31) Expenditures on U.S. produced steaks, shoes, and doctor visits are most likely classiied
as
A) consumption expenditure.
B) investment.
C) government expenditure on goods and services.
D) net exports of goods and services.
E) net imports of goods and services.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
32) Investment is the expenditure done by
A) savers.
B) irms.
C) governments.
D) the rest of the world.
E) Both answers A and B are correct.
Skill: Level 1: Deinition
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
33) Investment is deined as the purchase of
A) any inancial asset only.
B) additions to inventories only.
C) inancial assets and inventories only.
D) new capital goods and additions to inventories.
E) new capital goods but not additions to inventories.
Skill: Level 1: Deinition
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
11
34) 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
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii
Skill: Level 1: Deinition
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
35) Economists deine investment to include purchases of
A) capital goods and inventories.
B) capital goods, household durable goods, and inventories.
C) capital goods, such as tools, instruments, and buildings.
D) capital goods, equity stocks, and bonds.
E) capital goods, equity stocks, and inventories.
Skill: Level 1: Deinition
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
36) 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.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
12
37) In measuring GDP, which of the following is included?
A) the value of preparing meals at home
B) the value of stocks and bonds bought and sold
C) the value of used goods when they are sold
D) the value of increases in business inventories
E) the value of durable consumption goods but not the value of nondurable consumption
goods.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
38) If a irm does not sell all of the goods that it produces in a given time period, then the
goods
A) do not count in GDP ever.
B) do not count in GDP for that time period but always count next period.
C) count positively in GDP as inventory investment.
D) count negatively in GDP as inventory investment.
E) count in GDP the period they are sold to the inal user.
Skill: Level 1: Deinition
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
39) This year a irm produces $100 million worth of cars this year and sells $102 million
worth of cars. Which of the following is true?
A) GDP for this year will increase by $100 million.
B) GDP for this year will increase by $102 million.
C) Inventory investment will increase by $2 million.
D) GDP for this year will increase by $202 million.
E) The premise of the question is wrong because it is impossible for a irm to sell more than
it produces in a given time period.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
13
40) Bob’s Funky T-shirts began the year with 1,000 shirts in inventory, produced 10,000
shirts during the year and ended the year with 1,100 shirts in inventory. The 100 shirts
added to his inventory will be classiied as
A) consumption expenditure.
B) investment.
C) net exports of goods and services.
D) exports of goods and services.
E) nondurable consumption goods.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
41) Kelly’s Surf Shop orders 5,000 new surf boards at the beginning of the year but only
sells 4,500 by the end of the year. How are the 500 unsold surfboards accounted for in
Gross Domestic Product?
A) They will be included in the nondurable consumption category of GDP.
B) They will be included in the residential investment category of GDP.
C) They will be included in the government spending category of GDP.
D) They will be included in the inventory investment category of GDP.
E) They will be included in the durable consumption category of GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.1
Status: New
AACSB: Relective thinking
42) When measuring GDP,
A) the government sector is not included because it is the public sector not the private
sector.
B) the government sector is counted, and the value of the government sector in GDP is
equal to its tax revenue.
C) only the federal government’s expenditure on goods and services are included.
D) the expenditure on goods and services by all levels of government are included.
E) the government sector is not counted because it does not produce goods and services.
Skill: Level 1: Deinition
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
14
43) 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.
A) i and ii
B) i and iii
C) ii and iii
D) i, ii and iii
E) i only
Skill: Level 2: Using deinitions
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
44) Net exports of goods and services is equal to the value of
A) exports plus the value of imports.
B) imports minus the value of exports.
C) domestic consumption minus the value of imports.
D) exports minus the value of imports.
E) domestic consumption minus the value of exports.
Skill: Level 1: Deinition
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
45) Net exports of goods and services are deined as the
A) value of the goods we sell to foreigners.
B) income we receive from selling goods to foreigners.
C) value of exports minus the value of imports.
D) value of exports minus the income we receive from foreigners.
E) value of exports plus the income we receive from foreigners.
Skill: Level 1: Deinition
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
15
46) U.S. net exports include
A) sales of Hollywood movies to the rest of the world.
B) the production of Ford Mustangs in China that are sold in China.
C) Honda automobiles produced and sold in Japan.
D) the sale of shares of Nike stock on the New York Stock Exchange.
E) the sale of U.S. government securities to U.S. citizens.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
47) In calculating GDP, we must
A) add the market value of imports and subtract the market value of exports.
B) add the market value of exports and subtract the market value of imports.
C) exclude net exports of goods and services (NX).
D) add the value of the goods produced outside of the United States by American irms.
E) subtract the market value of imports, because these goods are produced in a country
other than the United States, and subtract the market value of exports, because these
goods are consumed in a country other than the United States.
Skill: Level 1: Deinition
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
48) Which of the following expenditure components of GDP can be negative or positive?
A) Consumption expenditure
B) Investment
C) Government expenditure on goods and services
D) Net exports of goods and services
E) None of the above because expenditure can never be negative.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
16
49) Last year U.S. net exports of goods and services was negative. This fact means that last
year
A) there was an error made when calculating net exports of goods and services for the
United States.
B) the value of U.S. exports was greater than the value of U.S. imports.
C) the value of U.S. exports was less than the value of U.S. imports.
D) U.S. consumption expenditure plus investment was less than the value of exports plus
the value of imports.
E) U.S. consumption expenditure plus investment plus government expenditures on goods
and services was less than the value of exports plus the value of imports.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
50) When an American college student in Davis, California spends $200 on a pair of Louis
Vuitton jeans (a famous French brand), U.S. consumption ________, U.S. net exports ________,
and U.S. GDP ________.
A) does not change; increases by $200; increases by $200
B) increases by $200; decreases by $200; does not change
C) increases by $200; does not change; increases by $200
D) does not change; does not change; does not change
E) does not change; decreases by $200; decreases by $200
Skill: Level 2: Using deinitions
Section: Checkpoint 5.1
Status: New
AACSB: Relective thinking
51) The purchase of a new Boeing ighter jet by Israel is classiied in the U.S. GDP accounts
as
A) export expenditure.
B) consumption expenditure.
C) investment expenditure.
D) government expenditure.
E) import expenditure.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
17
52) Gross Domestic Product equals
A) Y = C + I – G + NX.
B) Y = C – I + G + NX.
C) Y = C + I + G + NX.
D) Y = C – I – G – NX.
E) Y = C + I + G – NX.
Skill: Level 1: Deinition
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
53) Last year in Candamica, consumption expenditure was $20 billion, interest, rent, and
proit were $2.5 billion, government expenditure on goods and services was $7 billion, net
exports of goods and services was $5 billion, and investment was $2 billion. Hence total
expenditure was
A) $24.5 billion.
B) $34.5 billion.
C) $36.5 billion.
D) $34 billion.
E) undetermined without information about imports.
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
54) Everything else the same, if government expenditure increases by $400 billion and
imports increase by $400 billion, then GDP
A) increases by $400 billion.
B) increases by $200 billion.
C) decreases by $400 billion.
D) does not change.
E) decreases by $200 billion.
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
18
55) Suppose that business irms spend $500 million on new capital equipment this year. Of
this $500 million, $300 million was spent on domestically produced capital and $200
million was spent on foreign-produced capital. All else equal, these transactions contribute
________ to GDP.
A) $0
B) $200 million
C) $300 million
D) $500 million
E) $800 million
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: New
AACSB: Analytical thinking
56) Undistributed proits ________ counted as part of GDP because ________.
A) are not; households are not paid by the irms
B) are; they can be used to buy other goods
C) are ; they are considered income paid to households and loaned back to irms
D) are not; they are considered an intermediate good
E) are; irms are required to pay corporate income taxes on them
Skill: Level 2: Using deinitions
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
57) Total expenditure equals total income
A) because irms pay out everything they receive as income to the factors of production.
B) if irms earn zero proit.
C) if irms do not save for future investment.
D) only if irms sell all the goods they produce in a given time period.
E) only if net taxes equals government expenditures on goods and services.
Skill: Level 1: Deinition
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
19
58) The circular low shows that GDP measures
i. total income.
ii. total expenditures.
iii. price changes.
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii
Skill: Level 1: Deinition
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
59) Because of the circular lows of expenditure and income in the economy, total ________
equals total ________ equals total ________.
A) expenditure; investment; income
B) expenditure; income; value of production
C) consumption; expenditure; value of production
D) investment; income; consumption
E) consumption; investment; expenditure
Skill: Level 1: Deinition
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
60) In the circular low, how are the “value of production,” “income,” and “expenditures”
related?
A) They have no relationship to each other.
B) Once tax payments are subtracted at each stage, they are equal.
C) Expenditures on GDP equals the value of production which equals income.
D) Once net exports of goods and services are subtracted from GDP, all three are equal.
E) Value of production always equals income but expenditures is smaller because
households save some of their income and do not spend it.
Skill: Level 1: Deinition
Section: Checkpoint 5.1
Status: Old
AACSB: Relective thinking
20