Macro-Chapter 7

Suppose that inventories were $40 billion in 2015 and $50 billion in 2016. In 2016, national income accountants would A. add $10 billion to other elements of investment in calculating total investment. B. subtract $10 billion from other elements of investment in calculating total investment. C. add $45 billion (= $90/2) to other elements of investment in calculating total investment. D. subtract $45 billion (= $90/2) from other elements of investment in calculating total investment.

A. add $10 billion to other elements of investment in calculating total investment.

That portion of corporate profits which is included in personal income is A. dividends. B. corporate income taxes. C. consumption of fixed capital. D. undistributed corporate profits.

A. dividends.

The value of transactions in the underground economy is estimated to be about what percentage of GDP in the United States? A. 2 percent B. 8 percent C. 19 percent D. 25 percent

B. 8 percent

Suppose the total monetary value of all final goods and services produced in a particular country in 2015 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that A. GDP in 2015 is $450 billion. B. NDP in 2015 is $450 billion. C. GDP in 2015 is $500 billion. D. inventories in 2015 fell by $50 billion.

C. GDP in 2015 is $500 billion.

In determining real GDP, economists adjust the nominal GDP by using the A. national productivity index. B. wholesale (producers') price index. C. GDP price index. D. consumer price index.

C. GDP price index.

In an economy, the value of inventories was $75 billion in 2016 and $63 billion in 2017. In calculating total investment for 2017, national income accountants would A. decrease it by $75 billion. B. increase it by $63 billion. C. decrease it by $12 billion. D. increase it by $138 billion.

C. decrease it by $12 billion.

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

C. disposable income.

In an economy that is experiencing a shrinking production capacity, A. gross domestic investment is negative. B. net private domestic investment is zero. C. depreciation is negative. D. depreciation exceeds gross investment.

D. depreciation exceeds gross investment.

National income is equal to

consumption + investments + gov spending + net export + foreign factor income - CFC

Corporate profits are equal to

corporate income tax + dividends + undistributed corporate profits

Net exports are equal to

exports - imports

The following are national income account data for a hypothetical economy in billions of dollars: gross private domestic investment ($320), imports ($35), exports ($22), personal consumption expenditures ($2,460), and government purchases ($470). What is GDP in this economy?

$3237 billion

Price index =

(Basket price/basket price in base year) * 100

GDP is the A. national income minus all nonincome charges against output. B. monetary value of all final goods and services produced within the borders of a nation in a particular year. C. monetary value of all economic resources used in producing a year's output. D. monetary value of all goods and services, final and intermediate, produced in a specific year.

B. monetary value of all final goods and services produced within the borders of a nation in a particular year.

The largest expenditure component of GDP is A. government purchases. B. personal consumption expenditures. C. gross private domestic investment. D. net exports.

B. personal consumption expeditures

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

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

Final goods and services refers to A. goods and services that 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, rather than for resale or further processing. D. the excess of U.S. exports over U.S. imports.

C. goods and services purchased by ultimate users, rather than for resale or further processing.

Depreciation is all of the following, except A. the difference between GDP and NDP. B. the difference between gross investment and net investment. C. the accumulation of capital stock. D. the consumption of fixed capital.

C. the accumulation of capital stock.

GDP tends to underestimate the productive activity in the economy because it excludes the value of output from A. public transfer payments to households. B. the consumption of fixed capital. C. the underground economy. D. intermediate goods.

C. the underground economy

GDP tends to overstate economic well-being because it takes into account A. all of the illegal activities conducted by organized crime in the economy. B. spending on intermediate goods that are used to produce final goods. C. total spending to deal with the adverse health effects of some products. D. the personal labor time that car owners spend working on car repairs and maintenance of their vehicles.

C. total spending to deal with the adverse health effects of some products.

In November 2016, Econland Motors produced an automobile that was delivered to a local dealership in December 2016. The auto was then sold to Sharon Smith for personal use in February 2017. Following national income accounting practices, this auto would be counted as part of A. consumption in 2016 and consumption in 2017. B. consumption in 2016 and investment in 2017. C. negative investment in 2016 and consumption in 2017. D. investment in 2016 and negative investment in 2017.

D. investment in 2016 and negative investment in 2017.

When gross investment is positive, net investment A. is always zero B. must be negative. C. must be positive. D. may be either positive or negative.

D. may be either positive or negative.

Environmental pollution is accounted for in A. GDP. B. PI. C. DI. D. none of these.

D. none of these.

Capital is a A. flow, whereas gross investment and depreciation are stocks. B. flow, as are gross investment and depreciation. C. stock, as are gross investment and depreciation. D. stock, whereas gross investment and depreciation are flows.

D. stock, whereas gross investment and depreciation are flows.

If the economy adds to its inventory of goods during some year, A. gross investment will exceed net investment by the amount of the inventory increase. B. this amount should be ignored in calculating that year's GDP. C. this amount should be subtracted in calculating that year's GDP. D. this amount should be included in calculating that year's GDP.

D. this amount should be included in calculating that year's GDP.

The concept of net domestic investment refers to A. the amount of machinery and equipment used up in producing the 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. total investment less the amount of investment goods used up in producing the year's output.

D. total investment less the amount of investment goods used up in producing the year's output.

Over a period of time, a nation's GDP increases by 8 percent in constant-price terms and by 6 percent in current-price terms. Other things being equal, the price level must have changed by about A. 14 percent. B. 4 percent. C. 2 percent. D. −2 percent.

D. −2 percent.

If gross investment is positive, it means that firm (or the economy) must be expanding. T/F

F

Personal consumption expenditures include expenditures for new houses. T/F

F

NDP (net domestic product) is

GDP(gov purchases + consumption + gross investment + exports - imports) - consumption of fixed capital (depreciation)