MICRO EXAM 2

D

Investment is defined as the purchase of A) any financial asset only. B) additions to inventories only. C) financial assets and inventories only. D) new capital goods and additions to inventories. E) new capital goods but not additions to inventories.

B

Investment is the expenditure done by A) savers. B) firms. C) governments. D) the rest of the world. E) Both answers A and B are correct.

B

Because of the circular flows of expenditure and income in the economy, total ________ equals total ________ equals total ________. A) expenditure; investment; income B) expenditure; income; value of production C) consumption; expenditure; value of production D) investment; income; consumption E) consumption; investment; expenditure

B

Bobʹs Funky T-shirts began the year with 1,000 shirts in inventory, produced 10,000 shirts during the year and ended the year with 1,100 shirts in inventory. The 100 shirts added to his inventory will be classified as A) consumption expenditure. B) investment. C) net exports of goods and services. D) exports of goods and services. E) nondurable consumption goods.

D

Investment is defined as A) the purchase of a stock or bond. B) financial capital. C) what consumers do with their savings. D) the purchase of new capital goods by firms. E) spending on capital goods by governments.

C

Consumption expenditure includes spending A) on intermediate goods and services by firms. B) on office supplies by firms. C) by households. D) by households and spending on office supplies by firms. E) by governments when they are buying goods and services that consumers also buy.

A

Consumption goods and services include A) washing machines and tickets to football games. B) new homes and existing homes (as long as improvements have been made to the existing home). C) tickets to concerts and medical care provided to veterans by the government. D) new and used textbooks as long as they are sold via stores or online. E) vacation time accumulated by workers.

A

Economists define investment to include purchases of A) capital goods and inventories. B) capital goods, household durable goods, and inventories. C) capital goods, such as tools, instruments, and buildings. D) capital goods, equity stocks, and bonds. E) capital goods, equity stocks, and inventories.

D

Everything else the same, if government expenditure increases by $400 billion and imports increase by $400 billion, then GDP A) increases by $400 billion. B) increases by $200 billion. C) decreases by $400 billion. D) does not change. E) decreases by $200 billion.

A

Expenditures on U.S. produced steaks, shoes, and doctor visits are most likely classified as A) consumption expenditure. B) investment. C) government expenditure on goods and services. D) net exports of goods and services. E) net imports of goods and services.

B

GDP is equal to the ________ value of all the final goods and services produced within a country in a given period of time. A) production B) market C) wholesale D) retail E) typical

D

Government expenditures on goods and services include i. the New York City Libraryʹs purchase of new books. ii. Washington D.C.ʹs purchase of gas for its city buses. iii. Californiaʹs payment of wages to prison guards. A) i and ii B) i and iii C) ii and iii D) i, ii and iii E) i only

C

Gross Domestic Product equals A) Y = C + I - G + NX. B) Y = C - I + G + NX. C) Y = C + I + G + NX. D) Y = C - I - G - NX. E) Y = C + I + G - NX.

C

If a firm does not sell all of the goods that it produces in a given time period, then the goods A) do not count in GDP ever. B) do not count in GDP for that time period but always count next period. C) count positively in GDP as inventory investment. D) count negatively in GDP as inventory investment. E) count in GDP the period they are sold to the final user.

A

In a circular flow diagram, i. the value of production = income. ii. the value of production = expenditure. iii. expenditure = income. A) i, ii and iii are true statements. B) Only iii is a true statement. C) i and ii are true statements. D) i and iii are true statements. E) Only i is a true statement.

B

In calculating GDP, we must A) add the market value of imports and subtract the market value of exports. B) add the market value of exports and subtract the market value of imports. C) exclude net exports of goods and services (NX). D) add the value of the goods produced outside of the United States by American firms. E) subtract the market value of imports, because these goods are produced in a country other than the United States, and subtract the market value of exports, because these goods are consumed in a country other than the United States.

D

In measuring GDP, which of the following is included? A) the value of preparing meals at home B) the value of stocks and bonds bought and sold C) the value of used goods when they are sold D) the value of increases in business inventories E) the value of durable consumption goods but not the value of nondurable consumption goods.

B

In one year, a firm increases its production by $9 million and increases sales by $8 million. All other things in the economy remaining the same, which of the following is true? A) GDP increases by $8 million and inventory investment decreases by $1 million. B) GDP increases by $9 million and inventory investment increases by $1 million. C) Inventory investment decreases by $1 million. D) GDP increases by $8 million and investment increases by $1 million. E) GDP increases by $17 million.

C

In the circular flow, how are the ʺvalue of production,ʺ ʺincome,ʺ and ʺexpendituresʺ related? A) They have no relationship to each other. B) Once tax payments are subtracted at each stage, they are equal. C) Expenditures on GDP equals the value of production which equals income. D) Once net exports of goods and services are subtracted from GDP, all three are equal. E) Value of production always equals income but expenditures is smaller because households save some of their income and do not spend it.

A

Investment includes A) GMʹs purchase of robotic machinery. B) student purchases of laptops. C) Wal-Martʹs purchase of health insurance for its workers. D) the New York City Libraryʹs purchase of new books. E) wages paid to military personnel.

D

Kellyʹs Surf Shop orders 5,000 new surf boards at the beginning of the year but only sells 4,500 by the end of the year. How are the 500 unsold surfboards accounted for in Gross Domestic Product? A) They will be included in the nondurable consumption category of GDP. B) They will be included in the residential investment category of GDP. C) They will be included in the government spending category of GDP. D) They will be included in the inventory investment category of GDP. E) They will be included in the durable consumption category of GDP.

C

Last year U.S. net exports of goods and services was negative. This fact means that last year A) there was an error made when calculating net exports of goods and services for the United States. B) the value of U.S. exports was greater than the value of U.S. imports. C) the value of U.S. exports was less than the value of U.S. imports. D) U.S. consumption expenditure plus investment was less than the value of exports plus the value of imports. E) U.S. consumption expenditure plus investment plus government expenditures on goods and services was less than the value of exports plus the value of imports.

D

Last year in Candamica, consumption expenditure was $20 billion, interest, rent, and profit were $2.5 billion, government expenditure on goods and services was $7 billion, net exports of goods and services was $5 billion, and investment was $2 billion. Hence total expenditure was A) $24.5 billion. B) $34.5 billion. C) $36.5 billion. D) $34 billion. E) undetermined without information about imports.

C

Net exports of goods and services are defined as the A) value of the goods we sell to foreigners. B) income we receive from selling goods to foreigners. C) value of exports minus the value of imports. D) value of exports minus the income we receive from foreigners. E) value of exports plus the income we receive from foreigners.

C

Net exports of goods and services increase when A) exports of goods and services decrease and imports of goods and services do not change. B) consumption expenditure increases. C) exports of goods and services increase and imports of goods and services do not change. D) consumption expenditure decreases. E) imports of goods and services increase and exports of goods and services do not change.

D

Net exports of goods and services is equal to the value of A) exports plus the value of imports. B) imports minus the value of exports. C) domestic consumption minus the value of imports. D) exports minus the value of imports. E) domestic consumption minus the value of exports.

D

One bag of coffee beans is sold for $7 to a cafe that uses it to brew coffee which it sells to customers for a total of $15. A second bag of coffee is sold directly to Joan for $7, who uses it to brew coffee for her family every morning. What is the contribution to GDP from the purchases of coffee beans and coffee? A) $7 B) $14 C) $15 D) $22 E) $29

B

Production by Honda, a Japanese firm, in the United States is included in ________ GDP and production by Nike Corporation, a U.S. firm, in Vietnam is included in ________ GDP. A) Japanese; U.S. B) U.S.; Vietnamese C) U.S.; U.S. D) Japanese; Vietnamese E) U.S. and Japanese; U.S. and Vietnamese

C

Suppose that business firms spend $500 million on new capital equipment this year. Of this $500 million, $300 million was spent on domestically produced capital and $200 million was spent on foreign-produced capital. All else equal, these transactions contribute ________ to GDP. A) $0 B) $200 million C) $300 million D) $500 million E) $800 million

A

The abbreviation ʺGDPʺ stands for A) Gross Domestic Product. B) Gross Domestic Prices. C) General Domestic Prices. D) Great Domestic Prices. E) Governmentʹs Domestic Politics.

D

The circular flow shows that GDP measures i. ii. iii. total income. total expenditures. price changes. A) i only B) ii only C) iii only D) i and ii E) i, ii, and iii

A

The following are all final goods EXCEPT A) flour used by the baker to make cupcakes. B) bread eaten by a family for lunch. C) pencils used by a 6th grader in class. D) Nike shoes used by a basketball player. E) a computer used by Intel to design new computer chips.

A

The purchase of a new Boeing fighter jet by Israel is classified in the U.S. GDP accounts as A) export expenditure. B) consumption expenditure. C) investment expenditure. D) government expenditure. E) import expenditure.

A

This year a firm produces $100 million worth of cars this year and sells $102 million worth of cars. Which of the following is true? A) GDP for this year will increase by $100 million. B) GDP for this year will increase by $102 million. C) Inventory investment will increase by $2 million. D) GDP for this year will increase by $202 million. E) The premise of the question is wrong because it is impossible for a firm to sell more than it produces in a given time period.

A

Total expenditure equals A) C + I + G + NX. B) C + I + G - NX. C) C+I-G+NX. D) C - I + G + NX. E) C - I - G - NX.

A

Total expenditure equals total income A) because firms pay out everything they receive as income to the factors of production. B) if firms earn zero profit. C) if firms do not save for future investment. D) only if firms sell all the goods they produce in a given time period. E) only if net taxes equals government expenditures on goods and services.

D

Total expenditure in the United States is equal to consumption expenditure plus investment A) plus government expenditure on goods and services plus imports of goods and services. B) minus government expenditure on goods and services minus imports of goods and services. C) plus government expenditure on goods and services plus exports of goods and services. D) plus government expenditure on goods and services plus exports of goods and services minus imports of goods and services. E) plus government expenditure on goods and services plus exports of goods and services plus imports of goods and services.

C

Total income in a country in 2012 is $780 billion. Total expenditure in the country A) cannot be determined. B) is greater than $780 billion. C) is $780 billion. D) is less than $780 billion. E) is either less than or equal to $780 billion.

A

U.S. net exports include A) sales of Hollywood movies to the rest of the world. B) the production of Ford Mustangs in China that are sold in China. C) Honda automobiles produced and sold in Japan. D) the sale of shares of Nike stock on the New York Stock Exchange. E) the sale of U.S. government securities to U.S. citizens.

C

Undistributed profits ________ counted as part of GDP because ________. A) are not; households are not paid by the firms B) are; they can be used to buy other goods C) are ; they are considered income paid to households and loaned back to firms D) are not; they are considered an intermediate good E) are; firms are required to pay corporate income taxes on them

B

When an American college student in Davis, California spends $200 on a pair of Louis Vuitton jeans (a famous French brand), U.S. consumption ________, U.S. net exports ________, and U.S. GDP ________. A) does not change; increases by $200; increases by $200 B) increases by $200; decreases by $200; does not change C) increases by $200; does not change; increases by $200 D) does not change; does not change; does not change E) does not change; decreases by $200; decreases by $200

D

When measuring GDP, A) the government sector is not included because it is the public sector not the private sector. B) the government sector is counted, and the value of the government sector in GDP is equal to its tax revenue. C) only the federal governmentʹs expenditure on goods and services are included. D) the expenditure on goods and services by all levels of government are included. E) the government sector is not counted because it does not produce goods and services.

D

Which of the following expenditure components of GDP can be negative or positive? A) Consumption expenditure B) Investment C) Government expenditure on goods and services D) Net exports of goods and services E) None of the above because expenditure can never be negative.

C

Which of the following is an example of an intermediate good or service? A) gasoline purchased by Sam for her commute to work B) flour purchased by Jake to bake a cake for his spouse C) training seminars for employees of an accounting firm D) golf balls sold to Tiger Woods E) None of the above are examples of intermediate goods or services.

A

Which of the following is directly included in the U.S. GDP for 2013? i. a 2013 Cadillac Escalade produced and sold as a new car in the United States in 2031 ii. tires produced in the United States, purchased by General Motors, and installed on a new Cadillac Escalade sold in 2013 iii. General Motors cars produced in Canada because General Motors is an American corporation A) i only B) ii only C) i and iii D) ii and iii E) i, ii, and iii

D

Which of the following is included as investment in GDP? i. cars produced during the year but unsold at the end of the year ii. new capital equipment produced and purchased during the year iii. purchases of a companyʹs stocks and bonds A) i only B) ii only C) iii only D) i and ii E) i, ii, and iii

B

Which of the following would NOT be directly included in the U.S. GDP in 2010? A) the market value of restaurant meals sold in 2010 B) the market value of the jet fuel bought by Delta to use for its flights in 2010 C) the value of the automobiles produced in 2010 at the Toyota plant located in Georgetown, Kentucky D) legal services provided to first time home buyers during 2010 E) the purchase of a new home in Atlanta, Georgia in 2010