Post-Chapter 7

Which one of the following transactions would be included in GDP? Answers: a. Mr. Doe donates $500 to his town's junior college scholarship fund. b. Ms. Smith pays $5,000 to purchase 100 shares of Microsoft stock. c. Ms. Kim pays $50 for a used picture frame at a neighborhood garage sale. Correctd. Ms. Bartolini pays $500 to fix the front end of her car damaged in a recent accident.

Correctd. Ms. Bartolini pays $500 to fix the front end of her car damaged in a recent accident.

Suppose a country had net exports of $8.3 billion and sold $52.4 billion of goods and services abroad. This country had Answers: a. $52.4 billion of exports and $44.1 billion of imports. b. $60.7 billion of exports and $52.4 of imports. c. $52.4 billion of imports and $44.1 billion of exports. d. $60.7 billion of imports and $52.4 billion of imports.

Selected Answer: Correcta. $52.4 billion of exports and $44.1 billion of imports.

Which of the following is one of the widely-acknowledged problems with the consumer price index (CPI) as a measure of the cost of living? Answers: a. It fails to account for the introduction of new goods. b. It fails to account for consumer spending on housing. c. It accounts only for consumer spending on food, clothing, and energy. d. It fails to account for the fact that consumers spend larger percentages of their incomes on some goods and smaller percentages of their incomes on other goods.

Selected Answer: Correcta. It fails to account for the introduction of new goods.

If inventory investment during a year was negative $6 billion, producers must have Answers: a. sold $6 billion more goods and services during the year than they produced. b. added goods valued at $6 billion to their stock of unsold goods and raw materials. c. produced only $6 billion of new capital assets during the year. d. produced new capital assets that exceeded the depreciation allowance by $6 billion.

Selected Answer: Correcta. sold $6 billion more goods and services during the year than they produced.

Greg, a U.S. citizen, works only in Canada. Where is the value that his labor contributes to put in national income accounting? Answers: a. It is included in both U.S. GDP and U.S. GNP. b. It is included in U.S. GNP, but it is not included in U.S. GDP. c. It is included in U.S. GDP, but it is not included in U.S. GNP. d. It is included in neither U.S. GDP nor U.S. GNP.

Selected Answer: Correctb. It is included in U.S. GNP, but it is not included in U.S. GDP.

When economists speak of changes in GDP measured in constant dollars, they mean that Answers: a. money GDP is constant. b. a price index has been used to adjust money GDP for the effects of inflation. c. the price level is constant. d. the growth rate of money GDP has been adjusted for changes in population.

Selected Answer: Correctb. a price index has been used to adjust money GDP for the effects of inflation.

Which of the following expenditures are not included in the consumption component of GDP? Answers: a. a new videocassette recorder b. purchase of a new home c. maid service d. tax preparation service e. a restaurant meal

Selected Answer: Correctb. purchase of a new home

If you wanted to compare the quantity of output of a country across time periods, which of the following would you use? Answers: a. nominal GDP b. real GDP c. the consumer price index d. the GDP deflator

Selected Answer: Correctb. real GDP

What basket of goods is used to construct the CPI? Answers: a. the least expensive and the most expensive goods and services in each major category of consumer expenditures b. only food, clothing, transportation, entertainment, and education c. the goods and services that are typically bought by consumers as determined by government surveys d. a random sample of all goods and services produced in the economy

Selected Answer: Correctc. the goods and services that are typically bought by consumers as determined by government surveys

Suppose a country had $2.4 billion of net exports and bought $4.8 billion of goods and services from foreign countries. This country would have Answers: a. $7.2 billion of imports and $4.8 billion of exports. b. $4.8 billion of exports and $2.4 billion of imports. c. $4.8 billion of imports and $2.4 billion of exports. d. $7.2 billion of exports and $4.8 billion of imports.

Selected Answer: Correctd. $7.2 billion of exports and $4.8 billion of imports.

Anna, a U.S. citizen, works only in Germany. Where is the value she adds to production in Germany included? Answers: a. In U.S. GDP, but it is not included in German GDP. b. In both German GDP and U.S. GDP. c. In neither German GDP nor U.S. GDP. d. In German GDP, but it is not included in U.S. GDP.

Selected Answer: Correctd. In German GDP, but it is not included in U.S. GDP.

Which of the following about inventory changes and GDP is true? Answers: a. Inventory investment does not affect GDP because the goods were not sold during the period. b. Inventory investment does not affect GDP because it does not represent goods produced during the period. c. Inventory investment is subtracted from GDP because the goods were not sold during the period. d. Inventory investment adds to GDP because it represents goods produced during the current period.

Selected Answer: Correctd. Inventory investment adds to GDP because it represents goods produced during the current period.

Until recently, George lived in a home that was newly constructed in 2005. In 2005, he paid $200,000 for the brand new house. He sold the house in 2006 for $225,000. Which of the following statements is correct regarding the sale of the house? Answers: a. The 2006 sale increased 2006 GDP by $225,000; furthermore, the 2006 sale caused 2005 GDP to be revised upward by $25,000. b. The 2006 sale increased 2006 GDP by $25,000 and had no effect on 2005 GDP. c. The 2006 sale increased 2006 GDP by $225,000 and had no effect on 2005 GDP. d. The 2006 sale affected neither 2005 GDP nor 2006 GDP.

Selected Answer: Correctd. The 2006 sale affected neither 2005 GDP nor 2006 GDP.

A business produced $10 million of goods in 2007 but sold only $9 million. Is the $1 million increase in inventory counted as part of the 2007 gross domestic product? Answers: a. No, because if these inventories were sold in 2008, they would be counted twice. b. Yes, but they will be added to the 2007 GDP only if they are sold in 2008. c. No, because inventories are intermediate goods. d. Yes, because these inventories are part of the output of the economy in 2007.

Selected Answer: Correctd. Yes, because these inventories are part of the output of the economy in 2007.

Which one of the following would count as investment in the national income accounts? Answers: a. buying a U.S. government bond b. buying 100 shares of Wal-Mart stock c. buying an existing house d. a freight-hauling firm buying a new domestically produced truck

Selected Answer: Correctd. a freight-hauling firm buying a new domestically produced truck