Economics for Today 8th Edition by Irvin B. Tucker - Test Bank

Economics for Today 8th Edition by Irvin B. Tucker – Test Bank

 

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Sample Questions Are Posted Below

 

Chapter 5—Gross Domestic Product

 

MULTIPLE CHOICE

 

1. Gross domestic product is equal to the market value of all final goods and services:

a.	exchanged during a period.
b.	produced domestically during a period.
c.	produced by the citizens of a nation during a period.
d.	produced domestically during a period minus the depreciation of productive assets.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Knowledge

 

2. Gross domestic product is the sum of the purchase price multiplied by the quantity of:

a.	goods and services exchanged during the period.
b.	final goods and services produced domestically during the period.
c.	goods and services produced domestically during the period minus the depreciation of productive assets.
d.	final goods and services plus intermediate goods produced domestically during the period.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Knowledge

 

3. Which of the following is true?

a.	GDP is a “flow” concept.
b.	The purchase prices of both intermediate goods and final goods are included in GDP.
c.	GDP measures economic welfare.
d.	GDP is a measure of changes in the general level of prices.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Knowledge

 

4. Which one of the following transactions would be included in GDP?

a.	Ms. Kim pays $50 for a used picture frame at a neighborhood garage sale.
b.	Mr. Doe donates $500 to his town’s junior college scholarship fund.
c.	Ms. Bartolini pays $500 to fix the front end of her car damaged in a recent accident.
d.	Ms. Smith pays $5,000 to purchase 100 shares of Microsoft stock.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

5. GDP is a measure of:

a.	domestic production.	c.	material well-being.
b.	changes in the general level of prices.	d.	social welfare.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Knowledge

 

6. The GDP of a country can be derived by summing the:

a.	expenditures on final goods and services produced domestically during the year.
b.	payments to employees and owners of capital resources and then subtracting depreciation and indirect business taxes.
c.	market value of all goods and services produced domestically during the period and then subtracting net exports from that figure.
d.	income payments to the resource suppliers and net exports.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

7. Gross domestic product is officially measured by adding together the:

a.	quantity of each good and service produced by U.S. residents.
b.	market value of all final goods and services produced within the borders of a nation.
c.	quantity of goods and services produced by companies owned by U.S. citizens.
d.	none of these.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Knowledge

 

8. Which of the following would be counted as a final good for inclusion in GDP?

a.	A piece of glass bought this year by a consumer to fix a broken window.
b.	A sheet of glass produced this year by Ford for windows in a new car.
c.	A tire produced this year and sold to a car maker for a new car sold this year.
d.	None of these would be counted in GDP.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

9. Which of the following items is included in the calculation of GDP?

a.	Purchase of 100 shares of General Motors stock.
b.	Purchase of a used car.
c.	The value of a homemaker’s services.
d.	Sale of Gulf War military surplus.
e.	None of these would be included.

 

 

ANS:  E                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Analysis

 

10. Which of the following expenditures would not be included in GDP?

a.	Purchase of a new lawnmower.
b.	Purchase of a silver cup previously sold new in 1950.
c.	Purchase of a ticket to the latest movie.
d.	All of these would be counted in GDP.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

11. Payments to households not in exchange for goods and services currently produced are:

a.	transfer payments.	c.	consumption expenditures.
b.	government purchases.	d.	investment expenditures.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

12. Gross domestic product (GDP) includes:

a.	intermediate as well as final goods.
b.	foreign goods as well as domestically produced goods.
c.	used goods sold in the current time period.
d.	only final goods and services.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

13. Which of the following expenditures would be included in GDP for this year?

a.	The purchase of a new car.
b.	The purchase of a new tire by General Motors for a new car.
c.	The purchase of a used car.
d.	All of these would be included.

 

 

ANS:  A                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Analysis

 

14. Intermediate goods are goods and services used:

a.	by the ultimate user.	c.	as inputs.
b.	by state and local governments.	d.	both as inputs and final goods.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Knowledge

 

15. GDP measures the economy’s production of:

a.	final goods and services.	c.	consumer goods and services.
b.	intermediate goods.	d.	capital goods.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

16. Which of the following purchases would be counted as a final good in the GDP calculation?

a.	A family’s purchase of a used car.
b.	A speculator’s purchase of 100 shares of Apple Computer stock.
c.	A deli’s purchase of bread for making its sandwiches.
d.	A business’s purchase of new office equipment.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

17. GDP:

a.	is the dollar value of all the final goods and services produced within the borders of a nation.
b.	includes intermediate and final goods and services.
c.	minus an allowance for depreciation of fixed capital equals GNP.
d.	is a less-than-perfect measure of social well-being because it does not include exports and imports.
e.	all of these.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Knowledge

 

18. Gross domestic product (GDP) is defined as:

a.	the market value of all final goods and services produced within the borders of a nation.
b.	incomes received by all of a nation’s households.
c.	the quantity of each good and service produced by U.S. residents.
d.	none of these.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Knowledge

 

19. Gross domestic product (GDP) does not include:

a.	used goods sold in the current time period.
b.	foreign produced goods.
c.	intermediate as well as final goods.
d.	None of these would be included.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

20. Payments to households not in exchange for goods and services currently produced are:

a.	transfer payments.	c.	consumption expenditures.
b.	government purchases.	d.	investment expenditures.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Knowledge

 

21. Personal consumption expenditures include:

a.	all commodities that business firms buy.
b.	the purchase prices paid for stocks and bonds by individual households.
c.	the construction of residential housing.
d.	all goods and services bought by households.
e.	the corrected value of housewives’ services.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

22. Personal consumption expenditures:

a.	represent close to two-thirds of GDP.
b.	are equal to personal income minus individual taxes.
c.	include durable good purchases but not nondurable good purchases.
d.	do not include any intangible consumption items.
e.	include all goods and services bought by the government.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

23. Gross private domestic investment or simply business investment spending (I):

a.	excludes all investment in the United States by foreign firms.
b.	includes all capital in the United States.
c.	includes net additions to the capital stock plus all new corporate stocks and bonds.
d.	includes business expenditures on new factories, tools, and machinery.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Analysis

 

24. Net exports:

a.	will increase if exports of goods decline.
b.	will increase if imports of goods rise.
c.	in our GDP accounts permit estimation of foreign ownership of American businesses.
d.	include budgetary outlays of the federal government.
e.	is the net effect of the foreign trade sector on GDP.

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

25. The market value of all final goods and services in an economy produced by resources owned by people of that economy is:

a.	personal income.
b.	national income.
c.	capital income.
d.	gross national product.
e.	gross domestic product.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Knowledge

 

26. Activities that are directly included in GDP accounts include:

a.	the value of housework done by householders.
b.	the selling of illegal drugs.
c.	unreported labor in sweatshops.
d.	buying a ticket to a Dodgers-Expos game on your day off.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Analysis

 

27. Which of the following activities would be calculated as part of GDP accounts?

a.	Drug trafficking.
b.	Money laundry.
c.	Prostitution.
d.	Purchasing plastic surgery.
e.	Burglary.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

28. The unreported or illegal production of goods and services in the economy that is not counted in GDP is termed:

a.	money laundering.
b.	the underground economy.
c.	disposable personal income.
d.	indirect national income.
e.	unreported capital consumption.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Knowledge

 

29. GDP includes:

a.	the negative attributes from erosion and deforested landscape.
b.	all quality improvements resulting from higher quality goods replacing inferior goods.
c.	the cleaning-up expenses associated with pollution.
d.	the value of leisure time.
e.	the illegal activities related to the underground economy.

 

 

ANS:  C                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Analysis

 

30. Consumption spending includes:

a.	durable goods, nondurable goods, and housing.
b.	durable goods, nondurable goods, and imports.
c.	durable goods, services, and housing.
d.	durable goods, nondurable goods, and services.
e.	nondurable goods, services, and housing.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

31. When net exports are negative,

a.	exports are greater than investment.
b.	depreciation is greater than net investment.
c.	imports are greater than investment.
d.	exports are greater than imports.
e.	imports are greater than exports.

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

32. Depreciation or consumption of fixed capital depreciation measures:

a.	net investment less gross investment.
b.	the loss of productive ability due to capital intensive production.
c.	capital that is wasted in the production process.
d.	the value of existing capital stock used up in the production process.
e.	the decline in the value of inventories caused by inflation.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Compensation of Employees            KEY:  Bloom’s: Comprehension

 

33. The largest component of household consumption spending is expenditures on:

a.	services.
b.	durable goods.
c.	nondurable goods.
d.	food.
e.	transportation.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

34. The three components of personal consumption expenditures are:

a.	durable goods, nondurable goods, and services.
b.	durable goods, food, and housing.
c.	durable goods, nondurable goods, and housing.
d.	durable goods, services, and food.
e.	durable goods, services, and transportation.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

35. Gross private domestic investment includes business:

a.	purchases of capital goods, all new construction, and purchases of consumer durable goods.
b.	purchases of capital goods, all new construction, and inventory investment.
c.	purchases of capital goods, all new commercial construction, and inventory investment.
d.	purchases of capital goods, all new residential construction, and inventory investment.
e.	purchases of all types of durable goods, all new construction, and inventory investment.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

36. Which of the following would be classified as a personal consumption expenditure?

a.	All of the following.
b.	Your purchase of a newly constructed house
c.	Your purchase of a preowned house.
d.	Your purchase of one share of Microsoft stock.
e.	Your purchase of this economics course.

 

 

ANS:  E                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Analysis

 

37. The largest component of GDP is:

a.	personal consumption expenditures.
b.	government spending.
c.	durable goods.
d.	net exports.
e.	gross private domestic investment.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Knowledge

 

38. Gross domestic product is a measure of:

a.	market value of a nation’s capital assets (physical capital).
b.	expenditures on and sales revenues derived from all goods and services exchanged during a period.
c.	market value of the output produced during a period.
d.	asset holdings of people and the happiness that they derived from the ownership of those assets.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Comprehension

 

39. The portion of the four-sector circular flow model which shows the flow of funds from savers to borrowers is the:

a.	product market.	c.	savings market.
b.	factor market.	d.	financial market.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Comprehension

 

40. The circular flow of economic activity is a model of the:

a.	flow of goods, resources, payments, and expenditures between the sectors of the economy.
b.	influence of government on business behavior.
c.	influence of business on consumers.
d.	role of unions and government in the economy.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Comprehension

 

41. The lower portion of the circular flow model contains factor markets in which households provide:

a.	labor, money, and machines.
b.	savings, spending, and investment.
c.	natural resources, labor, and capital.
d.	output of all final goods and services produced.

 

 

ANS:  C                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Comprehension

 

42. Based on the circular flow model, money flows from households to businesses in:

a.	factor markets.	c.	neither factor nor product markets.
b.	product markets.	d.	both factor and product markets.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Comprehension

 

43. Based on the circular flow model, goods and services flow from:

a.	households to businesses in product markets.
b.	businesses to households in product markets.
c.	households to businesses in factor markets.
d.	businesses to households in factor markets.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Comprehension

 

44. The circular flow model assumes:

a.	businesses and households own the factors of production.
b.	businesses own the factors of production.
c.	government owns the factors of production.
d.	households own the factors of production.
e.	firms, households, and the government own the factors of production.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Analysis

 

45. The circular flow model represents the establishment of market value for:

a.	goods and services.	c.	profits and rents.
b.	wages and salaries.	d.	all of these.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Comprehension

 

46. The lower portion of the circular flow model contains factor markets in which households provide:

a.	output of all final goods and services produced.
b.	savings, spending, and investment.
c.	labor, money, and machines.
d.	none of these.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Comprehension

 

47. Economic values that are measured in units per period of time are referred to as:

a.	stocks.	c.	unit values.
b.	flows.	d.	dollars.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Comprehension

 

48. In the circular flow model,

a.	money flows from the firms to the households through the product market.
b.	money flows from the households to the firms through the product market.
c.	money flows from the households to the firms through the resource market.
d.	money flows from the households to the firms through both the product market and the resource market.
e.	resources flow to the households from the firms through the product market.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Comprehension

 

49. Which one of the following is an example of the circular flow model and shows the interdependence of households and firms?

a.	Households demand their resources from the firms in the factor markets and, in turn, supply in the product market the goods and services produced by firms.
b.	The firms go to the resource market to supply resources that households demand and, in turn, provide households with the goods and services produced for the product markets.
c.	Households supply their resources to the firms in the factor markets and, in turn, demand in the product market the goods and services produced by the firms.
d.	The firms in the factor markets pay to households in the form of wages, interest, rent and profit¾for resources demanded.
e.	The circuit is completed when the payments flow from households, through the product markets, and to the firms for the goods and services they demand.

 

 

ANS:  C                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Analysis

 

50. Resources that flow through the circular flow model include all of the following except:

a.	land.	c.	capital.
b.	labor.	d.	final goods.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Knowledge

 

51. In the circular flow model, money flows from the business sector to the household sector through the:

a.	product market.
b.	capital market.
c.	goods market.
d.	services market.
e.	resource market.

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Knowledge

 

52. Which one of the following statements is true?

a.	Money flows from households to firms for resources.
b.	Money flows from households to foreign economies for exports.
c.	Money flows from government to firms for resources.
d.	Money flows from foreign economies to firms for imports.
e.	Money flows from firms to households for resources.

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Comprehension

 

53. Which one of the following statements is true in the four-sector circular model?

a.	Money flows from government to households for taxes.
b.	Money flows from foreign economies to households for exports.
c.	Money flows from government to firms for goods and services.
d.	Money flows from firms to foreign economies for exports.
e.	Money flows from households to foreign economies for resources.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Comprehension

 

54. Which one of the following statements is true?

a.	Resources flow from the government to households.
b.	Resources flow from firms to households.
c.	Taxes flow from firms to the government.
d.	Resource payments flow from firms to households
e.	Imports flow from firms to foreign economies.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Comprehension

 

55. Which one of the following statements is true?

a.	Resources flow from the government to firms.
b.	Taxes flow from foreign economies to the government.
c.	Goods and services flow from households to foreign economies.
d.	Resources flow from households to firms.
e.	Resource payments flow from households to the government.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Comprehension

 

56. In the four-sector circular flow model, households will use their incomes to do all but which one of the following?

a.	Save.
b.	Pay taxes.
c.	Buy domestic goods and services.
d.	Buy imported goods and services.
e.	Invest.

 

 

ANS:  E                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Analysis

 

Exhibit 5-1

Use the information below to answer the following question(s).

 

National income account	Billions of dollars
Personal consumption expenditures	$900
Personal taxes	180
Government consumption and gross investment	300
Interest income	60
Exports	40
Imports	75
Depreciation	60
Gross investment	200

 

 

57. Refer to Exhibit 5-1. What is this country’s net exports?

a.	$35.	c.	$379.
b.	-$35.	d.	-$379.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Analysis

 

58. Refer to Exhibit 5-1. What is this country’s gross domestic product?

a.	$1,225.	c.	$1,365.
b.	$1,305.	d.	$1,440.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Analysis

 

59. The largest component of GDP as measured by the expenditure approach is:

a.	wages and salary earnings.	c.	net profits of corporations.
b.	personal consumption.	d.	gross private investment.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

60. Which one of the following would count as investment in the GDP accounts?

a.	Purchase of a new airplane by an airline.
b.	Purchase of a U.S. government bond.
c.	Purchase of 100 shares of Wal-Mart stock.
d.	Purchase of an existing house.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

61. Which of the following would be included in the government expenditures component of GDP?

a.	The export of 100 fighter jets to Japan
b.	Construction costs of a new public school building
c.	Food stamps used by the Smith family
d.	A $1,000 check issued by the federal government as part of the Pell Grant program to help college students pay for school

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

62. Which of the following would count as an investment expenditure in the GDP expenditures approach?

a.	General Motors hires 10 electrical engineers.
b.	Boeing purchases a new metal stretching machine used to produce airplane wings.
c.	Ms. Quantum buys 100 shares of Microsoft stock.
d.	A large corporation spends $10,000 per month on long-distance phone charges.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

63. GDP does count:

a.	state and local government purchases.	c.	changes in inventories.
b.	spending for new homes.	d.	none of the above.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

64. Using the expenditure approach, total spending by households for durable goods, nondurable goods, and services is a category called:

a.	gross private domestic investment.	c.	personal consumption expenditures.
b.	capital consumption allowance.	d.	household investment.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

65. Using the expenditure approach, “gross private domestic investment” is the sum of:

a.	newly produced capital goods.	c.	changes in business inventories.
b.	fixed investment.	d.	all of these.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Analysis

 

66. All final goods and services that make up GDP can be expressed in the form:

a.	GDP = C + I – G + (X + M).
b.	GDP = C + I + G + (X + M).
c.	GDP = C + I + G + (X – M).
d.	GDP = C + I + (X – M).
e.	GDP = C + I + G.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Knowledge

 

67. The expenditure approach to GDP accounting includes:

a.	wages and salaries.
b.	net exports.
c.	net interest.
d.	corporate profit.
e.	proprietors’ income.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

68. The expenditure approach for the calculation of GDP includes spending on:

a.	consumption, investment, durable goods and exports.
b.	consumption, gross private domestic investment, government spending for goods and services, and exports.
c.	consumption, gross private domestic investment, government spending for goods and services, and net exports.
d.	consumption, net private domestic investment, government spending for goods and services, and net exports.
e.	consumption, gross private domestic investment, all government spending including transfer payments, and net exports.

 

 

ANS:  C                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Analysis

 

69. Which one of the following is not a component of GDP, as measured using the expenditure approach?

a.	Personal consumption.
b.	Exports.
c.	Durable goods.
d.	Government spending.
e.	Interest.

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Knowledge

 

70. Durable and nondurable goods and services lumped together in the expenditure approach to measuring GDP are called:

a.	Personal consumption.
b.	Gross private domestic investment.
c.	Government spending.
d.	Inventory.
e.	Employee compensation.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

71. Your purchase of a Gucci purse made in Italy would be classified as:

a.	both c and d
b.	an investment good.
c.	a durable good.
d.	an import.
e.	an export.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

72. To construct GDP, exports:

a.	and imports must be subtracted.
b.	and imports must be included.
c.	must be included and imports must be ignored.
d.	must be included and imports must be subtracted.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

73. If net exports are a negative number, then:

a.	we are not buying enough exports.
b.	we are buying too many exports.
c.	GDP will underestimated when measured using the expenditure approach.
d.	we are exporting more than we are importing.
e.	we are exporting less than we are importing.

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

74. Gross private domestic investment does not include:

a.	spending for new houses.
b.	spending to build up inventories.
c.	unintentional inventory investment.
d.	spending on employee salaries.
e.	spending for office supplies.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

75. New residential housing is counted in GDP as a(n):

a.	durable consumption good.
b.	household durable good.
c.	investment good.
d.	inventory expansion.
e.	long-term durable good.

 

 

ANS:  C                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Analysis

 

76. According to the expenditure approach, the largest component of GDP is:

a.	government spending.
b.	proprietor’s income.
c.	net interest.
d.	personal consumption expenditures.
e.	compensation of employees.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

77. If you buy a brand new, American-made laptop computer to use for taking notes in your economics class, then it will be counted as:

a.	none of the following.
b.	C.
c.	I.
d.	G.
e.	(X – M).

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

78. If you buy a book of U.S. postage stamps to use to mail love letters to your sweetheart, the purchase is considered part of:

a.	C.
b.	I.
c.	G.
d.	X.
e.	M.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

79. If you buy a commemorative Princess Diana stamp issued by the British government, the purchase is considered part of:

a.	C.
b.	I.
c.	G.
d.	X.
e.	M.

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

80. If exports rise and imports fall, then:

a.	GDP will increase.
b.	GDP will decrease.
c.	GDP may remain unchanged.
d.	net exports will fall.
e.	transfer will rise.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

81. Which of the following would not be included in the gross private domestic investment (I) category of GDP?

a.	A bakery’s purchase of a new oven.
b.	A retailer’s additions to its inventories.
c.	Newly built residential construction.
d.	A bank’s purchase of a U.S. Treasury bond.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Analysis

 

82. Which of the following would not be included in the government consumption expenditures and gross investment (G) category of GDP?

a.	The payments made to Social Security recipients.
b.	The expenditures made to repair a highway.
c.	The spending for professors at state universities.
d.	The purchase of new china for White House functions.

 

 

ANS:  A                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Analysis

 

83. Using the expenditure approach, GDP equals:

a.	C + I + G + (X – M).	c.	C + I – G + (X – M).
b.	C + I + G + (X + M).	d.	C + I + G – (X – M).

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Knowledge

 

84. As shown in Exhibit 5-2, total expenditures by households for domestically produced goods is:

a.	$500 billion.	c.	$300 billion.
b.	$50 billion.	d.	$15 billion.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

85. As shown in Exhibit 5-2, total expenditures by businesses for fixed investment and inventories is:

a.	$500 billion.
b.	$50 billion.
c.	$200 billion.
d.	$15 billion.
e.	$65 billion.

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

86. As shown in Exhibit 5-2, total spending by government is:

a.	$600 billion.
b.	$100 billion.
c.	$200 billion.
d.	$300 billion.
e.	$800 billion.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

87. As shown in Exhibit 5-2, net exports are:

a.	$50 billion.	c.	$35 billion.
b.	$15 billion.	d.	$65 billion.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

88. Using the expenditure approach in Exhibit 5-2, gross domestic product (GDP) is:

a.	$600 billion.
b.	$100 billion.
c.	$500 billion.
d.	$915 billion.
e.	$800 billion.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

Exhibit 5-3 Expenditure approach

 

National income account	Billions of dollars
Personal consumption expenditures (C)	$1,000
Exports (X)	120
Federal government spending (G)	200
State and local government  spending (G)	400
Imports (M)	20
Gross private domestic investment (I)	75

 

 

89. As shown in Exhibit 5-3, total expenditures by households for domestically produced goods is:

a.	$1,000 billion.	c.	$600 billion.
b.	$100 billion.	d.	$20 billion.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

90. As shown in Exhibit 5-3, total expenditures by businesses for fixed investment (capital) and inventories is:

a.	$1,000 billion.
b.	$100 billion.
c.	$400 billion.
d.	$20 billion
e.	$75 billion.

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

91. As shown in Exhibit 5-3, net exports is:

a.	$75 billion.	c.	$20 billion.
b.	$100 billion.	d.	$120 billion.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

92. As shown in Exhibit 5-3, using the expenditure approach, GDP is:

a.	$1,000 billion.	c.	$1,775 billion.
b.	$1,500 billion.	d.	$2,000 billion.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

93. The Department of Commerce sums the payments made to resources to arrive at GDP in the form of wages, rents, interest, profits, indirect taxes, and depreciation. This method of deriving GDP is called the:

a.	opportunity cost approach.	c.	expenditure approach.
b.	income approach.	d.	monetarist approach.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Comprehension

 

94. Using the income approach, the largest component in the calculation of GDP is:

a.	net interest.	c.	profits.
b.	rental income.	d.	compensation of employees.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Comprehension

 

95. Using the income approach, the smallest component in the calculation of GDP is:

a.	net interest.	c.	profits.
b.	rental income.	d.	compensation of employees.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Comprehension

 

96. Using the income approach, an estimate of the value of capital worn out producing GDP is:

a.	indirect business taxes.
b.	capital consumption allowance or depreciation.
c.	gross private domestic investment.
d.	capital erosion estimate.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Comprehension

 

97. Using the income approach, an indirect business tax is a(n):

a.	sales tax.	c.	license fee.
b.	excise tax.	d.	all of these.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Comprehension

 

98. Taxes collected by businesses and sent to the government are:

a.	indirect business taxes.	c.	corporate income taxes.
b.	direct business taxes.	d.	personal income taxes.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Comprehension

 

99. When GDP is measured as the total payments made to households that furnish the resources used to produce the final goods and services, it is known as:

a.	the income approach.
b.	the expenditure approach.
c.	the depreciation approach.
d.	the aggregate demand approach.
e.	net national product.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Comprehension

 

100. More than 70 percent of national income can be attributed to:

a.	compensation of employees.
b.	rental income.
c.	corporate profit.
d.	net interest.
e.	proprietors’ income.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Comprehension

 

101. Compensation of employees:

a.	excludes the monetary value of fringe benefits.
b.	excludes paid vacations.
c.	is the largest component of GDP.
d.	excludes contributions to employees’ Social Security.
e.	includes rental income.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Comprehension

 

102. Using the income approach, general sales taxes, excise taxes, customs duties, business property taxes, and license fees are termed:

a.	indirect business taxes.
b.	regressive taxes.
c.	disproportionate taxes.
d.	capital depreciation.
e.	progressive taxes.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Comprehension

 

103. To calculate GDP using the income approach, add:

a.	indirect business taxes and Social Security taxes.
b.	capital depreciation and Social Security taxes.
c.	indirect business taxes and personal taxes.
d.	indirect business taxes and depreciation.
e.	compensation of employees, rents, profits, net interest, indirect business taxes, and depreciation.

 

 

ANS:  E                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Analysis

 

104. The income approach to measuring GDP includes:

a.	compensation for employees, net interest, rent, net profits, and indirect business taxes and depreciation.
b.	compensation for employees, net interest, rent, corporate profit, and transfer payments.
c.	compensation for employees, net interest, rent, and indirect business taxes.
d.	compensation for employees, net interest, rent, corporate profits, and capital depreciation.
e.	compensation for employees, rent, corporate profits, proprietors’ income, and transfer payments.

 

 

ANS:  A                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Analysis

 

105. Using the income approach, indirect business taxes have to be added to get gross domestic product because the:

a.	selling price of a product includes these taxes, which are income to the government representing the public interest of households.
b.	selling price of a product includes these taxes, which are resource payments.
c.	selling price of a product excludes these taxes and therefore they have to be added.
d.	selling price includes these taxes which are actually not income to any sector of the economy.

 

 

ANS:  A                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Analysis

 

106. Using the income approach, the largest portion of GDP is:

a.	employee compensation.
b.	net interest.
c.	rent.
d.	profits.
e.	depreciation.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Knowledge

 

107. According to the income approach, the largest component of national income is:

a.	government spending.
b.	proprietor’s income.
c.	net interest.
d.	personal consumption expenditures.
e.	compensation of employees.

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Comprehension

 

108. Which approach to calculating GDP is computed using compensation of employees, rental income, profits, net interest, indirect business taxes, and depreciation?

a.	The expenditure approach.	c.	The product-market approach.
b.	The income approach.	d.	The circular-flow approach.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Comprehension

 

Exhibit 5-4 Gross domestic product data

 

National income account	Billions of dollars
Depreciation	$   800
Net interest	1,500
Compensation of employees	4,000
Profits	1,000
Rental income	100
Indirect business taxes	600
Social Security payments	1,000

 

 

109. As shown in Exhibit 5-4, using the income approach, gross domestic product (GDP) is:

a.	$9,000 billion.	c.	$7,400 billion.
b.	$6,600 billion.	d.	$8,000 billion.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Comprehension

 

110. As shown in Exhibit 5-4, national income (NI) is:

a.	$6,000 billion.
b.	$6,600 billion.
c.	$7,200 billion.
d.	$8,000 billion.
e.	none of these is correct.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Comprehension

 

Exhibit 5-5 Gross domestic product data

 

National income account	Billions of dollars
Depreciation	$   500
Net interest	2,000
Compensation of employees	6,000
Profits	1,500
Rental income	200
Indirect business taxes	800
Social Security payments	1,000

 

 

111. As shown in Exhibit 5-5, using the income approach, gross domestic product (GDP) is:

a.	$8,000 billion.
b.	$8,800 billion.
c.	$9,400 billion.
d.	$11,000 billion.
e.	$12,000 billion.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Comprehension

 

112. As shown in Exhibit 5-5, national income (NI) is:

a.	$9,000 billion.
b.	$9,900 billion.
c.	$10,500 billion.
d.	$11,000 billion.
e.	None of these.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Comprehension

 

113. Which of the following is the most likely side effect of an increase in the relative size of the underground economy with the passage of time?

a.	The growth rate of real GDP will tend to understate the growth rate of total output.
b.	The growth rate of real GDP will tend to overstate the growth rate of total output.
c.	The GDP deflator will tend to overstate any increase in inflation.
d.	The GDP deflator will tend to understate any increase in inflation.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Comprehension

 

114. GDP overstates the productive capacity of a country when:

a.	economic bads like pollution are produced and then must be cleaned up.
b.	there is a sizable underground economy.
c.	nonmarket production represents a large portion of the economy.
d.	working conditions improve, allowing jobs to be completed safer and faster.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Comprehension

 

115. Which of the following is a shortcoming of GDP?

a.	GDP measures nonmarket transactions.
b.	GDP includes an estimate of illegal transactions.
c.	GDP includes an estimate of the value of household services.
d.	None of these are true.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Comprehension

 

116. Which of the following is a shortcoming of GDP?

a.	GDP measures used goods and services.
b.	GDP includes changes in inventories.
c.	GDP includes the value of net exports.
d.	GDP does not make an allowance for leisure time.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Comprehension

 

117. Which of the following is a shortcoming of GDP?

a.	GDP excludes changes in inventories.
b.	GDP includes an estimate of illegal transactions.
c.	GDP excludes nonmarket transactions.
d.	GDP excludes business investment spending.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Comprehension

 

118. GDP does not count:

a.	the estimated value of homemaker production.
b.	state and local government purchases.
c.	spending for new homes.
d.	changes in inventories.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Comprehension

 

119. In recent years, people have benefited from greater amounts of leisure time. This trend:

a.	has caused GDP to rise.	c.	made GDP fluctuate randomly.
b.	has caused GDP to fall.	d.	is not accounted for in GDP.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Comprehension

 

120. If the underground economy is sizable, then GDP will:

a.	understate the economy’s performance.
b.	overstate the economy’s performance.
c.	fluctuate unpredictably.
d.	accurately reflect this subterranean activity.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Comprehension

 

121. Because of transactions which take place in the underground economy, the:

a.	GDP calculation tends to overstate the actual value of goods sold in the economy.
b.	GDP calculation tends to accurately portray the value of goods sold in the economy.
c.	GDP calculation tends to understate the actual value of goods sold in the economy.
d.	value of the GDP calculation will be equal to the value of the national income calculation.
e.	value of the GDP calculation through the expenditure approach will be greater then the value calculated through the income approach.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Comprehension

 

122. Because GDP does not account for improvements in the quality of goods, the GDP calculation:

a.	tends to overstate the true value of output in the United States.
b.	tends to understate the true value of output in the United States.
c.	provides an accurate value of output in the United States.
d.	provides the best measure of output in the United States.
e.	measures the value correctly because price changes always capture the value of quality changes.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Comprehension

 

123. If a man marries his hired housekeeper, the value of GDP:

a.	rises.	c.	is unchanged.
b.	falls.	d.	rises, but the value of GDP falls.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Comprehension

 

124. GDP underestimates our economic well-being:

a.	for of all the following reasons.
b.	because it includes the value of work done by nannies.
c.	because it ignores leisure.
d.	because it includes the value of work done by householders.
e.	because it includes the value of work done by illegal immigrants.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Comprehension

 

125. National income is calculated as GDP:

a.	plus depreciation.	c.	minus imports.
b.	plus exports.	d.	minus depreciation.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Knowledge

 

126. National income is derived from gross domestic product by subtracting:

a.	transfer payments.
b.	profits.
c.	an allowance for depreciation of capital equipment.
d.	net exports.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Knowledge

 

127. National income:

a.	represents total wages and salaries in an economy.
b.	equals GDP minus indirect business taxes.
c.	equals GDP minus depreciation.
d.	equals C + I + G + (X – M).
e.	is the value of existing capital stock used up in making goods.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Comprehension

 

128. National income is equal to gross domestic product minus:

a.	indirect business taxes.
b.	depreciation.
c.	personal taxes.
d.	retained earnings.
e.	consumption spending.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Knowledge

 

129. When depreciation is subtracted from:

a.	personal income, we get national income.
b.	gross domestic product, we get national income.
c.	gross domestic product, we get personal income.
d.	disposable personal income, we get gross domestic product.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Comprehension

 

130. The sum of payments made to resource owners for the use of their resources is:

a.	gross domestic product.
b.	net domestic product.
c.	national income.
d.	personal income.
e.	disposable personal income.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Knowledge

 

131. National income is calculated by subtracting ____ from GDP.

a.	depreciation.
b.	investment and net exports.
c.	Social Security insurance contributions and transfer payments.
d.	corporate and personal income taxes.

 

 

ANS:  A                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

132. National income:

a.	is included in gross private domestic investment.
b.	includes the sum of all payments made to resource owners for the use of their resources.
c.	includes depreciation.
d.	is often measured as C + I + G + (X – M).

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Comprehension

 

133. In order to compute national income from GDP,

a.	national income is first calculated, and then depreciation of capital and indirect business taxes are subtracted from it to get GDP.
b.	GDP is first calculated, and then gross private domestic investment is subtracted from it to get national income.
c.	GDP is first calculated, and then capital depreciation and proprietors’ income are subtracted from it to get national income.
d.	GDP is first calculated, and then depreciation of capital is subtracted from it to get national income.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

134. The income that people earn in resource or factor markets is called:

a.	national income.
b.	personal income.
c.	disposable personal income.
d.	transfer payments.
e.	net national product.

 

 

ANS:  A                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Comprehension

 

135. Personal income equals disposable personal income plus:

a.	personal income taxes.	c.	dividend payments
b.	transfer payments.	d.	personal savings.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Knowledge

 

136. Personal income is:

a.	total income received by households before taxes.
b.	the amount households have available for consumption, savings, and payment of personal taxes.
c.	national income minus corporate profits and Social Security (FICA) plus transfer payments, and other income.
d.	all of these.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Comprehension

 

137. To get personal income from national income, one must:

a.	subtract out retained earnings, Social Security taxes, and transfer payments, and add in corporate business taxes.
b.	subtract corporate profits and Social Security taxes, and add in transfer payments and other income.
c.	subtract retained earnings, corporate business taxes, and transfer payments, and add in Social Security taxes.
d.	subtract out corporate business taxes, Social Security taxes and transfer payments, and add in retained earnings.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

138. Which of the following is included in personal income but not in national income?

a.	Compensation for workers.
b.	Proprietors’ income.
c.	Corporate profits.
d.	Social Security payments.
e.	Rent.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

139. The income that people receive is called:

a.	national income.	c.	disposable personal income.
b.	personal income.	d.	transfer payments.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Comprehension

 

140. Disposable personal income:

a.	includes personal income taxes.
b.	excludes personal income taxes.
c.	excludes transfer payments.
d.	is income spent for personal items such as homes and cars.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Comprehension

 

141. Personal income minus personal taxes is:

a.	disposable personal income.
b.	net national income.
c.	proprietors’ income.
d.	indirect business taxes.
e.	savings income.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Knowledge

 

142. Income received minus personal taxes is called:

a.	national income.
b.	personal income.
c.	disposable personal income.
d.	transfer payments.
e.	net national product.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Knowledge

 

143. Which national income account should be examined to discover trends in the after-tax income that people have to save and spend?

a.	Gross domestic product (GDP).	c.	National income (NI).
b.	Personal income (PI).	d.	Disposable personal income (DI).

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

144. Which of the following statements is true?

a.	National income is total income earned by households whereas personal income is total income received by households (including transfer payments).
b.	Disposable personal income equals personal income minus personal taxes.
c.	The expenditures approach and the income approach yield the same GDP figure.
d.	All of these.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

145. Nominal gross domestic product is based on:

a.	the existing prices at which final goods and services are actually sold.
b.	prices of final goods and services adjusted for inflation.
c.	prices at which intermediate goods are sold.
d.	none of these.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

146. Gross domestic product that is based on existing prices is called:

a.	nominal GDP.	c.	money GDP.
b.	current GDP.	d.	all of these.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

147. Real GDP means GDP:

a.	valued at prices in a base year.
b.	that does not change from year to year.
c.	corrected for changes in quality.
d.	valued at prices at which goods are actually sold.

 

 

ANS:  A                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

148. The equation for determining real GDP for year X is:

a.		c.
b.		d.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

149. Increased production, but not increased inflation, will result in higher:

a.	nominal GDP.	c.	real GDP.
b.	money GDP.	d.	current dollar GDP.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

150. In an economy with persistent inflation,

a.	real GDP will grow faster than nominal GDP.
b.	nominal GDP will grow faster than real GDP.
c.	nominal and real GDP will grow at the same rate.
d.	nominal and real GDP will both fall.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Analysis

 

151. Which of the following statements is true?

a.	The inclusion of intermediate goods and services into GDP calculations would underestimate our nation’s production level.
b.	The expenditures approach sums the compensation of employees, rents, profits, net interest, and nonincome expenses for depreciation and indirect business taxes.
c.	Real GDP has been adjusted for changes in the general level of prices due to inflation.
d.	Real GDP equals nominal GDP multiplied by the GDP deflator.

 

 

ANS:  C                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Analysis

 

152. Why is it important to use real GDP rather than nominal GDP figures when making comparisons of output across time periods?

a.	The real GDP figures are a better measure of changes in the general level of prices.
b.	The real figures will reflect changes in the quantity of output and not changes in the general level of prices.
c.	The real figures will reflect changes in the general level of prices as well as changes in the quantity of output.
d.	The real GDP figures adjust for changes in the level of employment.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

153. In contrast with nominal GDP, real GDP refers to nominal GDP:

a.	minus exports.	c.	corrected for price changes.
b.	minus personal income taxes.	d.	corrected for depreciation.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

154. When economists speak of changes in GDP measured in constant dollars, they mean that:

a.	money GDP is constant.
b.	the price level is constant.
c.	a price index has been used to adjust money GDP for the effects of inflation.
d.	the growth rate of money GDP has been adjusted for changes in population.

 

 

ANS:  C                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

155. The GDP chain price index is designed to adjust nominal GDP for changes in:

a.	the level of transfer payments.
b.	the quality of goods over time.
c.	the costs of economic bads such as pollution and crime.
d.	the general level of prices over time.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

Exhibit 5-6

Use the table below to answer the following question(s).

 

	Nominal GDP	GDP
Year	(billions)	deflator
2003	600	100.0
2008	1,000	133.3

 

 

156. Refer to Exhibit 5-6. Between 2003 and 2008, the general level of prices increased by approximately:

a.	16.7 percent.	c.	66.7 percent.
b.	33.3 percent.	d.	133.3 percent.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Analysis

 

157. Refer to Exhibit 5-6. Measured in terms of 2003 prices, real GDP in 2008 was:

a.	600.	c.	900.
b.	750.	d.	1,333.

 

 

ANS:  B                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Analysis

 

158. The most broadly based price index is the:

a.	real GDP price index.	c.	producer price index.
b.	consumer price index.	d.	GDP chain price index.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

159. In 1960, U.S. nominal GDP was $527 billion and the GDP chain price index is 23.3. Real GDP in 1996 dollars is:

a.	$1,228 billion.	c.	$3,000 billion.
b.	$2,262 billion.	d.	$3,262 billion.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Application

 

160. In 1990, U.S. nominal GDP was $5,744 billion and the GDP chain price index is 93.6. Real GDP in 1996 dollars is:

a.	$6,137 billion.	c.	$6,000 billion.
b.	$5,376 billion.	d.	$6,376 billion.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Application

 

161. Suppose in 2000, GDP was $7,242 billion and the GDP chain price index is 117.5. Real GDP in constant 1996 dollars is:

a.	$5,488 billion.	c.	$6,740 billion.
b.	$6,163 billion.	d.	$7,789 billion.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Application

 

162. In 1980, U.S. nominal GDP was $2,784 billion and the GDP chain price index is 60.4. Real GDP in 1996 dollars is:

a.	$1,682 billion.	c.	$3,889 billion.
b.	$4,609 billion.	d.	$4,000 billion.

 

 

ANS:  B                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Application

 

Exhibit 5-7 GDP data (billions of dollars)

 

Personal consumption expenditures	$5,207
Interest	425
Corporate profits	735
Government spending	1,406
Depreciation	830
Rental income	146
Gross private domestic investment	1,116
Compensation of employees	4,426
Exports	870
Imports	965
Indirect business taxes	553
Proprietors’ income	520
Personal taxes	886
Social Security taxes	432
Transfer payments	376

 

 

163. In Exhibit 5-7, and using the expenditures approach, gross domestic product (GDP) is:

a.	$6,807 billion.
b.	$7,082 billion.
c.	$7,634 billion.
d.	$7,637 billion.
e.	$7,730 billion.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

164. In Exhibit 5-7, national income (NI) is:

a.	$6,254 billion.
b.	$6,495 billion.
c.	$6,805 billion.
d.	$7,082 billion.
e.	$7,637.7 billion.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Comprehension

 

165. In Exhibit 5-7, personal income (PI) is:

a.	$6,254 billion.
b.	$6,495 billion.
c.	$6,013 billion.
d.	$7,082 billion.
e.	$7,637 billion.

 

 

ANS:  C                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

166. In Exhibit 5-7, disposable personal income (DI) is:

a.	$5,127 billion.
b.	$5,608 billion.
c.	$6,254 billion.
d.	$6,495 billion.
e.	$7,082 billion.

 

 

ANS:  A                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

Exhibit 5-8 GDP data (billions of dollars)

 

Personal consumption expenditures	$850
Interest	90
Corporate profits	150
Government spending	400
Depreciation	100
Rental income	70
Gross private domestic investment	120
Compensation of employees	830
Exports	120
Imports	70
Indirect business taxes	80
Proprietors’ income	120
Personal income taxes	110
Social Security taxes	50
Transfer payments	160

 

 

167. In Exhibit 5-8, and using the expenditures approach, gross domestic product (GDP) equals:

a.	$1,540 billion.
b.	$2,460 billion.
c.	$2,430 billion.
d.	$1,450 billion.
e.	$1,420 billion.

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

168. In Exhibit 5-8, personal income (PI) equals:

a.	$1,280 billion.
b.	$2,290 billion.
c.	$1,310 billion.
d.	$2,320 billion.
e.	$1,400 billion.

 

 

ANS:  A                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

169. In Exhibit 5-8, disposable personal income (PI) is:

a.	$2,180 billion.
b.	$1,200 billion.
c.	$2,210 billion.
d.	$1,180 billion.
e.	$1,290 billion.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

170. In Exhibit 5-8, national income (NI) equals:

a.	$2,330 billion.
b.	$1,350 billion.
c.	$1,320 billion.
d.	$2,360 billion.
e.	$1,440 billion.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Comprehension

 

Exhibit 5-9 GDP data (billions of dollars)

 

Depreciation	$    438
Compensation of employees	2,000
Rental income	100
Net interest	300
Corporate profits	700
Social Security taxes	519
Transfer payments	650
Personal consumption expenditures	2,582
Gross Private Domestic Investment	669
Government spending	815
Net exports	-78
Personal taxes	590
Indirect business taxes	450

 

 

171. In Exhibit 5-9, and using the expenditures approach, gross domestic product (GDP) equals:

a.	$4,066 billion.
b.	$4,144 billion.
c.	$3,988 billion.
d.	$4,884 billion.
e.	$5,782 billion.

 

 

ANS:  C                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

172. In Exhibit 5-9, national income (NI) equals:

a.	$3,628 billion.
b.	$3,706 billion.
c.	$4,446 billion.
d.	$3,550 billion.
e.	$5,344 billion.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Comprehension

 

173. In Exhibit 5-9, personal income (PI) equals:

a.	$3,472 billion.
b.	$3,691 billion.
c.	$4,291 billion.
d.	$3,384 billion.
e.	$3,175 billion.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

174. In Exhibit 5-9, personal disposable personal income (DI) equals:

a.	$2,882 billion.
b.	$3,101 billion.
c.	$2,794 billion.
d.	$3,701 billion.
e.	$4,588 billion.

 

 

ANS:  C                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

175. In Exhibit 5-10, and using the expenditures approach, compute personal consumption expenditures. Which of the following is correct?

a.	$6,750 billion.
b.	$6,600 billion.
c.	$6,550 billion.
d.	$6,100 billion.
e.	$5,000 billion.

 

 

ANS:  B                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Analysis

 

176. In Exhibit 5-10, using the expenditure approach, compute business investment spending (I). Which of the following is correct?

a.	$950 billion.	c.	$600 billion.
b.	$50 billion.	d.	$1,000 billion.

 

 

ANS:  D                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

177. In Exhibit 5-10, and using the expenditures approach, compute net exports (NX). Which of the following is correct?

a.	-$100 billion.
b.	$150 billion.
c.	$250 billion.
d.	-$50 billion.
e.	-$60 billion.

 

 

ANS:  D                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Comprehension

 

178. In Exhibit 5-10, compute national income (NI). Which of the following is correct?

a.	$7,400 billion.
b.	$7,250 billion.
c.	$8,150 billion.
d.	$8,200 billion.
e.	$8,350 billion.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Comprehension

 

179. In Exhibit 5-10, compute personal income (PI). Which of the following is correct?

a.	$7,110 billion.
b.	$7,410 billion.
c.	$6,740 billion.
d.	$7,760 billion.
e.	$6,780 billion.

 

 

ANS:  C                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

180. In Exhibit 5-10, compute disposable personal income (DI). Which of the following is correct?

a.	$5,178 billion.
b.	$6,450 billion.
c.	$5,740 billion.
d.	$7,740 billion.
e.	$8,350 billion.

 

 

ANS:  C                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

Exhibit 5-10 GDP data (billions of dollars)

 

Indirect business taxes	$   600
Depreciation	950
Change in business inventories	50
Compensation of employees	5,400
Corporate profits	700
Durable goods	600
Exports	100
Social Security taxes	360
Transfer payments	300
Fixed investment	950
Government spending	800
Imports	150
Net interest	500
Nondurable goods	2,000
Personal taxes	1,000
Rental income	200
Services	4,000

 

 

181. In Exhibit 5-10, and using the expenditures approach, compute gross domestic product (GDP). Which of the following is correct?

a.	$8,500 billion.
b.	$8,400 billion.
c.	$7,400 billion.
d.	$8,650 billion.
e.	$8,350 billion.

 

 

ANS:  E                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Analysis

 

Exhibit 5-11 GDP data (billions of dollars)

 

Personal consumption expenditures	$4,750
Exports	810
Government spending	1,400
Social Security taxes	600
Depreciation	450
Indirect business taxes	550
Imports	850
Gross private domestic investment	900
Corporate income taxes	200
Personal taxes	800
Corporate profits	50
Transfer payments	700

 

 

182. In Exhibit 5-11, and using the expenditures approach, gross domestic product (GDP) equals:

a.	$7,010 billion.
b.	$10,360 billion.
c.	$9,660 billion.
d.	$7,860 billion.
e.	$12,060 billion.

 

 

ANS:  A                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

183. In Exhibit 5-11, national income (NI) equals:

a.	$9,910 billion.
b.	$6,210 billion.
c.	$9,210 billion.
d.	$7,410 billion.
e.	$6,560 billion.

 

 

ANS:  E                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Comprehension

 

184. In Exhibit 5-11, personal income (PI) is:

a.	$9,210 billion.
b.	$8,510 billion.
c.	$6,560 billion.
d.	$6,610 billion.
e.	$10,910 billion.

 

 

ANS:  D                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

185. In Exhibit 5-11, disposable personal income (DI) equals:

a.	$5,810 billion.
b.	$7,710 billion.
c.	$5,910 billion.
d.	$5,310 billion.
e.	$5,060 billion.

 

 

ANS:  A                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Analysis

 

TRUE/FALSE

 

1. Intermediate goods are included and final goods are not included in calculating gross domestic product.

 

ANS:  F                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Knowledge

 

2. Fixed investment refers to investment in stocks, bonds, and improvements to land.

 

ANS:  F                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

3. Capital goods, like factories and machinery, are classified as intermediate goods.

 

ANS:  F                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

4. The government (G) category of gross domestic product (GDP) excludes welfare and other transfer payments.

 

ANS:  T                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

5. Gross domestic product is the total dollar value at current prices of all final and intermediate goods produced by a nation during a given time period.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Gross Domestic Product                  KEY:  Bloom’s: Comprehension

 

6. The circular flow model illustrates that aggregate spending in the product markets equals 70 percent of aggregate income earned in the factor markets.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Measuring GDP                              KEY:  Bloom’s: Comprehension

 

7. Personal consumption expenditures are the largest component of GDP.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Knowledge

 

8. Net exports equal imports minus exports.

 

ANS:  F                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Knowledge

 

9. Personal consumption expenditures is the smallest component of total spending.

 

ANS:  F                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Knowledge

 

10. The expenditure approach measures GDP by adding the spending of households, businesses, government, and foreigners.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Knowledge

 

11. Compensation of employees is the largest component of GDP using the income approach.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   The Income Approach                     KEY:  Bloom’s: Knowledge

 

12. Gross domestic product (GDP) is a satisfactory measure of both economic “goods” and “bads”.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Comprehension

 

13. The value of child-rearing and other household production are not included in GDP.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Knowledge

 

14. GDP provides substantial information about an economy’s income distribution.

 

ANS:  F                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Comprehension

 

15. National income (NI) is the total income earned by resource owners, including wages, rents, interest, and profits.

 

ANS:  T                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Knowledge

 

16. Social Security payments are included in personal income.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Knowledge

 

17. Personal income minus personal taxes equals disposable personal income.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Knowledge

 

18. Nominal gross domestic product is based on the existing prices at which final goods are actually sold.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Knowledge

 

19. In any year, nominal GDP divided by the GDP chain price index times 100 equals real GDP.

 

ANS:  T                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

20. Real GDP, as opposed to money (nominal) GDP, has been adjusted for changes in the general level of prices.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Knowledge

 

21. Nominal values are values measured in terms of the prices at which goods and services are actually sold.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Knowledge

 

22. All changes in nominal GDP are due to price changes.

 

ANS:  F                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

23. If the GDP chain price index in a given year is less than 100, real GDP in that year would be greater than nominal GDP.

 

ANS:  T                    PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

24. A GDP price chain price index number of 120.0 for a given year indicates that prices in that year are 20 percent higher than prices in the base year.

 

ANS:  T                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

25. Nominal GDP is greater than GDP because of the effects of inflation as measured by the GDP chain price index.

 

ANS:  T                    PTS:   1                    DIF:    Easy               NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

26. In any year, nominal GDP divided by the GDP chain price index equals real GDP.

 

ANS:  T                    PTS:   1                    DIF:    Moderate        NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Comprehension

 

ESSAY

 

1. Discuss the components of GDP using the expenditure approach.

 

ANS:

GDP equals consumption spending plus investment spending plus government spending plus net exports; GDP = C + I + G + (X – M).

 

PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   The Expenditure Approach              KEY:  Bloom’s: Application

 

2. Explain why GDP was never intended to be a measure of social well being.

 

ANS:

GDP is simply a measure of total production. It does not include many things which affect the quality of life. For example, it does not include an adjustment for changes in quality of products, underground economic activity, changes in leisure time, nonmarket transactions, or take into account desirable or undesirable social side-effects associated with production and consumption.

 

PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   GDP Shortcomings                          KEY:  Bloom’s: Application

 

3. Discuss how economists calculate NI, PI and DI.

 

ANS:

GDP – depreciation = NI – profits – FICA + transfer payments + net interest + dividends = PI – personal income taxes = DI.

 

PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Other National Income Accounts      KEY:  Bloom’s: Application

 

4. Why is it important to distinguish nominal GDP from real GDP?

 

ANS:

A distinction between nominal GDP and real GDP is important to know whether the economy has really grown or not. Only increases in real GDP indicate a true expansion in our nation’s production that may translate into an increase in our average absolute standard of living.

 

PTS:   1                    DIF:    Challenging    NAT:  BUSPROG: Analytic

TOP:   Changing Nominal GDP to Real GDP                               KEY:  Bloom’s: Application