ECON 252 Chapter 3 Review

The government (G) component of aggregate expenditure includes: (Select all that apply) A. salaries to teachers, firefighters, and police officers B. interest on the national debt C. infrastructure, such as highways and bridges D. transfer payments E. military hardware purchases

A, C, and E

The GDP Deflator formula is:

(Nominal GDP/ Real GDP) x 100

GDP is estimated using expenditure-based accounting by using the equation: A. GDP= C + I + G + X - M B. GDP= C + I + G + X + M C. GDP= C + I + G D. GDP= C + I + G + X

A

Suppose the production of foreign-owned factors operating in the United States exceeds the production of U.S. owned factors operating abroad. For the United States, A. gross domestic product is larger than gross national product B. gross national product is larger than gross domestic product

A

What is the key difference between the Consumer Price Index (CPI) and the GDP deflator? A. The two indexes measure price changes for different baskets of products B. The formulas used to construct the indexes bear little resemblance to each other C. The GDP deflator includes imports, while the CPI only includes domestically produced goods and services D. The CPI is broader in coverage than is the GDP deflator

A

Which is not a well-known problem of using GDP as a measure of welfare: A. GDP only counts goods that pass through official organized markets B. GDP does not take into account intermediate products C. GDP makes no adjustment for externalities or leisure time D. GDP doesn't adjust for the distribution of goods

B

Which of the following are not included in GDP but probably should be: (Select all that apply) A. Financial asset transactions B. Transactions in the underground economy C. Home production D. The value of second-hand products bought at thrift shops and yard sales

B and C

A firm's added value refers to the dollar value of: A. the intermediate products a firm buys from other producers B. a firm's total sales revenue C. a firm's sales revenue minus the firm's purchases of intermediate products D. a firm's sales revenue minus the firm's profits

C

If the level of aggregate expenditure was $16.8 trillion in 2013, the level of aggregate income in the economy during 2013 was: A. less than $16.8 trillion because taxes will reduce income below aggregate expenditure B. less than $16.8 trillion because the United States imports more than it exports C. also $16.8 trillion because of the identity between aggregate expenditure and income D. more than $16.8 trillion because transfers (entitlements) allow income to exceed aggregate expenditure

C

When current market prices are used to determine the value of each unit that is produced in an economy, the resulting aggregate is known as: A. unadjusted GDP B. real GDP C. nominal GDP D. constant dollar GDP

C

Which of the following will be considered a final good in the calculation of U.S. GDP? A. Dress shirts purchased by a men's clothier B. Processors manufactured in California for Apple's new range of laptops C. Defense equipment purchased by the federal government D. Foot massages as spas in California

C and D

The market value of the production generated by the factors of production possessed or owned by a nation's residents is: A. gross domestic income B. net national product C. gross domestic product D. gross national product

D

Which one is an important adjustment to the price indexes to get an accurate measure of inflation: A. adjusting for substitution effects by taking geometric means B. adjusting for quality of the products being consumed C. adjusting for changes in consumer preferences D. All of the above

D

Production-based accounting is used to estimate GDP by: A. computing for each firm the difference between sales and revenue and the purchase of intermediate products, then summing this difference across all firms B. adding up the incomes received by all the resources that contributed to production C. summing each firm's value added to the production process D. all of the above E. A and C only

E

Why is it essential to differentiate between real and nominal growth rates of GDP? A. The nominal growth rate is more informative than the real growth rate since it is broader in the sense that it captures both price and output changes B. The nominal growth rate combines the effect of price changes along with changes in the production of goods and services and thus gives a less clear indication of the impact on living standards C. It is the real growth rate that is meaningful since it indicates the changes in the production of goods and services, a very significant source of improved living standards D. All of the above E. B and C only

E

The category of expenditure that accounts for the highest share of GDP in the United States is _________________.

consumption

Items are classified as final goods only if they are the _______________ in a chain of production.

end product

Gross Domestic Product is the (market/intrinsic/social) value of the final goods and services produced (within the borders/by the resources) of a country during a particular period of time.

market; within the borders

In order for comparisons of production across time to be meaningful, we must use _________________.

real GDP