Chapter 6 Econ 201 Multiple Choice

Income Approach GDP equation

GDP = Net domestic income + taxes - subsides + deprecation

In the computation of GDP, Social Security payments count as

A) transfer payments and are not included in GDP

Which of the following is TRUE regarding real GDP? I. Real GDP is the value of total production of the country's farms, factories, shops and offices II. Real GDP rises whenever inflation occurs III. Real GDP does not measure all that is produced A) I and II B) I and III C) II and III D) I, II and III

B. Real GDP is the value of total production of the country's farms, factories, shops and offices and Real GDP does not measure all that is produced

Real GDP measures the A) total profits earned by all businesses valued using prices from a single year. B) value of total production linked to prices of a single year. C) general upward drift in prices. D) changes in the prices of output measured in dollars.

B. value of total production linked to prices of a single year

An U.S. firm buys a new industrial sewing machine from a company located in France. Which of the following is TRUE? I. U.S. net exports decrease. II. U.S. investment increases. A) only I B) only II C) both I and II D) neither I nor II

C) both I and II

The largest component of national income is A) proprietors' income B) corporate profits. C) compensation of employees. D) rental income.

C. compensation of employees

Net Domestic income at Factor Cost Equation

Net Domestic Income = Wages (compensation of employees) + interest + rent + profit (proprietors' income

Expenditure Approach GDP Equation

Y= C+I+G+X-M C- consumption I- Investment G- Government X- Exports M- Imports

Transfer payments are not part of government expenditure on goods and services because transfer payments

do not represent the purchase of a final good or service

Potential GDP is

the maximum amount of GDP that can be produced while avoiding shortages of labor, capital, land, and entrepreneurship that would bring rising inflation.

GDP can be computed as the sum of

the total expenditures of consumption, investment, government expenditure on goods and services, and net exports over a period of time

Purchasing power parity prices are used to construct GDP data that A) can be used to make more valid comparisons between one country and another. B) is a proper measure of economic welfare. C) do not omit the underground economy. D) adjust for differences in population.

A) can be used to make more valid comparisons between one country and another.

________ refers to a period when the ________ decreases. A) Recession; growth rate of nominal GDP B) Productivity growth slowdown; growth rate of output per person C) Recession; growth rate of output per person D) Productivity growth slowdown; growth rate of real GDP

B) Productivity growth slowdown; growth rate of output per person

Suppose the country of Dingo experienced an economic trough in January 2011. We can conclude that A) Dingo's potential GDP fell in 2011. B) an expansion occurred after January 2011. C) Dingo did not experience a recession in 2010. D) real GDP in Dingo was increasing in January 2011.

B) an expansion occurred after January 2011.

The business cycle refers to A) changes in the level of the stock market. B) fluctuations in the level of real GDP around potential GDP. C) changes in the level of employment. D) changes in the level of nominal GDP.

B) fluctuations in the level of real GDP around potential GDP.

The maximum amount of production that can be produced while avoiding shortages of labor, capital, land, and entrepreneurship that would bring rising inflation is called A) actual GDP. B) potential GDP. C) nominal GDP. D) real GDP.term-20

B) potential GDP.

All of the following are components of the expenditure approach to measuring GDP EXCEPT) A) Shaniq's purchase of a meal at the Olive Garden in Atlanta B) the army buying new M1 Abram tanks. C) Ford Motor Company buying new Dell computers for use in its marketing department in Dearborn, Michigan. D) a Senator from Iowa being paid the monthly salary.

D) a Senator from Iowa being paid the monthly salary

According to the BEA, in the second quarter of 2012 state and local government spending on goods and services changed by -1.4 percent. Using the expenditure approach, this change leads to

D) a decrease in government expenditure on goods and services.

Reported GDP increases when, in fact, total production is unchanged when I. there is a shift from household production to market production. II. a previously illegal activity is legalized. A) I only B) II only C) neither I nor II D) both I and II

D) both I and II

When calculating the compensation of employees part of GDP A) fringe benefits are not included. B) the value of vacation time must be included. C) taxes withheld on earnings are not included. D) Social Security contributions must be included

D. Social Security contributions must be included

To measure GDP using the expenditure approach you must collect data on A) exports. B) wages. C) saving. D) inflation.

Exports

In the national income accounts, government expenditure on goods and services exclude A) state and local government purchases. B) transfer payments. C) local government purchases but include state government purchases. D) spending on national defense.

transfer payments

What term is used to describe the lowest point of a business cycle?

trough