Homework 6

True or false: When news reports state that inflation has increased, they could be referring to a change in the GDP deflator.

True

True or false: Your visit to the dentist, college tuition, and any commissions earned by a used car salesman are all included in GDP.

True

Refer to the following table: GDP - 5.0 Government purchases - 1.0 Transfer payments - 0.2 Exports - 0.4 Imports - 0.5 Net foreign factor income - 0.4 The sum of investment and consumption in this economy is: A. $3.6 trillion B. $3.9 trillion C. $4.1 trillion D. $6.0 trillion

C. $4.1 trillion

In what category is the purchase of a computer by a business in national income accounting? A. It is ignored because computers are considered intermediate goods - an input in the production of other goods and services. B. It is considered consumption. C. It is a form of investment spending. D. It is a form of savings.

C. It is a form of investment spending.

If nominal GDP increases by 2% and the price level drops by 1%, real GDP: A. increases by 1%. B. decreases by 1%. C. increases by 3%. D. decreases by 3%.

C. increases by 3%.

The value of intermediate goods is: A. included in both GDP and GNP. B. included in GDP but not GNP. C. included in GNP but not GDP. D. excluded from both GDP and GNP.

D. excluded from both GDP and GNP.

A one-time rise in the price level is: A. inflation if that rise is above 5%. B. inflation if that rise is above 10%. C. inflation if that rise is above 15%. D. not inflation.

D. not inflation.

If real income rises from $5 trillion to $5.3 trillion while the price level increases by 10%, it follows that nominal income: A. doesn't change. B. rises by 6%. C. rises by 10%. D. rises by 16%.

D. rises by 16%.

True or false: Nominal GDP can never be equal to real GDP.

False

True or false: To compute GDP, you must add up the value of all the goods and services produced in a country in a year.

False

Refer to the table below. What is the economy's gross domestic product? Consumption - 5.2 Investment - 2.7 Government purchases - 2.6 Transfer payments - 0.6 Exports - 0.6 Imports - 0.6 A. $10.5 trillion B. $11.1 trillion C. $11.7 trillion D. $12.3 trillion

A. $10.5 trillion

Suppose the value of your home increases from $100,000 to $125,000. If you continue to live in your home, the increase in its value: A. adds nothing to GDP. B. increases GDP by $25,000. C. increases GDP by $100,000. D. increases GDP by $125,000.

A. adds nothing to GDP.

The largest expenditure component of GDP is: A. consumption. B. investment. C. net exports. D. government spending.

A. consumption.

If there are only two goods in the economy, one whose price rises by 3% and one by 5%, it is possible that inflation is: A. 3%. B. 4%. C. 5%. D. 7%.

B. 4%.

If depreciation is zero, then net domestic product: A. exceeds gross domestic product. B. Equals gross domestic product. C. is less than gross domestic product. D. cannot be defined.

B. Equals gross domestic product.

If U.S. net exports are positive, then U.S.: A. GDP is less than the sum of consumption, investment, and government purchases. B. GDP exceeds the sum of consumption, investment, and government purchases. C. imports must exceed U.S. exports. D. GDP equals the sum of consumption, investment, and government purchases.

B. GDP exceeds the sum of consumption, investment, and government purchases.

GNP is the: A. aggregate output of the citizens and businesses of an economy in a one year period. B. aggregate final output of the citizens and businesses of an economy in a one year period. C. total market value of all goods and services produced in an economy in a one year period. D. total market value of all final goods and services produced in an economy in a one year period.

B. aggregate final output of the citizens and businesses of an economy in a one year period.

The U.S. produces and sells millions of types of products. To add them up to a single aggregate, each good is weighted by its: A. cost of production. B. market price. C. utility to consumers. D. contribution to corporate profits.

B. market price.

The key to the equality of output and income is: A. employee compensation. B. profit. C. business taxes. D. transfer payments.

B. profit.

Government expenditures for Social Security and unemployment insurance are, for GDP accounting purposes, considered: A. transfers, and are included in government spending as part of GDP. B. transfers, and are not included in government spending as part of GDP. C. purchases, and are included in government spending as a part of GDP. D. purchases, and are not included in government spending as a part of GDP.

B. transfers, and are not included in government spending as a part of GDP.