ECO 230. Quiz: Chapter 8

1. A recession occurs when an economy experience a period in which there is 2. The business cycle exists because

1. A decrease in total production 2. Total production experiences periods of increases and periods of decreases.

1. Coffee beans purchased by a coffee shop 2. One share of Google stock 3. A new-pickup truck purchased by a consumer 4. A new home purchased by a family

1. Intermediate good 2. Neither 3. Final good 4. Final good

1. When looking at GDP as the amount of total income, the largest component of total income in the U.S. is 2. Wages earned by households make up _________________________ 50% of total income earned in the U.S. economy.

1. Wages 2. Greater than

1.The Gross National Product (GNP) of the United States is equal to 2. If a large amount of production within a country take place at foreign owned facilities, then it is likely that the country GDP will be ___________ GNP.

1.The value of final goods and services produced by U.S. factors of production 2. Larger than

Which of the following transactions is NOT counted in GDP?

A consumer repairs her own car.

A farmer produces corn​, which is valued at ​$0.25. The corn is then sold to a​ miller, who turns it into cornmeal​, which is valued at ​$0.50. The miller then sells the cornmeal to a​ bakery, which uses it to make cornbread​, valued at ​$1.001.00. ​ Finally, the bakery sells the cornbread to a grocery​ store, where it is sold to a consumer for ​$2.00. In the table​ below, show the value added at each stage of​ production, and the total value added to GDP.

Firm Value Added 1. Farmer $0.25 2. Miller $0.25 3. Baker $0.50 4. Grocery Store $1.00 TOTAL VALUE ADDED TO GDP $2.00

National Income is

GDP minus depreciation

One major component of GDP that can be negative is

Net exports

Which of the following statements about the consumption component of GDP is NOT correct?

Spending on services is smaller than the amount of consumption spending on durable and nondurable goods.

The total value of commodity A produced in Country X increased from​ $500,000 in 2011 to​ $700,000 in 2012. According to​ Laura, a student of​ economics, the share of commodity A in real GDP of 2012 should be higher than that of 2011. Which of the​ following, if​ true, would strengthen​ Laura's argument?

The average price level in the economy remained stable over the two years.

​Ambrosia, a small country in the Mediterranean​ region, has an​ agriculture-based economy. In recent​ years, a decline in global trade barriers has led to a massive increase in agricultural production in Ambrosia. The government of Ambrosia has claimed that this expansion has increased the​ country's GDP and also improved the overall welfare of its people by increasing employment opportunities.​ However, critics of the government have claimed that this expansion has actually made the people of Ambrosia worse off. Which of the​ following, if​ true, would support the​ critics' argument?

The expansion was made possible by an expansion of pesticide use that has damaged the natural environment.

The Council of Economic Advisors to the President of a country reported gross investment expenditure at​ $400,000 during a particular year. The group excluded from this valuation an amount of​ $50,000 spent by an existing domestic firm during the year.​ Mark, an​ economist, argued that this amount should have been included under the business fixed investment component of GDP. Which of the​ following, if​ true, would support​ Mark's argument?

The firm purchased new machinery worth $50,000 for its production facility during that year.

Ethan has been comparing the economic data of the two countries of Glenshire and Nebuloz. He finds that the GDP of Glenshire has been higher than that of Nebuloz during the last five years. The former country recorded a much higher GDP growth rate during these years and its domestic currency also had more value than the currency of Nebuloz. On the basis of all this​ information, Ethan tried to convince his friend that Glenshire would be a much better country to live in than Nebuloz. Each of the​ following, if​ true, would strengthen​ Ethan's argument, except one. Identify the exception.

The government of Nebuloz uses disposable personal income as a measure of national welfare, while the Glenshire government uses GDP.

The Personal Income (PI) of the United States is equal to

The value of the total income received by all households in the United States.

What are the four categories of income?

Wages, Interest, Rent and Profit

Inventories are part of investment and therefore included in GDP because

firms produce​ goods, however sometimes the goods may be unsold at the time GDP is computed.

Gross Domestic Product (GDP) is

the market value of all final goods and services produced in a country during a period of time

Transfer payments are not included in GDP calculations because

transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.