Practice quiz 7

The equation that breaks GDP down by the four sources of aggregate spending is:

**A) GDP = C + I + G + X - IM. B) GDP = C + I + G + X + IM. C) GDP = C - I - G - X + IM. D) GDP = C + I + G - X - IM.

A price index:

**A) always includes a base year, measures the cost of purchasing a market basket of output across different years, and is normalized to 100 for the base year. B) measures the cost of purchasing a market basket of output across different years. C) always includes a base year. D) is normalized to 100 for the base year.

Enchanté Inc., a designer clothing company, buys $400 worth of silk and $30 worth of accessories to produce each dress. If the value added by Enchanté is equal to $200, then according to the value-added approach, the price of the designer dress should be:

A) $200. B) $230. C) $830. **D) $630.

Which of the following transactions is included in the nation's gross domestic product?

A) A group of college students volunteer to rake leaves at an assisted living facility for senior citizens. B) A construction company purchases lumber to build a new house. C) A college student buys a used textbook from his roommate. **D) A college student buys a pizza and has it delivered to her dorm room.

An example of a government transfer is a(n):

A) bequest from a deceased relative. B) salary for a member of the armed forces. C) expenditure on an interstate highway. **D) Social Security payment.

Investment spending is spending on:

A) bonds. B) productive physical capital, bonds, and shares of stock. C) shares of stock. **D) productive physical capital.

The circular-flow diagram illustrates all of the following in the U.S. economy EXCEPT:

A) flows of goods and services. **B) growing income inequality. C) flows of money. D) the purchase and sale of factors of production.

Goods that are produced in a particular period but NOT sold in that period:

A) go into inventory and are called consumption. B) are finally included in depreciation when they are sold. **C) end up in inventory and are included in investment. D) are classified as intermediate goods.

The dollar value of final goods and services only is counted in GDP because:

A) intermediate goods reduce GDP. B) only final goods and services matter for the economy. C) we can measure only the value of final goods and services, not the value of inputs. **D) if we counted the value of all goods, we would count inputs, like the value of steel in a new automobile, more than once.

The total income of households after taxes and government transfers is called:

A) investment. B) private savings. C) aggregate spending. **D) disposable income.

A country's GNP:

A) must be larger than its GDP. B) includes factor income earned by foreigners. **C) is the total factor income earned by residents of a country. D) excludes factor income earned abroad by Americans.

A country's exports minus its imports during a period are:

A) net imports. B) gross imports. **C) net exports. D) gross exports.

Economists frequently use GDP per capita to reflect:

A) people who are employed. B) both people who are employed and those who are unemployed. C) the impact of prices on GDP. **D) differences in living standards across countries.