. $15,000 + $2,000 = $17,000
d. $15,000 - $2,000 - $200 = $12,800

15.     In the equation GDP = C + I + G + NX, government transfer payments are counted as part of:
a. G
b. I
c. C
d. NX

16.     How are transfer payments treated in the measurement of GDP?
a. Transfer payments are included in the government component of GDP.
b. Transfer payments are changes in business inventories and are thus included in the investment component of
GDP.
c. Transfer payments are subtracted in the computation of GDP.
d. GDP does not count transfer payments directly

17.       Which of the following is an example of a transfer payment?
a. A school district pays the salary of a teacher
b. A senior citizen is issued a Social Security check by the government
c. A farmer raises a field of corn from seed
d. A little boy and girl spend their allowances at Chuck E. Cheese's pizza restaurant

18.      Which of the following is correct?
a. Gross investment is net investment less depreciation
b. Net investment is gross investment less depreciation
c. Net investment is gross investment plus depreciation
d. Gross investment is net investment divided by depreciation

19.      Gross investment equals:
a. net investment plus depreciation
b. investment adjusted for the effects of inflation
c. a negative component of GDP
d. the change in business inventories

20.      Consider a computer lab at a college or university. If the school wants to add more computers
   it would be an increase in:
a. net investment
b. gross investment

21.      If the school replaces computers that have broken or become obsolete, that is:
a. net investment
b. gross investment
22.     You drive a taxicab and are paid $10 an hour. Your friends ask you to drive them in their car to
   the airport and then bring the car back home. The total trip takes 3 hours. As a result of this
   activity:
a. GDP increases by $30
b. GDP decreases by $30
c. GDP does not change
d. Either A or C is possible

23.    Per capita GDP is:
a. GDP minus net exports
b. GDP adjusted for inflation
c. GDP per person
d. computed by taking the legal output and the illegal output of the economy and adding them together

24.     Consider the list of various forms of income. Which form comprises the largest fraction of GDP?
a. Compensation of employees
b. Proprietors' income
c. Rental income of persons
d. Corporate profits
e. Net interest

25.     National income includes all but which of the following components?
a. Employee compensation
b. Corporate profits
c. Gross private domestic investment
d. Rental income
e. Net interest

26.     National income can be calculated in which of the following ways?
a. GDP minus indirect business taxes
b. GNP plus capital depreciation
c. GNP minus capital depreciation minus indirect business taxes
d. Personal consumption expenditures plus gross private domestic investment, government purchases, and net
exports
e. Personal income minus taxes and transfers

27.     Outsourcing jobs, or producing goods in other countries that were once produced in the US,
    means jobs are lost here and gained abroad. One result of outsourcing might be:
a. A decrease in exports
b. An increase in exports
c. A decrease in imports
d. An increase in imports
e. Both A and D

28.      Ireland has a large number of firms from other countries that have opened factories and offices
    in order to produce there, but very few Irish companies produce in other countries. As a result,
    Ireland’s GDP would be:
a. Less than its GNP
b. Greater than its GNP
c. The same as its GNP

29.      U.S. gross national product (GNP):
a. is another name for gross domestic product (GDP).
b. excludes net exports, since its purpose is to compute national consumption and investment
c. includes production by U.S. firms in other countries and excludes production by foreign firms in the United
States
d. is no longer computed, having been replaced by GDP

30.     The gross national product for Armenia will exceed the gross domestic product for Armenia
    when:
a. payments to Armenians in other countries exceed payments to foreigners residing in Armenia
b. payments to foreigners residing in Armenia exceed payments to Armenians in other countries
c. capital depreciation is positive
d. capital depreciation is less than indirect business taxes
e. capital depreciation exceeds indirect business taxes

31.      Real GDP is a good measure of output for economic growth because:
a. It includes the sale of intermediate goods
b. Real GDP is calculated using current prices and thus includes the effect of inflation
c. A rise in Real GDP can only be due to an increase in production
d. Household production is not included in Real GDP

32.      When there is an increase in nominal GDP, there must also be an increase in real GDP.
a. True
b. False

33.     Which one of the following defines a "recession"?
a. a one-month decline in real GDP
b. a protracted period of low economic growth
c. a growth rate of real GDP that is negative
d. a decline in real GDP that lasts for six consecutive months or longer
e. the movement of real GDP from trough to peak

34.      When real GDP decreases during the business cycle, the lowest point is called the peak.
a. True
b. False

35.      If the real value of GDP decreases from one year to the next, it is most likely that:
a. inflation is a problem in the economy
b. real GNP is up
c. consumption spending is down while government purchases are up
d. the economy is in a recession

36.     GDP calculations have been criticized for omitting all of the following except one. Which one?
a. The value of housework
b. The value of leisure
c. The level of corporate profits
d. The level of activity in the underground economy
e. The costs of damage to the environment

37.     How is the output of goods in the underground economy treated in the computation of GDP?
a. They are difficult to measure accurately, but the government estimates their value and adjusts GDP to reflect
that value
b. They are included in GDP as one of the components of investment
c. Government produces goods for the underground economy and, thus, they are included in the government
purchases component of GDP
d. They are not counted
Exercises

Example 1. Simple Economy

Use the following data:

                                         Quantities Produced                  Prices

                                         Cars       Computers      $/Car       $/Computer

                                 2006    4          1              10000       5000

                                 2007    5          3              12000       5000

a. Calculate nominal GDP in 2006 and 2007.
b. What is the growth rate of nominal GDP from 2006 to 2007
c. Calculate real GDP using prices from 2006.
d. By what percent did real GDP grow in 2007?
e. Calculate the value of the price index for GDP for 2007 using 2006 as the base year.
f. By what percent did prices increase?


Example 2. Simple Economy II

Use the following data:

                                        Quantities Produced                   Prices

                                        DVDs      Softball Bats   $/DVDs       $/Softball Bats

                                2006    100       200             20           110

                                2007    120       210             22           120

a. Calculate nominal GDP in 2006 and 2007.
b. What is the growth rate of nominal GDP from 2006 to 2007?
c. Calculate real GDP using prices from 2006.
d. By what percent did real GDP grow in 2007?
e. Calculate the value of the price index for GDP for 2007 using 2006 as the base year.
f. By what percent did prices increase?


Example 3. Three-Good Economy

Use the following data:

                                 Quantities Produced                                   Prices

                          Good A        Good B          Good C     $/Good A          $/Good B    $/Good C

             2006           6                 7           10           0,50             0,30       0,70

             2007          11                 4           12           0,40             1,00       0,90

a. Calculate nominal GDP in 2006 and 2007.
b. What is the growth rate of nominal GDP from 2006 to 2007?
c. Calculate real GDP using prices from 2006.
d. By what percent did real GDP grow in 2007?
e. Calculate the value of the price index for GDP for 2007 using 2006 as the base year.
f. By what percent did prices increase?
Example 4.

Use the following data to calculate GDP, NI, NNP, GNP, net income from abroad.

                               Compensation to employees             1400
                               Depreciation                          350
                               Government purchases                  900
                               Net exports                           900
                               Corporate profits                     400
                               Rental income                         100
                               Consumption expenditures              1100
                               Proprietor's income                   500
                               Indirect business taxes               300
                               Net interest income                   150
                               Gross domestic private investment     500



Example 5

Use the following data to calculate GDP, NI, NNP, GNP, net income from abroad.

                               Compensation to employees             3080
                               Depreciation                          770
                               Government purchases                  1980
                               Exports                               1980
                               Corporate profits                     880
                               Rental income                         220
                               Consumption expenditures              2420
                               Proprietor's income                   1100
                               Indirect business taxes               660
                               Net interest income                   330
                               Gross domestic private investment     1100

				
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