The total production within an economy is measured as
GDP
A measure of a country’s production is its
GDP
Gross domestic product is equal to the market value of all the final goods and services ________ in a given period of time.
produced within a country
To calculate GDP it is necessary to
B) use the market price to place a dollar value on each good produced.
How are final goods and services valued when measuring nominal GDP?
at current market prices
Measuring total production by valuing items at their market value allows us to
add together the value of different goods that have different prices.
To calculate GDP it is necessary to add up the market value of all the ________ produced within a country during a year.
final goods and services produced
If you make dinner for yourself, what would be included in the GDP?
only the market value of the ingreidients
18) Which of the following is classified as a final good or service?
i. tires bought by GM to put on new Tahoes
ii. mustard bought by Subway to put on its sub sandwiches
iii. your purchase of online access to the Wall Street Journal
only 3
20) Which of the following is a final good or service?
A) the grilled chicken purchased by Taco Bell for use in their burritos
B) a new replacement muffler installed by Midas Mufflers
C) the fertilizer purchased by Royal Lawn and Landscape
D) the computers purchased by Office Depot for sale to its customers
E) the CPUs purchased by Dell to be used in their computers
B
21) Which of the following is a final good or service?
A) tires purchased by Ford for use on one of their SUVs
B) the new economics textbook you are using
C) the hair gels used by a hair stylist at the local hair salon
D) the butter used by a chef to make butter cream frosting
E) the taco shells purchased by Taco Bell for use in their tacos
B
22) A restaurant buys fish to offer as a daily menu special. The purchase of the fish by the restaurant is
A) a consumption expenditure.
B) an investment.
C) an intermediate good.
D) an example of government expenditures on goods and services.
E) part of net exports if the fish was caught beyond the U.S. border.
C
23) Which of the following is classified as an intermediate good?
i) the purchase of a Big Mac by a college student
ii) McDonald’s purchase of pickles
iii) a McDonald’s restaurant owner’s interest payment for the loan on her building.
2
24) Which of the following would NOT be directly included in the U.S. GDP in 2010?
A) the market value of restaurant meals sold in 2010
B) the market value of the jet fuel bought by Delta to use for its flights in 2010
C) the value of the automobiles produced in 2010 at the Toyota plant located in Georgetown, KY
D) legal services provided to first time home buyers during 2010
E) the purchase of a new home in Atlanta, Georgia in 2010
B
Consumption expenditure includes spending
by households
Consumption goods and services include
washing machines and tickets to football games
Expenditures on U.S. produced steaks, shoes, and doctor visits are most likely classified as
consumption expenditure
Investment is the expenditure done by
firms
Investment is defined as the purchase of
the purchase of new capital goods and additions to inventories.
Which of the following is included as investment in GDP?
i. cars produced during the year but unsold at the end of the year
ii. new capital equipment produced and purchased during the year
iii. purchases of a company’s stocks and bonds
i and ii
Economists define investment to include purchases of
capital goods and inventories
Investment includes
A) GM’s purchase of robotic machinery.
B) student purchases of laptops.
C) Wal-Mart’s purchase of health insurance for its workers.
D) the New York City Library’s purchase of new books.
E) wages paid to military personnel.
A
33) In measuring GDP, which of the following is included?
the value of increase in business inventories
If a firm does not sell all of the goods that it produces in a given time period, then the goods
count positively in GDP as inventory investment
When measuring GDP
the expenditure on goods and services by all levels of government are included
Government expenditures on goods and services include
i) the New York City Library’s purchase of new books
ii) Washington D.C.’s purchase of gas for its city buses
iii) California’s payment of wages to prison guards.
all
Net exports of goods and services is equal to the value of
exports minus the value of imports
Net exports of goods and service are defined as the
value of exports minus the value of imports
U.S. Net exports include
sales of Hollywood movies to the rest of the world
In calculating GDP, we must
add the market value of exports and subtract the market value of exports
Which of the following expenditure components of GDP can be negative or positive?
Nets exports of goods and services
Last year U.S. net exports of goods and services was negative. This fact means that last year
the value of U.S. exports was less than the value of U.S. imports.
The purchase of a new Boeing fighter jet by Israel is classified in the U.S. GDP accounts as
export expenditure
GDP =
Y = C + I + G + NX
Total expenditure equals total income
because firms pay out everything they receive as income to the factors of production
The circular flow shows that GDP measures
i. total income.
ii. total expenditures.
iii. price changes.
i and ii
Because of the circular flows of expenditure and income in the economy, total ________ equals total ________ equals total ________.
expenditure; income; value of production
In the circular flow, how are the “value of production”, “income”, and “expenditures” related?
Expenditures on GDP equals the value of production which equal income
In a circular flow diagram, which of the following is true?
i) the value of production = income
ii) the value of production = expenditure
iii) expenditure = income
all
GDP stands for…
Gross Domestic Product
GDP is equal to the ________ value of all the final goods and services produced within a country in a given period of time.
market
The following are all final goods EXCEPT
A) flour used by the baker to make cupcakes.
B) bread eaten by a family for lunch.
C) pencils used by a 6th grader in class.
D) Nike shoes used by a basketball player.
E) a computer used by Intel to design new computer chips.
A
Which of the following is directly included in the U.S. GDP for 2013?
i. a 2013 Cadillac Escalade produced and sold as a new car in the United States in 2031
ii. tires produced in the United States, purchased by General Motors, and installed on a new Cadillac Escalade sold in 2013
iii. General Motors cars produced in Canada because General Motors is an American corporation
I
59) Production by Honda, a Japanese firm, in the United States is included in ________ GDP and production by Nike Corporation, a U.S. firm, in Vietnam is included in ________ GDP.
B) U.S.; Vietnamese
Investment is defined as
the purchase of new capital goods by firms
Total Expenditure =
C + I + G + NX
Total expenditure in the United States is equal to consumption expenditure plus investment
plus government expenditure on goods and services plus exports of goods and services minus imports of goods and services.
In order to measure gross domestic product, we can follow
two approaches: the expenditure approach and the income approach.
In 2011, U.S. GDP was
A) $15 trillion using the expenditure approach.
B) $15 trillion using the income approach.
C) $15 trillion using the expenditure approach and $14 trillion using the income approach.
D) $16 trillion using the income approach and $14 trillion using the expenditure approach.
E) both A and B are correct.
E
3) The expenditure approach to measuring GDP is done by using data on only
A) consumption expenditure.
B) consumption expenditure and investment.
C) consumption expenditure, investment, government expenditure on goods and services, and net exports of goods and services.
D) consumption expenditure, investment, and government expenditures.
E) wages, rent, interest, and profit.
C
4) In comparing the magnitudes of the components of GDP according to the expenditure approach, we see that in the United States
A) government expenditure on goods and services is the largest category.
B) investment is the largest category.
C) investment is much larger than government expenditure on goods and services.
D) investment is less than government expenditure on goods and services.
E) investment, government expenditure on goods and services, and consumption expenditure are all about the same size.
D
5) The largest expenditure category in the United States is
A) consumption expenditure.
B) investment.
C) government expenditure on goods and services.
D) net exports of goods and services.
A
6) If consumption was 70 percent of GDP and investment and government expenditure were both 18 percent each, then we see that
A) GDP can be over 100 percent because it is “gross” rather than “net.”
B) the error is due to rounding.
C) exports must be less than imports.
D) exports must be more than imports.
E) we must subtract depreciation from investment so that the components of GDP do not exceed 100 percent.
C
7) In recent years, which of the following has been negative?
A) consumption expenditure
B) investment
C) government expenditure on goods and services
D) net exports of goods and services
E) wages
D
8) In 2009 in the United States, consumption expenditure was $9,996 billion, investment was $1,559 billion, government expenditures on goods and services were $2,927 billion, and total exports were $1,492 billion. GDP equaled
A) $12,641 billion.
B) $10,120 billion.
C) $11,488 billion.
D) $14, 415 billion.
E) some amount, but there is not enough information given to calculate GDP.
E
9) Based on the data in the table above, what does GDP equal?
A) $10,200 billion
B) $10,400 billion
C) $10,000 billion
D) $9,800 billion
E) $8,900 billion
C
12) The value of used goods ________ counted as part of GDP ________.
A) are; as long as they are classified as consumption goods
B) are; as long as they are classified as investment goods
C) are not; because they were counted during the period when they were counted as new goods
D) are not; because most fall in value and would cause a decrease in the value of GDP
E) may be; as long as their value has risen
C
13) If the purchase of used goods was to be incorporated into measuring GDP using the expenditure approach, then
A) we also will have to account for spending on financial assets.
B) it will be very difficult to assign a fair market value to a used good.
C) we will be counting the value of the used goods both at the time of their production and at the time of their re-sale.
D) we will have to account for the natural depreciation that a used good experiences.
E) consumption spending would need to be adjusted for depreciation.
C
14) When calculating GDP, purchases of used goods are
A) included at the original price.
B) included by taking the original price and subtracting the (current) used price.
C) included at the (current) used price.
D) not included.
E) included at the original price minus any depreciation
D
When Jamie purchases a classic 1968 Plymouth Cuda convertible from Shane, GDP
A) does not change, because the car was not produced this year.
B) increases, because the car is a durable good and increases consumption.
C) increases, because the car is a durable good and increases investment.
D) does not change, because Jamie did not buy the car from a dealership.
E) increases, because this expenditure decreases saving.
A
Spending on financial assets ________ counted as part of GDP ________.
A) are; because the cash exchanged represents an expenditure
B) are not; because their purchase is not spending on goods or services
C) are; as long as their purchase produces income
D) are not; because interest must be paid on them
E) may be; as long as their value increases
B
The purchase of 500 shares of Honda stock by the California State Employees’ Pension fund
A) is counted as consumption expenditure.
B) is not counted as part of GDP.
C) is counted as investment in the GDP accounts.
D) is counted as part of export expenditure in the GDP accounts because Honda is a foreign firm.
E) Is counted as part of import expenditure in the GDP accounts because Honda is a foreign firm.
B
The income approach to measuring GDP is based on summing
A) the production of each industry.
B) wages, interest, rent, and profits.
C) the values of final goods, intermediate goods and services, used goods, and financial assets.
D) consumption expenditure, investment, government expenditures on goods and services, and net exports of goods and services.
E) consumption expenditure and wages.
B
According to the income approach to measuring GDP, the largest income category is
wages
Which of the following would be included in Germany’s GNP?
A) the production of BMWs (made by a German-based company) in South Carolina
B) the production of Michelin tires made in Germany by a French company and then sold directly to French consumers
C) the production of BMWs in Germany
D) the production of Michelin tires made in France by a French company and then sold to BMW in Germany for use in BMW cars
E) Answers A and C are correct.
E
Real GDP measures the value of goods and services produced in a given year valued using
base year prices
Real GDP is the value of final goods and services produced in a year
EXPRESSED IN THE PRICES OF A BASE YEAR
Real GDP can increase if the
i. quantities of goods and services produced decrease and prices fall by a smaller percentage.
ii. quantities of goods and services produced decrease and prices fall by a larger percentage.
iii. quantities of goods and services produced decrease and prices do not change.
iv. quantities of goods and services produced increase.
A) i only
B) iii only
C) iv only
D) i and iii
E) i, ii, and iii
C
________ is most likely to contribute to an improvement in our living standard.
An increase in real GDP
Nominal GDP measures the value of goods and services produced in a given year valued using
prices of the same year
Nominal GDP is GDP
using current market values
An increase in nominal GDP could result from an increase in
i. production.
ii. prices.
iii. subsidies.
A) i only
B) ii only
C) i and ii
D) i and iii
E) i, ii, and iii
C
Nominal GDP increases
A) only if total production increases.
B) only if prices increase.
C) if either prices and/or total production increase.
D) only if the productivity of resources increase.
E) only if depreciation decreases.
C
When the value of nominal GDP increases from one year to the next, we know that one or two things must have happened during that time:
A) The nation produced fewer goods and services and/or prices fell for goods and services.
B) Consumption expenditure increased and/or corporate profits increased.
C) Investment increased and/or payments to employees increased.
D) The nation produced more goods and services and/or prices rose for goods and services.
E) The value of real GDP must have increased and/or the price level must have decreased.
D
If nominal GDP increases from one year to the next, then
A) production must have increased.
B) production could have increased, decreased, or stayed the same.
C) prices must have increased.
D) prices and production must both have increased.
E) prices and production must both have decreased.
B
Which of the following statement is correct?
A) If nominal GDP increases, then real GDP must increase.
B) If nominal GDP decreases, then real GDP must increase.
C) If real GDP decreases, then nominal GDP must decrease.
D) Nominal and real GDP can change either in the same direction or the opposite direction.
E) If nominal GDP does not change, then real GDP cannot change.
D
If nominal GDP increases this year, then real GDP
could increase, decrease, or not change
If real GDP is greater than nominal GDP for a particular year then,
prices must have fallen between the current year and base yeasr
When calculating real GDP, the reference base year
allows us to calculate the value of the goods and services in terms of prices of that base year.
In calculating GDP, economists
can measure either total expenditure or total income
The expenditure approach to measuring GDP is based on summing
consumption expenditure, investment, government expenditure on goods and services, and net exports of goods and services.
Which of the following is NOT included in the expenditure approach to calculating GDP?
wages
Suppose GDP is $10 billion, consumption expenditure is $7 billion, investment is $2 billion, and government expenditure on goods and services is $2 billion. Net exports of goods and services must be
-1 billion
According to the expenditure approach to measuring GDP, in the United States, the largest component of GDP i
consumer expenditure
Expenditures in GDP do not include ________.
used goods or financial assets
Which of the following is NOT part of the income used in the income approach to measuring GDP?
taxes paid by persons
Which of the following is NOT included in the income approach to calculating GDP?
net exports of goods and services
Nominal GDP can change
if either prices or the quantities of goods and services change
The difference between nominal GDP and real GDP is
the prices used in their calculations.
GDP is
an imperfect measure of the standard of living
Even though it is not a perfect measure, economists can use real GDP to
i) compare how the value of the goods and services produced in China have changed over the past 10 years.
ii) look at the length of recessions and expansions in the United States.
iii) to compare the standard of living in China versus the standard of living in Vietnam.
A) ii only.
B) i, ii and iii
C) i and iii
D) i and ii
E) ii and iii
B
Although imperfect, which of the following is used as a measure of the standard of living?
real GDP/population
In the United States, between 1961 and 2011, there has been
i) a consistent , non-changing growth rate of potential GDP per person.
ii) an increase in the standard of living based on real GDP per person.
iii) fluctuations in real GDP per person around potential GDP per person.
A) ii only
B) i, ii and iii
C) i and ii only

D) ii and iii
E) i only

D
x

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