Chapter 5 GDP (Gross Domestic Production) Quiz

Which of the following would be included in U.S. GNP but not in U.S. GDP?

Chipsets produced by U.S - owned firms operating in China. Explanation: To count in U.S. GDP, something must be produced within the borders of the United States.

When an individual makes repairs to her own home instead of hiring a company to make the repairs, the activity is

Productive but excluded from GDP B/c it is a nonmarket activity. Explanation: If an individual uses his or her own time to make improvements rather than hiring a company, then the activity will not be counted in GDP.

A furniture factory produces dining room sets. The lumber it purchases from the lumberyard is a/an

Intermediate good. Explanation: Any good used in the production of a final good is considered to be an intermediate good.

GDP per capita

Is equal to a nation's GDP divided by its population. Explanation: GDP per capita is also known as average GDP. GDP per capita = Dollar value of GDP/Total population

The GDP per capita is the most practical way to

Make international comparisons of the standards of living. Explanation: We can compare the GDP per capita of country A with the GDP per capita of country B to determine which country's citizens are relatively more prosperous. Bear in mind, GDP per capital cannot tell us about the way GDP is actually distributed or used- only a statistical average.

The value of final output produced in a given period, measured in current prices, is

Nominal GDP Explanation: Nominal GDP tracks the value of production in a given year.

If real GDP in 2005 is $8,000 billion and the price level is 125, what is nominal GDP in 2005?

10,000 billion Explanation: Nominal GDP is equal to real GDP multiplied by the price index and divided by 100: (8,000 *125)/100

A nation's GDP is

C + I + G + (X-M) Explanation: GDP is a measure of total market value of all final goods and services produced within a nation's borders. It can be represented by the equation: C+I+G+(X-M). Where C is consumption, I is investment, G is government spending, and N and X represent exports minus imports.

Which of the following statements is correct concerning GDP and GNP?

GDP measures output within the nation's borders only. Explanation: GDP includes production within the political borders regardless of whose factors of production are used to produce it, while GNP measures production by U.S.-owned factors of production regardless of where they may be located.

Which of the following is treated differently in computations of GNP as compared with GDP?

Goods produces by U.S firms located In foreign countries. Explanation: GDP includes production within the political borders, while GNP measures production by U.S.-owned factors of production regardless of where they may be located.

Real GDP is more accurate than nominal GDP in making comparisons of output over time because

Nominal GDP may change simply because of price changes over time. Explanation: It's important to distinguish between increases in the quantity of goods and services from increases in their prices. Real GDP tracks only changes to production while nominal GDP tracks changes to production and prices; so nominal GDP is less useful.

To avoid counting the same output more than once, the calculation of GDP includes

Only the value of final goods. Explanation: We do not count intermediate goods because they will be counted as part of the total market value when the final good is sold.

Which of the following is not a final good or service?

Paper purchased y a textbook company. Explanation: The paper purchased by the textbook company is an intermediate good used in producing the textbook.

Suppose you volunteer to help clean up your neighborhood, and the only payment you receive is the sense of goodwill that develops with your neighbors. Your efforts cause the GDP of the economy to

Remain unchanged Explanation: GDP will not increase if production is not a reported market activity.

Which of the following is directly included in the calculation of GDP?

The final sale of a brand new Cadillac. Explanation: Final goods count in GDP but used, intermediate, and financial goods do not.

All of the following count as unreported income except

The money you pay. private tutor who works for Tutors Inc. Explanation: The calculation of GDP fails to capture market activities that aren't reported to tax or census authorities-- also known as unreported income. Some activities are not reported as income for obvious reasons: they are illegal, or someone is trying to avoid taxes.

Which of the following is excluded from calculations of GDP?

The value of lawn mowing provided by a teenager for his own family. Explanation: Nonmarket production is excluded from GDP.

Which of the following would not be included in the calculation of GDP?

Tips earned by a bartender who does not report them to the IRS. Explanation: Any income that is not reported from legal or illegal sources (known as unreported income) does not officially count in GDP.

Real GDP is the

Value of final output produced in a given period, adjusted for changing prices. Explanation: Real GDP allows us to express production while controlling for changes to the price level. Real GDP allows us to express production while controlling for changes to the price level so we can make comparisons of production between time periods.