ECON 312 Homework 3 (Ch 3)

Assume that a firm buys all the parts that it puts into an automobile for $10,000 and sells the automobile for $22,000. In this case, the value added by the automobile company is: (A) $12,000. (B) $22,000. (C) $20,000. (D) $10,000.

(A) $12,000.

Nominal gross domestic product (GDP) means the value of goods and services is measured in _____ prices. (A) current (B) real (C) constant (D) average

(A) current

When bread is baked but put away for later sale, this is called: (A) investment in inventory. (B) saving. (C) fixed investment. (D) waste.

(A) investment in inventory.

The national income accounts identity for an open economy is: (A) Y = C + I + G. (B) Y = C + I + G + NX. (C) Y = C + I + G − NX. (D) Y = C + I − G.

(B) Y = C + I + G + NX.

A farmer grows wheat and sells it to a miller for $1; the miller turns the wheat into flour and sells it to a baker for $3; the baker uses the flour to make bread and sells the bread for $6. The value added by the miller is: (A) $6. (B) $3. (C) $2. (D) $1.

(C) $2.

Assume that a rancher sells McDonald's a quarter-pound of meat for $1 and that McDonald's sells you a hamburger made from that meat for $2. In this case, gross domestic product (GDP) increases by: (A) $1. (B) $3. (C) $2. (D) $0.50.

(C) $2.

In the national income accounts, net exports equal exported goods: (A) minus imported goods. (B) and services plus imported goods and services. (C) and services minus imported goods and services. (D) minus imported services.

(C) and services minus imported goods and services.

In the national income accounts, the purchases of durables, nondurables, and services by households are classified as: (A) government purchases. (B) net exports. (C) consumption. (D) investment.

(C) consumption.

Real gross domestic product (GDP) is a better measure of economic well-being than nominal GDP because real GDP: (A) excludes the value of goods and services exported aboard. (B) includes the value of government transfer payments. (C) measures changes in the quantity of goods and services produced by holding prices constant. (D) adjusts the value of goods and services produced for changes in the foreign exchange rate.

(C) measures changes in the quantity of goods and services produced by holding prices constant.

In the national income accounts, all of these are classified as government purchases EXCEPT: (A) purchases of military hardware. (B) services provided by police officers. (C) services provided by U.S. senators. (D) payments made to Social Security recipients.

(D) payments made to Social Security recipients.

The value added of an item produced refers to: (A) a firm's profits on the item sold. (B) the value of the labor inputs in the production of an item. (C) the value of a firm's output less the value of its costs. (D) the value of a firm's output less the value of the intermediate goods that the firm purchases.

(D) the value of a firm's output less the value of the intermediate goods that the firm purchases.