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Chapter 27 Measuring Domestic Output and National Income Answer Key
Multiple Choice Questions
1. The National Income and Product Accounts (NIPA) help economists and policymakers
to
2. The agency responsible for compiling the National Income Product Accounts for the
U.S. economy is the
3. The system that measures the economy's overall performance is formally known as
27-2
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Di f f i culty:
02 Medium
Learning Objective: 27-01 Explain how gross domestic product (GDP) is defined and
measured.
Test Bank: I
Topic:
Assessing the Economys Performance
4. A nation's gross domestic product (GDP)
5. A nation's gross domestic product (GDP)
6. GDP is the
7. Suppose Smith pays $100 to Jones.
8. 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
27-4
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. inventories in 2015 fell by $50 billion.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Di f f i culty:
02 Medium
Learning Objective: 27-01 Explain how gross domestic product (GDP) is defined and
measured.
Test Bank: I
Topic:
Assessing the Economys Performance
9. National income accountants can avoid multiple counting by
10. Gross domestic product (GDP) measures and reports output
11. By summing the dollar value of all market transactions in the economy, we would
27-5
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A. determine the market value of all resources used in the production process.
B.
obtain a sum substantially larger than the GDP.
C. determine value added for the economy.
D. measure GDP.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 27-01 Explain how gross domestic product (GDP) is defined and
measured.
Test Bank: I
Topic:
Assessing the Economys Performance
12. Final goods and services refers to
13. If intermediate goods and services were included in GDP,
27-6
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
measured.
Test Bank: I
Topic:
Assessing the Economys Performance
14. Which of the following is a final good or service?
15. Which of the following is an intermediate good?
16. Tom Atoe grows fruits and vegetables for home consumption. This activity is
27-7
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 27-01 Explain how gross domestic product (GDP) is defined and
measured.
Test Bank: I
Topic:
Assessing the Economys Performance
17. The value added of a firm is the market value of
18. Alejandro Scoobertini owns a store specializing in soccer jerseys. In 2016, he
purchased $150,000 worth of jerseys from manufacturers, employed one worker for
$40,000, purchased $20,000 worth of supplies from an office supply store, and sold
jerseys for $280,000. Based on this information, what was the value added at Alejandro's
store in 2016?
19. Arthur sells $100 worth of cotton to Bob. Bob turns the cotton into cloth, which he
sells to Camille for $300. Camille uses the cloth to make prom dresses that she sells to
Donita for $700. Donita sells the dresses for $1,200 to kids attending the prom. The total
contribution to GDP of this series of transactions is
20. Which of the following transactions would be included in GDP?
21. Value added refers to
27-9
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 27-01 Explain how gross domestic product (GDP) is defined and
measured.
Test Bank: I
Topic:
Assessing the Economys Performance
22. Assume that a manufacturer of stereo speakers purchases $40 worth of components for
each speaker. The completed speaker sells for $70. The value added by the manufacturer
for each speaker is
23. Setup Corporation buys $100,000 of sand, rock, and cement to produce ready-mix
concrete. It sells 10,000 cubic yards of concrete at $30 a cubic yard. The value added by
Setup Corporation is
24. Value added can be determined by
25. If depreciation exceeds gross investment,
26. The concept of net domestic investment refers to
27-11
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Di f f i culty:
02 Medium
Learning Objective: 27-02 Describe how expenditures on goods and services can be
summed to determine GDP.
Test Bank: I
Topic:
The Expenditures Approach
27. If depreciation (consumption of fixed capital) exceeds gross domestic investment, we
can conclude that
28. When an economy's production capacity is expanding,
29.
Economy A: gross investment equals depreciation Economy B: depreciation exceeds
gross investment Economy C: gross investment exceeds depreciation
Based on this information, positive net investment is occurring in
27-12
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A. economy A only.
B. economy B only.
C.
economy C only.
D. economies A and B only.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 27-02 Describe how expenditures on goods and services can be
summed to determine GDP.
Test Bank: I
Topic:
The Expenditures Approach
30.
Economy A: gross investment equals depreciation Economy B: depreciation exceeds
gross investment Economy C: gross investment exceeds depreciation
Other things equal, the information suggests that the production capacity in economy
31. In 1933, net private domestic investment was a minus $6.0 billion. This means that
27-13
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Di f f i culty:
02 Medium
Learning Objective: 27-02 Describe how expenditures on goods and services can be
summed to determine GDP.
Test Bank: I
Topic:
The Expenditures Approach
32. An economy is enlarging its stock of capital goods
33. If in some year gross investment was $120 billion and net investment was $65 billion,
then in that year the country's capital stock
34. GDP can be calculated by summing
27-14
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. consumption, investment, government purchases, and imports.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 27-02 Describe how expenditures on goods and services can be
summed to determine GDP.
Test Bank: I
Topic:
The Expenditures Approach
35. In national income accounting, the consumption category of expenditures includes
purchases of
36. In national income accounting, the consumption category of expenditures includes
purchases of
37. Net exports are
38. Net exports are negative when
39. Which of the following is not economic investment?
27-16
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 27-02 Describe how expenditures on goods and services can be
summed to determine GDP.
Test Bank: I
Topic:
The Expenditures Approach
40. Which of the following do national income accountants consider to be investment?
41. National income accountants define investment to include
42. Suppose that inventories were $40 billion in 2015 and $50 billion in 2016. In 2016,
national income accountants would
27-17
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. subtract $45 billion (= $90/2) from other elements of investment in calculating total
investment.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Di f f i culty:
02 Medium
Learning Objective: 27-02 Describe how expenditures on goods and services can be
summed to determine GDP.
Test Bank: I
Topic:
The Expenditures Approach
43. Suppose that inventories were $80 billion in 2015 and $70 billion in 2016. In 2016,
national income accountants would
44. Suppose that GDP was $200 billion in year 1 and that all other components of
expenditures remained the same in year 2 except that business inventories increased by $10
billion. GDP in year 2 is
27-18
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 27-02 Describe how expenditures on goods and services can be
summed to determine GDP.
Test Bank: I
Topic:
The Expenditures Approach
45. Suppose that GDP was $200 billion in year 1 and that all other components of
expenditures remained the same in year 2 except that business inventories fell by $10
billion. GDP in year 2 is
46. If the economy adds to its inventory of goods during some year,
47. The smallest component of aggregate spending in the United States is
27-19
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. consumption.
AACSB: Knowledge Application
A c c e s s i b i l i t y :
Keyboard Navigation
Blooms: Understand
Difficulty:
02 Medium
Learning Objective: 27-02 Describe how expenditures on goods and services can be
summed to determine GDP.
Test Bank: I
Topic:
The Expenditures Approach
48. In calculating GDP, governmental transfer payments, such as Social Security or
unemployment compensation, are
49. The largest component of total expenditures in the United States is
50. Government purchases include government spending on
51. In national income accounting, government purchases include
52. Transfer payments are
