17) 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.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
18) Spending on inancial 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
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
19) 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
irm.
E) is counted as part of import expenditure in the GDP accounts because Honda is a foreign
irm.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
31
20) Recently, the government made adjustments to how GDP is calculated that included
placing software purchases into the category of
A) intermediate goods because software is not a inal good.
B) inventory and now software purchases are not directly counted as part of GDP.
C) investment and now directly counts software purchases as part of GDP.
D) net exports of goods and services because most software is written abroad.
E) net operating surplus.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
21) Which of the following is true regarding the measurement of GDP?
A) Wages and proit income are used in the income approach to GDP.
B) Wages and consumption are used in the expenditure approach to GDP.
C) Consumption and investment are used in the income approach to GDP.
D) Government expenditure is only counted in the income approach to GDP.
E) Investment and wages are expenditures, and are therefore are used in the expenditure
approach to GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
22) The income approach measures GDP by summing
A) C + I + G + NX.
B) the total production of all inal goods and services produced in a year within a country’s
borders.
C) the wealth of households, business and government.
D) the incomes paid households for the resources they own.
E) Both answers A and D are correct.
Skill: Level 1: Deinition
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
32
23) The income approach to measuring GDP is based on summing
A) the production of each industry.
B) wages, interest, rent, and proits.
C) the values of inal goods, intermediate goods and services, used goods, and inancial
assets.
D) consumption expenditure, investment, government expenditures on goods and services,
and net exports of goods and services.
E) consumption expenditure and wages.
Skill: Level 1: Deinition
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
24) According to the income approach to measuring GDP, the largest income category is
A) wages.
B) interest.
C) rent.
D) proits.
E) consumption expenditure.
Skill: Level 1: Deinition
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
25) In 2009 in the United States, net domestic product at factor cost was $11,091 billion.
Additionally, rent was $2,000 billion, proits were $1,000 billion, and interest was $358
billion. Hence wages were
A) $7,733 billion.
B) $9,091 billion.
C) $10,091 billion.
D) $8,091 billion.
E) $12,091 billion.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
33
26) When measuring GDP by the income approach, wage income includes
i. health-care insurance paid for by the irm for its employees.
ii. Social Security contributions made by the irm.
iii. wages paid during a worker’s vacation time.
A) i, ii and iii
B) i and ii only
C) i only
D) ii only
E) ii and iii only
Skill: Level 1: Deinition
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
27) Which of the following are included in interest income?
i. payments made for the use of land
ii. income paid to households for loans they make
iii. payments made by households for their borrowing
A) i, ii and iii
B) ii and iii only
C) i and ii only
D) ii only
E) iii only
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
28) The category of “rent” in the income approach to GDP
A) includes the money paid to rent apartments only.
B) includes the money paid to rent machinery only.
C) includes the money paid to use land and other rented inputs.
D) does not have any connection to owner-occupied housing.
E) includes only the imputed rent for owner-occupied housing.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
34
29) Adding wages, interest, rent, and proits yields
A) gross domestic product.
B) gross domestic product at factor cost.
C) net domestic product at factor cost.
D) GNP.
E) total expenditure.
Skill: Level 1: Deinition
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
30) The sum of all the income categories listed in the National Income and Product
Accounts adds up to
A) gross domestic product.
B) net national product.
C) disposable income after taxes.
D) net domestic product at factor cost.
E) gross national product.
Skill: Level 1: Deinition
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
31) Once the categories of income are totaled, the sum is called
A) “GDP measured by the income approach.”
B) “net domestic product at factor cost” and is not equal to GDP.
C) “net domestic product at factor cost” and is equal to GDP.
D) “total income earned” and is equal to GDP.
E) GNP and is not equal to GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
35
32) One reason the total sum of the income categories does not equal GDP is that
A) GDP values goods and services at market prices and the income approach values them
at factor cost.
B) GDP values goods and services at retail prices and the income approach values them at
wholesale cost.
C) taxes are generally larger than subsidies and the depreciation of capital is negligible.
D) GDP does not include depreciation, which is part of the income categories.
E) people do not spend all their income, so the value of consumption expenditure is less
than the value of wages.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
33) After calculating net domestic product at factor cost, to calculate GDP using the income
approach, in part we must add
A) wages.
B) net operating surplus.
C) indirect taxes and depreciation.
D) interest, rent, and proit.
E) subsidies.
Skill: Level 1: Deinition
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
34) To measure GDP by using the income approach, we must add all incomes and then
________ depreciation and ________ net taxes less subsidies.
A) neither add nor subtract; add
B) add; neither add nor subtract
C) add; add
D) add; subtract
E) subtract; add
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
36
35) If the statistical discrepancy is zero, in order to calculate GDP from the value of net
domestic product at factor cost, we must add
A) the value of intermediate goods and subtract the value of imports.
B) direct taxes, subtract corporate proit, and add investment.
C) indirect taxes, subtract subsidies, and add depreciation.
D) subsidies, subtract indirect taxes and depreciation.
E) indirect taxes, subsidies, and depreciation.
Skill: Level 1: Deinition
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
36) To calculate GDP using the income approach, one of the adjustments made to net
domestic product at factor cost is to
A) add depreciation.
B) add investment.
C) subtract investment.
D) add consumption expenditure.
E) subtract indirect taxes less subsidies.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
37) Which adjustment(s) must be made to convert net domestic product to GDP?
i. add indirect taxes
ii. subtract subsidies
iii. add depreciation
A) i and iii only
B) i, ii and iii
C) ii only
D) iii only
E) i and ii
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
37
38) Last year in a nation to the south, net domestic product at factor cost equaled $3,300
billion. Indirect taxes minus subsidies equaled $200 billion, depreciation equaled $800
billion, the statistical discrepancy equaled zero, and net operating surplus equaled $150
billion. The country’s GDP was
A) $2,300 billion.
B) $3,500 billion.
C) $4,300 billion.
D) $4,450 billion.
E) $4,150 billion.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
39) The table above has information about an economy. Using this information, GDP equals
A) $6,500 billion.
B) $7,800 billion.
C) $7,000 billion.
D) $8,500 billion.
E) some amount that cannot be calculated without information on the amount of
government expenditures.
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
38
40) Using the information in the table above, what does GDP equal?
A) $365 billion
B) $350 billion
C) $650 billion
D) $380 billion
E) GDP cannot be calculated without information on the amount of investment.
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
41) The expenditure approach values ________ and the income approach values ________.
A) goods and services at market prices; services at factor prices
B) goods and services at market prices; goods and services at factor prices
C) only goods at market prices; only services at factor prices
D) services only at factor prices; goods only at market prices
E) goods and services at factor prices; goods and services at market prices
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
39
42) 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.
Skill: Level 1: Deinition
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
43) Real GDP measures the value of goods and services produced in a given year valued
using
A) base year prices.
B) prices that prevail the same year.
C) no prices.
D) future prices.
E) real rather than nominal prices.
Skill: Level 1: Deinition
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
44) Real GDP is the value of inal goods and services produced in a year
A) expressed in the prices of that same year.
B) during a recession.
C) minus depreciation.
D) expressed in the prices of a base year.
E) minus the value of all the intermediate goods produced.
Skill: Level 1: Deinition
Section: Checkpoint 5.2
Status: Old
AACSB: Relective thinking
40