M2: Chapter 7
A small economy starts the year with $1 million in capital. During the course of the year, gross investment is $150,000 and depreciation is $50,000. What is the economy's capital stock at the end of the year?
$1,100,000
Suppose GDP is $15 trillion, with $8 trillion coming from consumption, $2.5 trillion coming from gross investment, $3.5 trillion coming from government expenditures, and $1 trillion coming from net exports. Also suppose that across the whole economy, personal income is $12 trillion. If the government collects $1.5 trillion in personal taxes, then disposable income is:
$10.5 trillion
Suppose GDP is $16 trillion, with $10 trillion coming from consumption, $2 trillion coming from gross investment, $3.5 trillion coming from government expenditures, and $500 billion coming from net exports. Also suppose that across the whole economy, depreciation (consumption of fixed capital) totals $1 trillion. From these figures, we see that net domestic product equals:
$15 trillion
Assume that a grower of flower bulbs sells its annual output of bulbs to an Internet retailer for $70,000. The retailer, in turn, brings in $160,000 from selling the bulbs directly to final customers. What amount would these two transactions add to personal consumption expenditures and thus to GDP during the year?
$160,000
Suppose that this year a small country has a GDP of $100 billion. Also assume that Ig = $30 billion, C = $60 billion, and Xn = - $10 billion. What is the value of G?
$20 billion
Suppose that California imposes a sales tax of 10 percent on all goods and services. A Californian named Ralph then goes into a home improvement store in the state capital of Sacramento and buys a leaf blower that is priced at $200. With the 10 percent sales tax, his total comes to $220. How much of the $220 paid by Ralph is in the national income and product accounts as private income (employee compensation, rents, interest, proprietors' income, and corporate profits)?
$200
If foreigners spend $7 billion of U.S. exports in a given year and Americans spend $5 billion on imports from abroad in the same year, what is the value of U.S. net exports?
+ $2 billion
Which of the following are consumer durable goods? - A new ford fiesta - Heart surgery - A dining room table - A jacket
- A new ford fiesta - A dining room table
Which of the following are consumer nondurable goods? - A pair of jeans - A couch - Mashed potatoes - A burrito
- A pair of jeans - Mashed potatoes - A burrito
Which of the following transactions are counted in GDP? - Nayana sells $1,000 of General Electric stock - Molly buys a used car - Patricia receives a Social Security check - Kerry buys a new sweater to wear this winter - Jasmine buys a new car - Roberto gives his daughter $50 for her birthday
- Patricia receives a Social Security check - Kerry buys a new sweater to wear this winter - Jasmine buys a new car
Which of the following items are included in official U.S. GDP statistics? - Revenue generated by illegal marijuana growers - Revenue generated by legal medical marijuana sales in California - Andre paying Ted for a haircut in Chicago - The dollar value of the annoyance felt by local citizens... - Emily and Aliya trading an hour of dance lessons for a haircut in Dallas - Money spent to clean up a toxic waste site in Ohio
- Revenue generated by legal medical marijuana sales in California - Andre paying Ted for a haircut in Chicago - Money spent to clean up a toxic waste site in Ohio
Which of the following are services? - Your completed taxes - Peanut butter - Tires - Repairs to your truck
- Your completed taxes - Repairs to your truck
The GDP price index is:
A measure of the price of a specified collection of goods and services compared to the price of a highly similar collection of goods and services in a reference year
Hedonic adjustments are used to:
Account for improvements in product quality when estimating GDP and inflation
Net exports might be a negative amount if:
Americans spend more on imports than foreign countries spend on American exports
Changes in inventories are included as part of investment spending because:
Anything produced by a business that has not been sold during the accounting period is something in which the business has invested
Statistics derived from national income accounting:
Are useful to assess the health of an economy and formulate policies to maintain and improve that health
Comparing market values over time has the:
Disadvantage that prices change over time
Tina walks into Ted's sporting goods store and buys a punching bag for $100. That $100 payment counts as -- for Tina and -- for Ted.
EXPENDITURE; INCOME
Gross domestic product does not include the value of the stocks and bonds bought and sold because these transactions are considered:
Economic investment and should not be counted as production of final goods and services
Formula for NDP
GDP - depreciation
What is the formula for GDP
GDP=C+Ig+G+Xn
Net exports are a country's export of:
Goods and services less its imports of goods and services
What is the difference between gross private domestic investment and net private domestic investment?
Gross private domestic investment less depreciation is net private domestic investment
Suppose that this year's nominal GDP is $16 trillion. To account for the effects of inflation, we construct a price-level index in which an index value of 100 represents the price level 5 years ago. Using that index, we find that this year's real GDP is $15 trillion. Given those numbers, we can conclude that the current value of the index is:
Higher than 100
Economists include only final goods and services when measuring GDP because:
If intermediate goods were counted, then multiple counting would occur
National income accountants compare the market value of the total outputs in various years rather than actual physical volumes of production because:
It is impossible to summarize two different goods, say, oranges and computers, as a single statistic
"Free" products make the calculation of GDP -- difficult because:
MORE statisticians must indirectly estimate the value that free products provide to their users
If you were to determine net domestic product (NDP) through the expenditures approach, the appropriate measure of investment spending to use is?
Net private domestic investment, because it subtracts off depreciation
Inflation tends to be -- if quality improvements are not accounted for.
OVERSTATED
Disposable income is:
Personal income less personal taxes
The more reliable measure for comparing changes in the standard of living over a series of years is:
Real GDP
Which of the following statements is true? - Real GDP is nominal GDP added to the price index. - Real GDP is nominal GDP subtracted from the price index. - Real GDP is nominal GDP divided by the price index. - Real GDP is nominal GDP multiplied by the price index.
Real GDP is nominal GDP divided by the price index.
If inventories decline by $1 billion during the 2022, then $1 billion would be:
Subtracted from both gross private domestic investment and gross domestic product
Nominal GDP is:
The market or money value of all final goods and services produced by the economy in a given year, whereas real GDP is adjusted for inflation
An economy's output, in essence, is also equal to its income because:
The value of everything that is produced is also the value of everything sold
When measuring GDP, economists don't include the value of the used furniture bought and sold because:
This value was already counted in GDP in some previous year
Suppose GDP is $5.0 trillion, depreciation is $1 trillion, and gross output (GO) is $17.25 trillion. a. What is the value of all stages of production and distribution except for final sales of goods and services? b. What is the dollar value of the economic activity taking place at every stage of production and distribution?
a. $12.25 trillion b. 17.25 trillion
Use the concepts of gross investment and net investment to distinguish between an economy that has a rising capital stock and one that has a falling capital stock. Answer the questions below by evaluating each of the following statements: a. Evaluate: "In 1933 net private domestic investment was negative $6 billion. This means that in that particular year the economy produced no capital goods at all." This statement is? b. Evaluate: "Though net investment can be positive, negative, or zero, it is impossible for gross investment to be less than zero." This statement is?
a. Incorrect, because negative net investment does not mean the economy produced no new capital goods in that year b. Correct, because depreciation cannot be less than zero
Which of the following are included in this year's GDP? Which are excluded? a. Interest received on an AT&T corporate bond: b. Social Security payments received by a retired factory worker: c. Unpaid services of a family member who painted the family home: d. Income of a dentist from the dental services she provided: e. A monthly allowance that a college student receives from home: f. Money received by Josh when he resells his nearly brand-new Honda automobile to Kim: g. The publication and sale of a new college textbook: h. An increase in leisure resulting from a 2-hour decrease in the length of the workweek, with no reduction in pay: i. A $2 billion increase in business inventories: j. The purchase of 100 shares of Alphabet (the parent company of Google) stock:
a. Interest received on an AT&T corporate bond: INCLUDED b. Social Security payments received by a retired factory worker: EXCLUDED c. Unpaid services of a family member who painted the family home: EXCLUDED d. Income of a dentist from the dental services she provided: INCLUDED e. A monthly allowance that a college student receives from home: EXCLUDED f. Money received by Josh when he resells his nearly brand-new Honda automobile to Kim: EXCLUDED g. The publication and sale of a new college textbook: INCLUDED h. An increase in leisure resulting from a 2-hour decrease in the length of the workweek, with no reduction in pay: EXCLUDED i. A $2 billion increase in business inventories: INCLUDED j. The purchase of 100 shares of Alphabet (the parent company of Google) stock: EXCLUDED
Identify which of the following measures are used to calculate national income. a. Personal consumption expenditures: b. Net foreign factor income: c. Transfer payments: d. Rents: e. Consumption of fixed capital (depreciation): f. Statistical discrepancy: g. Social Security contributions: h. Interest: i. Proprietors' income: j. Net exports: k. Dividends: l. Compensation of employees: m. Taxes on production and imports: n. Undistributed corporate profits: o. Personal taxes: p. Corporate income taxes: q. Corporate profits: r. Government purchases: s. Net private domestic investment: t. Personal saving: u. Gross private domestic investment:
a. Personal consumption expenditures: NO b. Net foreign factor income: No c. Transfer payments: No d. Rents: YES e. Consumption of fixed capital (depreciation): NO f. Statistical discrepancy: NO g. Social Security contributions: NO h. Interest: YES i. Proprietors' income: YES j. Net exports: No k. Dividends: No l. Compensation of employees: YES m. Taxes on production and imports: YES n. Undistributed corporate profits: NO o. Personal taxes: NO p. Corporate income taxes: NO q. Corporate profits: YES r. Government purchases: NO s. Net private domestic investment: NO t. Personal saving: No u. Gross private domestic investment: NO
Which of the following goods are usually intermediate goods and which are usually final goods? a. Running shoes b. Cotton fibers c. Watches d. Textbooks e. Coal f. Sunscreen lotion g. Lumber
a. Running shoes: FINAL b. Cotton fibers: INTERMEDIATE c. Watches: FINAL d. Textbooks: FINAL e. Coal: INTERMEDIATE f. Sunscreen lotion: FINAL g. Lumber: INTERMEDIATE
