Chapter 10

What is the importance of not including intermediate goods when calculating GDP? • Maintaining a constant consumer price index definition • Avoiding double counting • Restricting GDP to goods that can be priced • Avoiding single product counting • Restricting GDP to important goods

Avoiding double counting

Which of the following is subtracted from GNP when calculating net national product? • Capital consumption allowance • Interest • Rent • Indirect business taxes • Consumption

Capital consumption allowance

Which of the following is not a form of foreign exchange? • Foreign bank notes • None - all of these are a form of foreign exchange • Checking accounts denominated in foreign currency • Domestic currency • Bank deposits denominated in foreign currency

Domestic currency

T/F: A net surplus in a country's current account indicates that the country is a net borrower from the rest of the world.

False

T/F: Markets in which domestic money is traded for foreign money are called commodity markets.

False

T/F: National income (NI) is net national product (NNP) plus indirect business taxes.

False

T/F: The circular flow model shows that one sector's inventory represents other sectors' price base.

False

T/F: The most common measure of a country's output and output growth is the consumer price index.

False

T/F: When imports exceed exports, the balance of trade shows a surplus.

False

The U.S. experienced large current account deficits in the 1980s and much larger deficits more recently (since the mid-1990s). These deficits indicate that the U.S. did not • None of these - the U.S. did all of these. • sell financial assets. • consume more than it produced. • borrow large amounts of money from foreign residents.

None of these - the U.S. did all of these.

Which of the following will count in this year's GDP? • The real estate broker's fee on the sale of the house this year • The value of a house built last year • The value of a new Toshiba built-in home theatre system installed to help sell the house • All of these would not be counted in this year's GDP. • All of these would be counted in this year's GDP.

The real estate broker's fee on the sale of the house this year

T/F: A base year is a year against which other years are measured.

True

The difference between gross investment and net investment is defined as • net exports. • net national product. • indirect business taxes. • capital consumption allowance. • national income.

capital consumption allowance.

Changes in inventory • are always unplanned. • count as output that is produced and sold in a given year. • count in GDP. • depend on government regulations. • are always planned.

count in GDP.

Depreciation of the dollar means all except • price of U.S. exports will fall in terms of foreign currencies. • dollar is now cheaper in terms of other currencies. • dollar value is higher in terms of other currencies. • general price level in the United States has increased. • demand for U.S. products will rise.

dollar value is higher in terms of other currencies.

The total value added in Table 10.1 is the same as the • retail value of the loaf of bread minus the wholesale value of the bread. • wholesale value of the loaf of bread plus the final market value of the bread. • sum of all sales transactions. final retail price of the loaf of bread. • value of the wheat before the miller turned it into flour.

final retail price of the loaf of bread.

The U.S. is the ____ nation in the world. • largest debtor • smallest creditor • largest creditor • largest • smallest debtor

largest debtor

A country that is a net creditor • sells more bonds to the rest of the world than it buys from the rest of the world. • shows a surplus in its financial account. • lends more funds to foreigners than it borrows. • shows a deficit in its current account. • receives more tax revenue from its citizens than it returns in transfer payments.

lends more funds to foreigners than it borrows

Net national product is defined as • national income plus statistical discrepancy. • national income plus capital consumption allowance. • GNP minus indirect business taxes. • GNP minus proprietors' income and corporate profits. • disposable income plus personal tax payments.

national income plus statistical discrepancy.

Real GDP measures • personal income adjusted for taxes paid to the government. • nominal output adjusted for changes in national income because of economic booms. • national output adjusted for unemployment. • national output adjusted for price-level changes. • national output adjusted for changes in the quality of products.

national output adjusted for price-level changes.

A foreign exchange rate constitutes the • dollar value of U.S. international trade. • dollar value of imports and exports undertaken in the world economy during one year. • price of foreign currency as it is determined by the World Bank. • price of one country's currency in terms of another country's currency. • price of foreign currency as it is established by the relative amount of tourism.

price of one country's currency in terms of another country's currency.

National income accounting can best be characterized as a • set of rules to summarize economic activity over a given period of time. • statistical measure of the income received by consumers as opposed to businesses. • microeconomic model used by the Federal Reserve. • standardized economic report written by politicians. • system for comparing different political systems.

set of rules to summarize economic activity over a given period of time.

If the exchange rate moves from $.08 = 1 peso to $.12 = 1 peso, then • the peso has depreciated. • 1 dollar will buy more Mexican pesos than before. • the U.S. dollar has appreciated. • the prices of U.S. imports from Mexico are more expensive. • Mexicans will demand fewer U.S. products, other things being equal.

the prices of U.S. imports from Mexico are more expensive.

The financial account is • a record of the dollar amount of exported and imported services. • the value of services provided by capital in foreign countries. • the amount of dollars held abroad. • the amount of foreign currency held domestically. • the record in the balance of payments of the flow of financial assets into and out of a country.

the record in the balance of payments of the flow of financial assets into and out of a country.

Changes in inventory are applied by economists to measure • the total value of sold products. • the total value of goods produced and sold in a year. • changes in planned investment. • the total value of goods produced but not sold in a year. • changes in business capital.

the total value of goods produced but not sold in a year.