Chapter 6 Econ Assignment Answers
(Exhibit: Stages of Production of Toy Model Airplanes) The total sales value of all transactions involved in the production of a model airplane is _____. A) $5 B) $21 C) $56 D) $77
$77
Which of the following is an example of an indirect business tax? A) Consumption tax B) Corporate profit tax C) Personal income tax D) Excise tax
Excise tax
It is difficult to measure the contribution of the service sector to GDP because A) its contribution to GDP is very little. B) of large fluctuations in prices in the service sector. C) there are close ties between the service sector and illegal activities. D) it is difficult to determine what counts as a unit of output.
it is difficult to determine what counts as a unit of output
The largest component of factor income in the U.S. is: A) rental income. B) profits. C) employee compensation. D) consumption.
employee compensation
A measure of the degree to which capital wears out or becomes obsolete during a period is: A) rent. B) production costs. C) deferred expenditure. D) depreciation.
depreciation
(Exhibit: Output and Income Data for the Economy of Argonia) What is the value of Argonia's gross national product? A) $900 billion B) $1,000 billion C) $1,100 billion D) $1,200 billion
$1,100 billion
Suppose the personal income in a nation equals $5 billion, and personal income taxes equal $1 billion. The disposable personal income equals: A) $4 billion. B) $5 billion. C) $6 billion. D) $1 billion.
$4 billion
(Exhibit: Stages of Production of Toy Model Airplanes) The value added by the extraction of the crude oil is _____. A) $2 B) $3 C) $4 D) $5
$5
(Exhibit: Components of GDP for an Economy 2) What is the value of GDP? A) $1,010 billion B) $1,060 billion C) $950 billion D) $210 billion
$950 billion
Which of the following items is a stock variable? A) Expenditure on consumer goods B) Private investment C) Labor wage D) Government debt
Government debt
Pfeister Inc., a firm located in New York, is a German manufacturer of heavy-duty glass doors. It uses glass-cutting machinery imported from Germany in production. The firm's output of glass doors will be counted in: A) U.S. GDP. B) U.S. domestic private investment. C) Germany's GDP. D) Germany's net exports.
U.S. GDP
As households eat out more, purchase more prepared foods at the grocery store, hire out child care services that they once performed themselves, what is likely to happen to the value of GDP? A) The value of GDP is likely to decrease. B) The value of GDP is likely to increase. C) GDP will not be affected because there is no net increase in the output of goods and services. D) GDP will not be affected because there is no net increase in the output of goods and services but GDI will increase.
The value of GDP is likely to increase
Which of the following is a shortcoming of GDP accounts? A) They tend to overstate the trade balance as only exports are considered. B) They do not take into account the unemployment level. C) They include only production by the private sector and not government production. D) They ignore the impact of pollution on the environment.
They ignore the impact of pollution on the environment
Net national product equals: A) gross national product plus depreciation. B) gross national product minus depreciation. C) gross domestic product minus gross national product. D) gross national product minus taxes.
gross national product minus depreciation
An increase in real GDP A) reduces the amount of pollution. B) corresponds to an increase in leisure. C) may or may not correspond to an increase in human happiness. D) means that all people in the country are better off.
may or may not correspond to an increase in human happiness
Disposable personal income is calculated as personal income: A) adjusted for inflation. B) minus depreciation. C) minus taxes. D) plus transfer payments.
minus taxes
"Avatar," a movie released in 1998, was, as of 1999, the top-grossing movie of all time. However, in real terms, it ranked eighth in box office receipts, below an older hit movie, "Gone With the Wind." From this information, we can conclude that A) more people went to see "Gone with the Wind" than "Avatar". B) fewer people went to see "Gone with the Wind" than "Avatar". C) over times, individuals movie watching habits have changed . D) production cost of "Gone with the Wind" was much lesser than that of "Avatar"..
more people went to see "Gone with the Wind" than "Avatar"
Personal income equals: A) net national product plus income earned but not received plus income received but not earned. B) wages and salaries plus net interest income plus transfer payments. C) national income minus income earned but not received plus income received but not earned. D) factor incomes received for supplying factors of production plus income received but not earned.
national income minus income earned but not received plus income received but not earned
The income earned by those who supply entrepreneurial talent is/are called: A) wages and salaries. B) profits. C) stock options. D) net interest.
profits
Which of the following is the best measure of a nation's standard of living? A) nominal GDP B) market GDP C) real GDP per capita D) nominal GDP per capita
real GDP per capita
Which of the following is the best measure for comparing the standard of living across countries? A) productivity B) gross national product C) real gross national product D) real gross national product per person
real gross national product per person
The smallest component of income generated in the production of U.S. GDP is: A) depreciation. B) net interest. C) rental income. D) employee compensation.
rental income
In reality, the GDP-GDI gap for the United States A) is due to the presence of substantial black market activity. B) is due to different accounting standards among countries in the world. C) represents a small fraction of measured activity. D) represents the impact of transfer payments.
represents a small fraction of measured activity
Which of the following would not be included in the measurement of GDP? A) federal government payments for Jeeps B) a purchase of California wine by a Canadian firm C) employers' payments for employees' medical insurance D) transactions in the underground economy
transactions in the underground economy
(Exhibit: Components of GDP for an Economy 1) What is the value of exports? A) -$120 billion B) $120 billion C) -$480 billion D) $480 billion
$480 billion
(Exhibit: Stages in the Production of an Office Building) A mining firm extracts iron from the earth. A steel mill converts the iron to steel beams for use in construction. A construction company uses the steel beams to make a building. Assume that the total product of these firms represents the only components of the building and that they will have no other uses. What is the valued-added by Crane Construction? A) $725,000 B) $825,000 C) $950,000 D) $1,050,000
$725,000
(Exhibit: Components of GDP for an Economy 2) What is the value of government purchases of goods and services? A) $100 billion B) $160 billion C) $300 billion D) $192 billion
$100 billion
(Exhibit: Output and Income Data for the Economy of Argonia) What is the value of the net income Argonia has received from other countries? A) -$100 billion B) $1,100 billion C) $100 billion D) $200 billion
$100 billion
(Exhibit: Stages in the Production of an Office Building) A mining firm extracts iron from the earth. A steel mill converts the iron to steel beams for use in construction. A construction company uses the steel beams to make a building. Assume that the total product of these firms represents the only components of the building and that they will have no other uses. Suppose the value added tax is 10%. What is the amount paid by Fuller Mill to Acme Mining? A) $100,000 B) $110,000 C) $215,000 D) $225,000
$110,000
(Exhibit: Stages in the Production of an Office Building) A mining firm extracts iron from the earth. A steel mill converts the iron to steel beams for use in construction. A construction company uses the steel beams to make a building. Assume that the total product of these firms represents the only components of the building and that they will have no other uses. What is the value added by Fuller Mill? A) $325,000 B) $225,000 C) $125,000 D) $100,000
$125,000
(Exhibit: Components of GDP for an Economy 2) What is the value of exports? A) $130 billion B) -$130 billion C) $230 billion D) -$230 billion
$130 billion
(Exhibit: Components of GDP for an Economy 1) What is the value of GDP? A) $1,820 billion B) $2,170 billion C) $2,080 billion D) $2,550 billion
$2,080 billion
(Exhibit: Stages of Production of Toy Model Airplanes) The final value of a model airplane is _____. A) $5 B) $21 C) $56 D) $77
$21
(Exhibit: Stages of Production of Toy Model Airplanes) The total value added in the production of a model airplane is _____. A) $16 B) $17 C) $21 D) $77
$21
(Exhibit: Circular Flow Model) The exhibit shows a simplified circular flow model where only consumption goods are being produced. Which two flows represent your purchase of groceries from Safeway? A) A and B B) B and C C) A and D D) C and D
A and B
Which of the following is a reason for the discrepancy between GDP and GDI? A) GDP is measured from a sample of household figures while GDI is measured from tax returns filed by firms and households. B) The sample size used to estimate these figures is very large leading to more statistical errors. C) GDP is estimated using estimated sales provided by business while GDI is based on actual expenditures incurred by households. D) GDP is measured from sales and inventory figures collected from a sample of business while GDI is collected from a sample of household figures.
GDP is measured from sales and inventory figures collected from a sample of business while GDI is collected from a sample of household figures
Gross private domestic investment includes purchases of: A) government T-bills. B) existing residential housing. C) company stocks. D) new factory equipment.
new factory equipment
Transfer payments are: A) payments made to certain individuals and are part of GDP. B) not included in GDP because they do not represent income derived from current production. C) included in GDP only if they pertain to unemployment benefits. D) payments for services produced in the current time period.
not included in GDP because they do not represent income derived from current production
Goods and services produced abroad and sold in the domestic economy are called _____. A) net exports B) exports C) imports D) transfer payments
imports
Taxes imposed on firms on the production or sale of goods and services are called: A) output tax. B) profit tax. C) direct business taxes. D) indirect business taxes.
indirect business taxes
For a given level of GDP, an increase in depreciation will A) increase gross domestic product. B) For a given level of GDP, an increase in depreciation will C) not affect disposable personal income. D) increase savings and reduce consumption expenditures.
For a given level of GDP, an increase in depreciation will
Let C = consumption, I = private investment, G = government purchases, and Xn = net exports. Which of the following best represents the equation for GDP? A) GDP = C+ I + G − Xn B) GDP = C + I + G + Xn C) GDP = C + I + G + net imports D) GDP = C + I + G + tax revenues + Xn
GDP = C + I + G + Xn
In the generation of GDP, pollution often occurs. So, we can infer that A) the value of nominal GDP will always be greater than the value of real GDP. B) the value of real GDP will always be greater than the value of nominal GDP. C) GDP is not always a good measure of economic or social welfare. D) the value of GDP is underestimated.
GDP is not always a good measure of economic or social welfare
Which of the following is an example of income earned but not received? A) Social security payroll taxes B) Farm subsidies C) Net factor earnings from abroad D) Disposable income
Social security payroll taxes
If your ticket wins the lottery, the earnings you receive: A) raises GDI but does not affect GDP. B) increases both GDI and GDP. C) raises both GDI and GNP. D) does not affect GDI or GNP.
does not affect GDI or GNP
Executive salaries and bonuses are included in gross domestic income under: A) employee compensation. B) rental income. C) net interest. D) profits.
employee compensation
GDP can be calculated by totaling either the: A) market values of all final goods and services or the total volume of all intermediate goods at all stages of production. B) market values of all final goods and services or the value added at all stages of production. C) total sales values of all intermediate goods at all stages of production or the value added at all stages of production. D) market values of all final goods and services or the values added by labor at all stages of production.
market values of all final goods and services or the value added at all stages of production
A country's exports minus its imports measures: A) net exports. B) gross exports. C) net imports. D) gross imports.
net exports
(Exhibit: The Circular Flow for the United States) A New York restaurant purchases 1,000 cases of wine from a winery in France. This transaction is recorded as part of: A) gross private investment and the flow is represented by 2. B) net exports and the flow is represented by 4. C) consumption expenditure and the flow is represented by 1. D) consumption expenditure and the flow is represented by 4.
net exports and the flow is represented by 4
A nation records a trade surplus when: A) foreign remittances paid are more than foreign remittances received. B) net exports are positive. C) imports are greater than exports. D) net exports equal zero.
net exports are positive
Transfer payments are: A) payments made to firms for investment. B) payments that do not require a good or service in exchange. C) considered a part of government purchases. D) an important component of GDP because they increase consumption spending.
payments that do not require a good or service in exchange
The largest expenditure category in U.S. GDP in 2011 was: A) government purchases. B) personal consumption. C) net exports. D) gross private domestic investment.
personal consumption
The value of goods and services purchased by households during a particular period is called: A) personal consumption. B) private investment. C) gross domestic purchases. D) net imports.
personal consumption
The exhibit shows a simplified circular flow model where only consumption goods are being produced. The arrow marked "A" represents the flow of: A) personal consumption expenditures. B) consumer goods and services. C) factors of production. D) factor incomes.
personal consumption expenditures
GDP does NOT include _____. A) government purchases B) investment by firms C) consumption spending D) transfer payments
transfer payments
(Exhibit: Stages of Production of Toy Model Airplanes) The value added by the sale of a model airplane to the customer is _____. A) $2 B) $3 C) $4 D) $5
$4
(Exhibit: Stages in the Production of an Office Building) A mining firm extracts iron from the earth. A steel mill converts the iron to steel beams for use in construction. A construction company uses the steel beams to make a building. Assume that the total product of these firms represents the only components of the building and that they will have no other uses. Suppose the value-added tax is 10%. What is the amount paid by Crane Construction to Fuller Mill? A) $825,000 B) $725,000 C) $247,500 D) $225,000
$247,500
(Exhibit: Components of GDP for an Economy 1) What is the total value of government purchases of goods and services? A) $570 billion B) $280 billion C) $370 billion D) $190 billion
$280 billion
(Exhibit: Stages in the Production of an Office Building) A mining firm extracts iron from the earth. A steel mill converts the iron to steel beams for use in construction. A construction company uses the steel beams to make a building. Assume that the total product of these firms represents the only components of the building and that they will have no other uses. Suppose the value-added tax is 10%. What is the total VAT collected from all stages of production including final sale? A) $1,050,000 B) $127,500 C) $95,000 D) $72,500
$95,000
Which of the following items is included in gross private domestic investment? A) An increase in the level of government spending on new schools B) The purchase of medical equipment by the Marines for use in its field hospitals C) An increase in business inventories D) An increase in the value of corporate stocks sold during the year
An increase in business inventories
What is a value-added tax (VAT)? A) It is essentially a tax on profits earned by firms from the sale of goods and services. B) It is a tax placed on a product whenever value is added at a stage of production and at final sale. C) It is a tax imposed on those who supply factors of production, such as the payroll tax. D) It is a tax imposed on luxury goods to generate additional revenue for the government.
It is a tax placed on a product whenever value is added at a stage of production and at final sale
Which of the following is NOT true of the circular model of the economy? A) Personal consumption spending flows from households to firms. B) The production of goods and services generates income for households. C) Consumers finance their personal consumption spending by supplying factors of production to firms. D) Payments to factors of production flows from households to firms.
Payments to factors of production flows from households to firms
Which of the following is an expenditure component of GDP? A) Income from interest B) Indirect business taxes C) Capital consumption allowance D) Personal consumption
Personal consumption
Which of the following is included in gross private domestic investment in the computation of GDP? A) The sale of some Safeway stocks to another company B) Safeway's purchase of three new delivery trucks C) Your purchase of groceries at Safeway D) An annual bonus given to Safeway employees
Safeway's purchase of three new delivery trucks
Suppose the clothing manufacturer, Eddie Bauer, produced 10,000 pairs of jeans in 2005 but sold only 9,200 pairs. How will this be recorded in GDP accounts? A) The 9,200 pairs that were sold will be counted under the consumption component of GDP in 2005 and the 800 pairs that were not sold will not be included in GDP. B) The 10,000 pairs of jeans produced would be counted as investment and will be included in GDP in 2005. C) The 9,200 pairs sold will be counted as consumption and the 800 pairs that were not sold will counted as investment and both items will be included in GDP in 2005. D) The 9,200 pairs sold will be counted under the consumption component of GDP in 2005 and the 800 pairs that were not sold will be included in GDP in 2006.
The 9,200 pairs sold will be counted as consumption and the 800 pairs that were not sold will counted as investment and both items will be included in GDP in 2005.
Which of the following is an example of a flow variable? A) The balance in your checking account B) The value of your stock portfolio C) The amount of cash you have in your safe D) The interest amount you pay on your auto loan
The interest amount you pay on your auto loan
Which of the following is an example of an intermediate good or service? A) The purchase of a new yacht by a boating enthusiast B) The purchase of lumber by a construction company C) The salaries paid to military personnel D) The salary earned by a construction worker
The purchase of lumber by a construction company
Thames Patio Solutions is a manufacturer of patio umbrellas. In 2007, its inventory increases by 170 umbrellas. In 2008, it sells all the 170 umbrellas. Which of the following can be inferred in this case? A) The value of the increased inventory will be counted as part of GDP in 2007, and the value of the 170 umbrellas sold in 2008 will not cause GDP in 2008 to increase. B) The value of the increased inventory will not affect GDP in 2007, but the sale of the umbrellas will cause GDP in 2008 to increase. C) The value of the increased inventory will be counted as part of GDP in 2007 and the value of the 170 umbrellas sold in 2008 will cause GDP in 2008 to increase. D) Since the umbrellas were not sold in 2007, they will not be included as part of GDP in 2007, and since they were not produced in 2008, they will not be included as part of GDP in 2008. This is a shortcoming of GDP computations.
The value of the increased inventory will be counted as part of GDP in 2007, and the value of the 170 umbrellas sold in 2008 will not cause GDP in 2008 to increase.
Which of the following is an example of a stock variable? A) Your monthly utilities bill B) The value of your stock portfolio C) Your annual salary D) The interest amount you pay on a mortgage
The value of your stock portfolio
A resident of San Diego, California, owns and operates a garage across the U.S.-Mexican border in Tijuana, Mexico. The value of the garage services produced at the shop would be counted in _____. A) U.S. GNP B) Mexico's GNP C) U.S. GDP D) U.S.'s net exports
U.S. GNP
When would an economist focus on GNP rather than GDP? A) When the economist wants a more accurate measure of production, since GNP data are typically much more precise than GDP data B) When the economist wants to study consumption, since consumption expenditures are weighted more heavily in GNP than in GDP C) When the economist wants to measure total income earned or total amount of factors of production supplied by the residents of a country D) When the economist wants a measure of output that includes depreciation, because GDP omits depreciation in its calculations
When the economist wants to measure total income earned or total amount of factors of production supplied by the residents of a country
All of the following items are a flow variable EXCEPT _____. A) a savings account balance B) consumption expenditure C) government purchases D) gross private investment
a savings account balance
The gross domestic product of a nation can be measured: A) as the total value of consumer expenditures on goods and services. B) as the total value of income generated in producing total output. C) as the total cost of producing of that output excluding profit D) as the total value of inputs used to produce a nation's output.
as the total value of income generated in producing total output
(Exhibit: The Circular Flow for the United States) The purchase of a new tractor by Farmer Brown is: A) classified as gross private investment and the flow is represented by 5. B) classified as gross private investment and the flow is represented by 2. C) classified as consumption and the flow is represented by 5. D) classified as consumption and the flow is represented by 1.
classified as gross private investment and the flow is represented by 2
(Exhibit: Circular Flow Model) The exhibit shows a simplified circular flow model where only consumption goods are being produced. The arrow marked "B" represents the flow of: A) factors of production. B) factor incomes. C) personal consumption expenditures. D) consumer goods and services.
consumer goods and services
The purchases of U.S. products by the citizens of Mexico are: A) counted as U.S. exports. B) counted as U.S. imports. C) considered Mexico's exports. D) considered as an income transfer from the U.S. to Mexico.
counted as U.S. exports
The components of gross domestic income include: A) employee compensation, profits, transfer payments, and net interest. B) employee compensation, profits, rental income, and net interest. C) wages and salaries, interest income, gross private investment, and depreciation. D) wages and salaries, interest income, transfer payments, and indirect business taxes.
employee compensation, profits, rental income, and net interest
(Exhibit: Circular Flow Model) The exhibit shows a simplified circular flow model where only consumption goods are being produced. The arrow marked "D" represents the flow of: A) factors of production. B) factor incomes. C) personal consumption expenditures. D) consumer goods and services.
factor incomes
(Exhibit: Circular Flow Model) The exhibit shows a simplified circular flow model where only consumption goods are being produced. The arrow marked "C" represents the flow of: A) factors of production. B) factor incomes. C) personal consumption expenditures. D) consumer goods and services.
factors of production
In the circular flow model for an economy that produces only consumption goods: A) factor incomes flow from households to firms. B) factors of production flow from households to firms. C) factor incomes flow from households to firms and to the government. D) factors of production flow from firms to households.
factors of production flow from households to firms
(Exhibit: Components of GDP for an Economy 2) Net exports are negative. This would mean that: A) imports are larger than exports and there is a trade surplus. B) exports are larger than imports and there is a trade surplus. C) imports are larger than exports and there is a trade deficit. D) exports are larger than imports and there is a trade deficit.
imports are larger than exports and there is a trade deficit
The gross domestic product of a nation: A) is a flow variable. B) is a stock variable. C) could either be a flow variable or a stock variable depending on the time period considered. D) could either be a flow variable or a stock variable depending on the share of personal consumption.
is a flow variable
In the long run, a country's material standard of living is determined by: A) the difference between its exports and imports. B) the average level of prices and the average income of its population. C) its output relative to its population. D) the amount of money supply relative to its population.
its output relative to its population
Vikram, an Indian national working for Microsoft in New York, sends $300 every month to his elderly parents who live in Bangalore, India. This activity will: A) increase India's GNP and decrease U.S. GNP. B) decrease U.S. GNP but does not affect U.S. GDP. C) increase U.S. GNP and India's GNP. D) not affect the GDP or GNP of either country.
not affect the GDP or GNP of either country
Double counting in GDP accounting: A) refers to the fact that accountants check their figures twice. B) refers to the inclusion of both intermediate goods and final goods in GDP. C) is the method of using both income and expenditures in measuring GDP. D) is the method of calculating the GDP by including the net incomes received by residents of a nation living abroad.
refers to the inclusion of both intermediate goods and final goods in GDP
To estimate the value of U.S. GDP from U.S. GNP, we must: A) add the value of output produced by U.S. residents and sold abroad. B) add the income earned by U.S. residents from the rest of the world and subtract payments made by U.S. residents to the rest of the world. C) subtracting the value of output produced by U.S. residents and sold abroad. D) subtract the income earned by U.S. residents from the rest of the world and add payments made by U.S. residents to the rest of the world.
subtract the income earned by U.S. residents from the rest of the world and add payments made by U.S. residents to the rest of the world
Value added is defined as: A) the value of productivity gains that arise when a firm increases its capital-labor ratio. B) the difference between the total cost of production of a product and the total revenues earned from the sale of the product. C) the amount by which the value of a firm's final output exceeds the total value of the intermediate goods and services used to produce the good. D) the cost savings that a firm enjoys when it reduces the cost of its resources by employing a more efficient production method.
the amount by which the value of a firm's final output exceeds the total value of the intermediate goods and services used to produce the good
The cost of producing goods and services includes: A) only the cost of the factors of production used to produce output. B) the cost of factors of production and depreciation but excludes sales tax. C) the cost of factors of production, depreciation, and other production-related taxes. D) the cost of the inputs used to produce the product, all production-related taxes, and profit.
the cost of factors of production, depreciation, and other production-related taxes
If we sum up the value added at every stage of production of a good, we will get: A) the total cost of the labor used to produce the good. B) the prices of the factors of production used to produce the good. C) the final value of the good. D) the capital-labor ratio.
the final value of the good
The gross national product (GNP) of the U.S. measures: A) the market value of final goods and services sold in the U.S. during a particular period. B) the market value of final goods and services produced using factors of production owned by U.S. residents during a particular period. C) the market value of goods and services produced anywhere in the world, by U.S. citizens and foreigners residing in the U.S. during a particular period. D) the market value of goods and services produced in the U.S. by foreigners residing in the U.S. during a particular period.
the market value of final goods and services produced using factors of production owned by U.S. residents during a particular period
The total volume of sales in an economy is much larger than the value of GDP because: A) GDP understates the value of total output. B) the output approach to measuring GDP excludes intermediate transactions. C) GDP includes transfer payments. D) total sales include sales to foreign countries but GDP excludes sale of output to foreign countries.
the output approach to measuring GDP excludes intermediate transactions
Government purchases are defined as: A) the sum of purchases of goods and services from firms by government agencies and the total value of output produced by government agencies. B) the sum of purchases of goods and services from firms by the government and the value of transfer payments made to government to its citizens. C) the sum of purchase of final goods and service from firms by government agencies and the payment of interests on loans undertaken by the government. D) the purchase of final goods and service from firms by government agencies excluding the value of output produced by government agencies.
the sum of purchases of goods and services from firms by government agencies and the total value of output produced by government agencies
The equality between GDP and GDI in an economy implies that the income generated by final goods and services is equal to: A) expenditures on intermediate goods and services. B) gross private domestic investment. C) the total value of final goods and services produced. D) total wages and other employee compensation.
the total value of final goods and services produced
For a given level of GDP, an increase in net factor earnings from abroad will: A) increase gross national product. B) reduce gross national product. C) not affect disposable personal income. D) increase a nation's trade surplus.
increase gross national product
What is the difference between a flow variable and a stock variable? A) A stock variable is a variable that is measured over a specific period of time while a flow variable is a variable that is independent of time. B) A flow variable is a variable that is measured in units of current prices while a stock variable is measured using prices from a base period. C) A flow variable is a variable that is measured over a specific period of time while a stock variable is a variable that is independent of time. D) A stock variable is a variable that is measured in units of current prices while a flow variable is measured using prices from a base period
A flow variable is a variable that is measured over a specific period of time while a stock variable is a variable that is independent of time
Which of the following is an example of a transfer payment? A) The President's salary B) A payment for a gambling debt C) A barber's income D) A pension payment to retired military personnel
A pension payment to retired military personnel
Which of the following is counted as consumption expenditure? A) A person buying a government bond B) A person buying a toaster from your neighbor in a garage sale C) A firm renting a two-storied building D) A person buying a new car
A person buying a new car
Which of the following is the best example of a final good or service? A) Crude oil in an oil well B) Gasoline purchased by Exxon for its gas stations C) A song you downloaded for a fee from Amazon.com D) Retail floor space at a suburban shopping mall
A song you downloaded for a fee from Amazon.com
Which of the following items would NOT be a part of private investment in the computation of GDP? A) A new factory building B) New factory equipment C) A rise in inventory levels at a firm D) An old shopping center acquired by a firm
An old shopping center acquired by a firm
(Exhibit Circular Flow Model) The exhibit shows a simplified circular flow model where only consumption goods are being produced. Suppose you have been hired by an electronics store as a salesperson. Which of the following flows represents this transaction? A) A and B B) B and C C) A and D D) C and D
C and D
Which of the following statements is true? A) Capital and gross private investment are flow variables. B) Capital and gross private investment are stock variables. C) Capital is a stock variable while gross private investment is a flow variable. D) Capital is a flow variable while gross private investment is a stock variable.
Capital is a stock variable while gross private investment is a flow variable
Of the following, which statistic do economists use to measure the business cycle? A) Changes in the inflation rate B) Changes in real gross domestic product C) Changes in the value of imports D) Changes in the implicit price deflator
Changes in real gross domestic product
Which of the following statements about GNP is correct? A) It measures the market value of all goods and services, both final and intermediate, produced by resources located within a nation regardless of who owns those resources. B) It measures the market value of all goods and services, both final and intermediate, produced by residents and firms regardless of the location of production. C) It measures the market value of all final goods and services produced by residents and firms of a nation regardless of the location of production. D) It measures the market value of all final goods and services produced by resources located within a nation regardless of who owns those resources.
It measures the market value of all final goods and services produced by residents and firms of a nation regardless of the location of production
Which of the following is an advantage of a value added tax (VAT) compared to a final tax on retail sales? A) The VAT may lead to higher revenue collected because even if no sales takes place, the government collects tax revenue at earlier stages of production. B) The VAT is a more equitable tax system because the tax burden is shared by every participant in the production process and by the final consumer. C) The VAT encourages productive behavior because each producer bears a smaller portion of the total tax imposed on a product. D) The VAT reduces a nation's trade deficit.
The VAT may lead to higher revenue collected because even if no sales takes place, the government collects tax revenue at earlier stages of production
Suppose that in the country of Welworth, most residents supply factors of production to foreign firms, while producers in Welworth never employ factors owned by residents of other countries. Which of the following statements is true of the economy of Welworth? A) Welworth's GDP is greater than its GNP. B) Welworth's GDP is less than its GNP. C) Both GDP and GNP are about the same in Welworth. D) Welworth's GDP exceeds GNP by an amount equal to depreciation plus indirect business taxes.
Welworth's GDP is less than its GNP
China's gross national product can be calculated from China's GDP by: A) adding the value of output produced by China's residents and sold abroad. B) adding the income earned by China's residents from the rest of the world and subtracting payments made by China's residents to the rest of the world. C) subtracting the value of output produced by China's residents and sold abroad. D) subtracting the income earned by China's residents from the rest of the world and adding payments made by China's residents to the rest of the world.
adding the income earned by China's residents from the rest of the world and subtracting payments made by China's residents to the rest of the world
Private investment plays a crucial role in the macroeconomy because it is: A) the largest expenditure component of GDP. B) the smallest expenditure component of GDP. C) an expenditure that adds to the economy's productive capacity. D) undertaken by the government and must be funded by tax revenue.
an expenditure that adds to the economy's productive capacity
Goods that are produced in a particular period but not sold in the current period: A) are included in consumption estimates. B) are called inventories and are included in gross private investment. C) are excluded from the current year's GDP and included in GDP in the year they are sold. D) are classified as intermediate goods.
are called inventories and are included in gross private investment
Changes in nominal GDP A) are due to changes in price only while changes in real GDP are attributed to movements in output and price. B) are due to changes in output and price while changes in real GDP are attributed to movements in output only. C) are due to changes in exchange rate while changes in real GDP are attributed to movements in price only. D) and changes in real GDP are due to changes in output and price.
are due to changes in output and price while changes in real GDP are attributed to movements in output only
Real GDP per capita measures A) GDP less depreciation. B) the average income of households. C) the annual wages of laborers minus income tax. D) average output per person.
average output per person
Disposable personal income is that part of income that households: A) have available to spend on goods and services. B) earn by selling factors of production. C) have after paying taxes and purchasing consumption goods. D) save after consumption and investment.
have available to spend on goods and services
Goods and services produced in the domestic economy and sold abroad are called _____. A) net exports B) exports C) imports D) transfer payments
exports
A trade deficit occurs when: A) foreign remittances paid are less than foreign remittances received. B) exports are less than imports. C) exports equal imports. D) exports are greater than imports.
exports are less than imports
The construction of a new state highway would be included in the _____ category of GDP. A) personal consumption B) government purchases C) government output D) government investment
government purchases
(Exhibit: The Circular Flow for the United States) Washington State purchases four airplanes from Boeing. This expenditure falls under the: A) gross private investment category and the flow is represented by 2. B) government purchases category and the flow is represented by 2. C) gross private investment category and the flow is represented by 3. D) government purchases category and the flow is represented by 3.
government purchases category and the flow is represented by 3
The value of income generated by the production of a given value of final goods and services is called: A) gross domestic income. B) net factor output. C) net foreign factor income. D) gross personal product.
gross domestic income
The value of an economy's total output of goods and services is called _____. A) consumption B) investment C) gross domestic product D) exports
gross domestic product
For computing GDP, the official measure of the value of all goods produced during a period for use in the production of other goods is called: A) personal investment expenditure. B) a capital consumption allowance. C) a transfer payment. D) gross private domestic investment.
gross private domestic investment
In the U.S., since the 1950s, the share of employee benefits as a percentage of total employee compensation: A) has been increasing. B) has been decreasing. C) has been relatively stable. D) has remained the same but has fallen in dollar terms.
has been increasing
(Exhibit: The Circular Flow for the United States) John, a resident of the U.S., buys a new set of golf clubs from a U.S. firm. This transaction is part of: A) personal consumption expenditures and the flow is represented by 1. B) personal consumption expenditures and the flow is represented by 5. C) private investment expenditure and the flow is represented by 1. D) private investment expenditure and the flow is represented by 5.
personal consumption expenditures and the flow is represented by 1
GDP is the sum of: A) personal consumption, private investment, government purchases, and imports. B) personal consumption, private investment, government purchases, and net exports. C) personal consumption, private investment, government purchases, and net imports. D) personal consumption, private investment, government purchases, and foreign remittances.
personal consumption, private investment, government purchases, and net exports.
In the calculation of GDP, the value of a new house constructed by a firm is included in: A) personal consumption expenditures. B) personal saving. C) the depreciation of capital. D) private investment.
private investment
The value of GDP differs from the value of GNP because: A) net exports are excluded from GDP but included in GNP. B) production in a country usually employs factors of production owned by residents of other countries. C) production in a country employs only factors of production owned by its residents. D) government purchases are excluded from GDP but included in GNP.
production in a country usually employs factors of production owned by residents of other countries
An increase in real GDP from 2002 to 2006 necessarily indicates that A) people are better off in 2002 than they were in 2006. B) depreciation was lower in 2002 than it is in 2006. C) prices increased between 2002 and 2006. D) quantities of goods and services produced increased between 2002 and 2006.
quantities of goods and services produced increased between 2002 and 2006
Gross domestic income (GDI) is defined as: A) the income of all the workers in an economy who have provided human capital in the production process during a particular period. B) the income of all workers in the private sector of an economy during a particular period. C) the total income generated in an economy by the production of final goods and services during a particular period. D) the total non-wage benefits of all the workers in private sector.
the total income generated in an economy by the production of final goods and services during a particular period
Government purchases include: A) purchases made by people working in government organizations. B) the total value of output produced by government agencies. C) investments made by foreign public agencies. D) transfer payments.
the total value of output produced by government agencies
In GDP accounting, the value of the total final output in a given period equals the value of the: A) total income generated by the production of final goods and services in that period. B) net revenue earned from the sales of intermediate goods and services during that period. C) total profit earned by firms involved in the production of the output during that period. D) total inputs used in the production of the final output in that period.
total income generated by the production of final goods and services in that period
The gross domestic product of an economy is defined as the: A) total value of all industrial goods produced and sold during a given period. B) total value of all final goods and services produced during a given period. C) value of all noneconomic transactions made among consumers during a particular period. D) value of all non-monetary transactions between consumers and firms during a given period.
total value of all final goods and services produced during a given period
Social Security payments to U.S. citizens are considered: A) transfer payments and are included in GDP. B) transfer payments and are not included in GDP. C) income and are included in GDP. D) income and are not included in GDP.
transfer payments and are not included in GDP
The amount by which the value of a firm's output exceeds the value of the goods and services that the firm purchases from other firms is called _____. A) profit B) value added C) the markup rate D) the marginal product
value added
All of the following are included in gross domestic income EXCEPT: A) wages. B) welfare payments. C) net interest. D) rental income.
welfare payments