Chapter 5

C. $180 and $120.

Assume an economy which is producing only one product. Output and price data for a three-year period are as follows. 31. Refer to the above data. If year 2 is chosen for the base year, in year 3 nominal GDP and real GDP, respectively, are: A. $180 and $30. B. $30 and $5. C. $180 and $120. D. $120 and $100.

B. purchase of shares of company stock

21. From an economist's perspective, which is not considered to be an investment? A. construction of a new factory B. purchase of shares of company stock C. the building of an apartment complex D. additions to inventories at steel plants

D. increased it by $25 billion in Year 1 and decreased it by $20 billion in Year 2.

22. In Year 1, inventories rose by $25 billion. In Year 2, inventories fell by $20 billion. In calculating total investment, national income accountants would have: A. decreased it by $25 billion in Year 1 and increased it by $20 billion in Year 2. B. decreased it by $25 billion in Year 1 and increased it by $5 billion in Year 2. C. increased it by $25 billion in Year 1 and decreased it by $5 billion in Year 2. D. increased it by $25 billion in Year 1 and decreased it by $20 billion in Year 2.

C. exports less imports.

23. Net exports are: A. that portion of consumption and investment goods sent to other countries. B. exports plus imports. C. exports less imports. D. imports less exports.

D. final, but not intermediate, goods.

6. GDP includes: A. neither intermediate nor final goods. B. both intermediate and final goods. C. intermediate, but not final, goods. D. final, but not intermediate, goods.

A. is the dollar value of the total output produced within the borders of the nation.

1. A nation's gross domestic product (GDP): A. is the dollar value of the total output produced within the borders of the nation. B. is the dollar value of the total output produced by its citizens, regardless of where they are living. C. can be found by summing C + In + S + Xn. D. is always some amount less than its C + Ig + G + Xn.

B. $3,800.

10. The value added by firms A-E from the production of the product described below is: A. $3,000. B. $3,800. C. $6,500. D. $10,300.

D. We need more information to determine whether GDP has changed.

11. Suppose Smith pays $100 to Jones. A. We can say with certainty that the GDP has increased by $100. B. We can say with certainty that the GDP has increased, but we cannot determine the amount. C. We can say with certainty that the nominal GDP has increased, but we can't say whether real GDP has increased or decreased. D. We need more information to determine whether GDP has changed.

B. excluded when calculating GDP because they do not reflect current production.

12. Transfer payments are: A. excluded when calculating GDP because they only reflect inflation. B. excluded when calculating GDP because they do not reflect current production. C. included when calculating GDP because they are a category of investment spending. D. included when calculating GDP because they increase the spending of recipients.

A. can be found by summing C + Ig + G + Xn.

13. A nation's gross domestic product (GDP) by the expenditure approach: A. can be found by summing C + Ig + G + Xn. B. is the dollar value of the total output produced by its citizens, regardless of where they are living. C. can be found by summing C + S + G + Xn. D. is always some amount less than its NDI.

B. the purchase of a new house

14. Which of the following do national income accountants consider to be "investment"? A. the purchase of an automobile for private, non-business use B. the purchase of a new house C. the purchase of corporate bonds D. the purchase of gold coins

B. the purchase of 100 shares of Bell Canada by a retired business executive

15. Which of the following is not an economic investment? A. the purchase of a drill press by the Ajax Manufacturing Company B. the purchase of 100 shares of Bell Canada by a retired business executive C. construction of a suburban housing project D. the piling up of inventories on a grocer's shelf

C. of $18 million has occurred.

16. The ZZZ Corporation issued $25 million in new common stock in 2012. It used $18 million of the proceeds to replace obsolete equipment in its factory and $7 million to repay bank loans. As a result, investment: A. of $7 million has occurred. B. of $25 million has occurred. C. of $18 million has occurred. D. has not occurred.

D. gross investment less consumption of fixed capital.

17. Net investment refers to: A. the amount of machinery and equipment used up in producing GDP in a specific year. B. the difference between the market value and book value of outstanding capital stock. C. gross domestic investment less net exports. D. gross investment less consumption of fixed capital.

C. the production of 1933's GDP used up more capital goods than were produced in that year.

18. In 1933 net investment was minus $208 million. This meant that: A. gross investment exceeded depreciation by $208 million. B. the economy was expanding in that year. C. the production of 1933's GDP used up more capital goods than were produced in that year. D. the economy produced no capital goods at all in 1933.

D. depreciation exceeds gross investment

19. In an economy experiencing a declining production capacity: A. the nation's stock of capital goods is expanding. B. net exports are necessarily zero. C. Net Investment exceeds GDP. D. depreciation exceeds gross investment

C. GDP in 2000 is $600 billion.

2. Suppose the total market value of all final goods and services produced in a particular country in 2000 is $600 billion and the total market value of final goods and services sold is $525 billion. We can conclude that: A. GDP in 2000 is $525 billion. B. NDI in 2000 is $525 billion. C. GDP in 2000 is $600 billion. D. inventories in 2000 fell by $75 billion.

B. the purchase of a new machinery by Ford

20. Which would be considered an investment according to economists? A. the buying of shares of Janus mutual funds B. the purchase of a new machinery by Ford C. the purchase of stock of MacDonald's D. the selling of IBM corporate bonds

C. subtracted from exports when calculating GDP

24. The value of Canadian imports is: A. added to exports when calculating GDP because imports reflect spending by Canadians. B. subtracted from exports when calculating GDP because imports do not entail spending by Canadians. C. subtracted from exports when calculating GDP because imports do not entail production in Canada. D. added when calculating GDP because imports do not entail production in Canada.

D. $336.

25. Refer to the above information. The gross domestic product is: A. $328. B. $402. C. $382. D. $336.

A. $422.

26. Refer to the information below. GDP is: All figures are in billions of dollars. A. $422. B. $467. C. $417. D. $402.

A. corporate income taxes, dividends and undistributed corporate profits.

27. Profits of private corporations are divided into: A. corporate income taxes, dividends and undistributed corporate profits. B. corporate income taxes, investment and distributed corporate profits. C. dividends, distributed and undistributed corporate profits. D. supplementary labour income, dividends, and distributed corporate profits.

C. disposable income.

28. The amount of after-tax income received by households is measured by: A. discretionary income. B. net domestic income. C. disposable income. D. personal income.

B. the sum of all monetary transactions involving final goods and services which occur in the economy in a year.

29. Nominal GDP is: A. the sum of all monetary transactions which occur in the economy in a year. B. the sum of all monetary transactions involving final goods and services which occur in the economy in a year. C. the amount of production which occurs when the economy is operating at full employment. D. money GDP adjusted for inflation.

C. in dollar amounts.

3. Gross domestic product (GDP) measures and reports output: A. as an index number. B. in percentage terms. C. in dollar amounts. D. in quantities of physical units (for example, kilos, litres, and bushels).

A. real GDP may either rise or fall.

30. If nominal GDP rises: A. real GDP may either rise or fall. B. we can be certain that the price level has risen. C. real GDP must fall. D. real GDP must also rise.

D. Nominal GDP must be deflated in each year since 1992 to determine real GDP.

32. Refer to the above diagram. Which of the following statements is correct? A. The price index is greater than 100 for every year shown on the graph. B. Nominal GDP must be deflated in each year prior to 1992 to determine real GDP. C. Real GDP has grown in this economy, but nominal GDP has not. D. Nominal GDP must be deflated in each year since 1992 to determine real GDP.

C. the GDP price index.

34. Nominal GDP is adjusted for price changes through the use of: A. the Consumer Price Index (CPI). B. the Producer Price Index (PPI). C. the GDP price index. D. exchange rates.

D. includes all goods comprising the nation's domestic output.

35. The GDP price index: A. includes fewer goods and services than the consumer price index. B. is identical to the consumer price index. C. is another term for the producer price index. D. includes all goods comprising the nation's domestic output.

D. all final goods and services produced in an economy in a given year.

4. GDP is the total market value of: A. all expenditures on natural resources, labor, and capital goods in an economy in a given year. B. all expenditures on consumption, investment, and net exports in an economy in a given year. C. all intermediate goods and services produced in an economy in a given year. D. all final goods and services produced in an economy in a given year.

C. goods and services purchased by ultimate users, as opposed to resale or further processing.

5. The term "final goods and services" refers to: A. goods and services which are unsold and therefore added to inventories. B. goods and services whose value has been adjusted for changes in the price level. C. goods and services purchased by ultimate users, as opposed to resale or further processing. D. the excess of Canadians exports over Canadians imports.

C. a haircut

7. Which of the following is a final good or service? A. diesel fuel bought for a delivery truck B. fertilizer purchased by a farm supplier C. a haircut D. Chevrolet windows purchased by a General Motors assembly plant

D. $1,500.

8. A business buys $5,000 worth of resources to produce a product. The business makes 100 units of the product and each of them sells for $65. The value added by the business to these products is: A. $5,000. B. $6,500. C. $1,000. D. $1,500.

A. the value of intermediate goods purchased from other firms.

9. Value added is the value of a firm's output minus: A. the value of intermediate goods purchased from other firms. B. the compensation it pays to employees. C. the value of its capital goods. D. its depreciation.

D. 80 percent.

The table below indicates the price and output data over a five year period for an economy that produces only one good. 33. Refer to the above data. If year 2 is the base year, the percentage increase in real GDP from year 2 to year 4 is: A. 40 percent. B. 60 percent. C. 100 percent. D. 80 percent.