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6. Consumption consists of spending by households on goods and services, with the exception of
a. purchases of intangible services.
b. purchases of durable goods.
c. purchases of new houses.
d. spending on education.
7. Which of the following is included in the consumption component of GDP?
a. household purchases of appliances.
b. household purchases of medical care.
c. household purchases of food.
d. All of the above are included in the consumption component of GDP.
5672 Measuring a Nation’s Income
8. Which of the following is an example of a durable good?
a. a hair dryer.
b. a suit.
c. a pair of shoes.
d. All of the above are correct.
9. Which of the following is not an example of a durable good?
a. a refrigerator.
b. an automobile.
c. a business suit.
d. a furnace.
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10. All of the following are examples of a nondurable good except
a. a pencil.
b. one gallon of gasoline.
c. a queen-size bed.
d. a pair of shoes.
11. When economists refer to intangible items, they are referring to such things as
a. illegal goods, and the value of such items is included in GDP.
b. illegal goods, and the value of such items is excluded from GDP.
c. hair styling and dental care, and the value of such items is included in GDP.
d. hair styling and dental care, and the value of such items is excluded from GDP.
5674 Measuring a Nation’s Income
12. Household spending on education is included in
a. consumption, although it might be argued that it would fit better in investment.
b. investment, although it might be argued that it would fit better in consumption.
c. government spending, based on the fact that most higher-education students attend publicly-
supported colleges and universities.
d. None of the above is correct; in general, household spending on services is not included in any
component of GDP.
13. Household spending on education is counted in which component or subcomponent of GDP?
a. consumption of durable goods
b. consumption of nondurable goods
c. consumption of services
d. investment
Measuring a Nation’s Income 5675
14. Which of the following is included in the consumption component of U.S. GDP?
a. purchases of staplers, paper clips, and pens by U.S. business firms
b. purchases of natural gas by U.S. households
c. purchases of newly constructed homes by U.S. households
d. All of the above are correct.
15. If you buy a burger and fries at your favorite fast food restaurant,
a. then neither GDP nor consumption will be affected because you would have eaten at home had
you not bought the meal at the restaurant.
b. then GDP will be higher, but consumption spending will be unchanged.
c. then GDP will be unchanged, but consumption spending will be higher.
d. then both GDP and consumption spending will be higher.
5676 Measuring a Nation’s Income
16. Micah buys a used car for $10,000 and spends $200 on a new radio that is made in the U.S. The
end result of these two transactions is
a. U.S. consumption purchases increase by $200 and U.S. GDP increases by $200.
b. U.S. consumption purchases increase by $200 and U.S. GDP increases by $10,000.
c. U.S. consumption purchases increase by $10,000 and U.S. GDP increases by $10,200.
d. U.S. consumption purchases increase by $10,200 and U.S. GDP increases by $10,200.
17. For the purpose of calculating GDP, investment is spending on
a. stocks, bonds, and other financial assets.
b. real estate and financial assets such as stocks and bonds.
c. capital equipment, inventories, and structures, including household purchases of new housing.
d. capital equipment, inventories, and structures, excluding household purchases of new housing.
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18. What word do economists use to refer to the purchase of goods that will be used in the future to
produce more goods and services?
a. capital
b. consumption
c. investment
d. costs
19. Which of the following is included in the investment component of GDP?
a. households’ purchases of newly constructed homes
b. net additions to firms’ inventories
c. firms’ purchases of capital equipment
d. All of the above are correct.
5678 Measuring a Nation’s Income
20. Which of the following examples of household spending is categorized as investment rather than
consumption?
a. expenditures on durable goods such as automobiles and refrigerators
b. expenditures on intangibles items such as medical care
c. expenditures on new housing
d. All of the above are correct.
21. Which of the following items is the one type of household expenditure that is categorized as
investment rather than consumption?
a. spending on education
b. the purchase of stocks and bonds
c. the purchase of a new house
d. the purchase of durable goods such as stoves and washing machines
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22. Which of the following is included in the investment component of GDP?
a. spending to build new houses
b. spending to build new factories
c. spending on business equipment such as welding equipment
d. All of the above are included in the investment component of GDP.
23. Which of the following is included in the investment component of GDP?
a. spending on new residential construction and spending on stocks and bonds
b. spending on new residential construction but not spending on stocks and bonds
c. spending on stocks and bonds but not spending on new residential construction
d. neither spending on stocks and bonds nor spending on new residential construction
5680 Measuring a Nation’s Income
24. Which of the following is included in the investment component of GDP?
a. spending on new business equipment such as power tools and spending on stocks and bonds
b. spending on new business equipment such as power tools but not spending on stocks and bonds
c. spending on stocks and bonds but not spending on new business equipment such as power tools
d. neither spending on new business equipment such as power tools nor spending on stocks and
bonds
25. Which of the following is included in the investment component of GDP?
a. Elaine pays her college tuition bill.
b. John’s law firm buys him a new computer.
c. Laura buys a bond that McDonald’s sells to raise funds.
d. All of the above are correct.
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26. Which of the following is not included in the investment component of GDP?
a. The purchase of 100 shares of stock.
b. The purchase of a $1000 bond.
c. A firm’s purchase of a used van to use for deliveries.
d. None of the above are included in the investment component of GDP.
27. The Carters’ oldest son attends Big State University. He and his parents pay all his fees and
tuition. These payments count in GDP as
a. investment.
b. government spending.
c. consumption of services.
d. consumption of durable goods.
5682 Measuring a Nation’s Income
28. Consider two items that might be included in GDP: (1) the estimated rental value of owner-
occupied housing and (2) purchases of newly-constructed homes. How are these two items
accounted for when GDP is calculated?
a. Both item (1) and item (2) are included in the consumption component of GDP.
b. Item (1) is included in the consumption component of GDP, while item (2) is included in the
investment component of GDP.
c. Item (1) is included in the investment component of GDP, while item (2) is included in the
consumption component of GDP.
d. Only item (2) is included in GDP, and it is included in the investment component.
29. A U.S. publisher purchases new computers that were manufactured in the U.S. This purchase by
itself makes
a. a positive contribution both to investment and to GDP.
b. a positive contribution both to consumption and to GDP.
c. a positive contribution to GDP, but it does not affect investment or consumption.
d. a positive contribution to investment, but it does not affect GDP.
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30. A Minnesota farmer buys a new tractor made in Iowa by a German company. As a result,
a. U.S. investment and GDP increase, but German GDP is unaffected.
b. U.S. investment and German GDP increase, but U.S. GDP is unaffected.
c. U.S. investment, U.S. GDP, and German GDP are unaffected because tractors are
intermediate goods.
d. U.S. investment, U.S. GDP, and German GDP all increase.
31. GA wind farm in Iowa buys a large turbine generator from a Swedish-owned factory located in
Connecticut that uses workers who live in Connecticut. As a result,
a. U.S. investment, GDP, and GNP all increase by the same amount.
b. U.S. investment increases, but GDP and GNP are unaffected by the purchase.
c. U.S. investment and GDP increase by the same amount, but U.S. GNP increases by a smaller
amount.
d. U.S. investment and GNP increase by the same amount, but U.S. GDP increases by a smaller
amount.
5684 Measuring a Nation’s Income
32. The value of goods added to a firm’s inventory in a certain year is treated as
a. consumption, since the goods will be sold to consumers in another period.
b. intermediate goods, and so is not included in that year’s GDP.
c. investment, since GDP aims to measure the value of the economy’s production that year.
d. spending on durable goods, since the goods could not be inventoried unless they were durable.
33. onsumer goods that are produced, go into inventory, and are not sold during the current period are
a. counted as intermediate goods and so are not included in current period GDP.
b. counted in current period GDP only if the firm that produced them sells them to another firm.
c. included in current period GDP as inventory investment.
d. included in current period GDP as consumption.
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34. During the current quarter, a firm produces consumer goods and adds some of those goods to its
inventory rather than selling them. The value of the goods added to inventory is
a. not included in the current quarter GDP.
b. included in the current quarter GDP as investment.
c. included in the current quarter GDP as consumption.
d. included in the current quarter GDP as a statistical discrepancy.
35. During the third quarter of this year a firm produces consumer goods and adds some of those
goods to its inventory. During the fourth quarter of this year, the firm sells the goods at a retail
outlet, with the result that the value of its inventory at the end of the fourth quarter is smaller than
the value of its inventory at the end of the third quarter. These actions affect which component(s)
of fourth-quarter GDP?
a. they increase consumption and have no effect on investment
b. they increase consumption and decrease investment
c. they have no effect on either consumption or investment
d. they have no effect on consumption and decrease investment
5686 Measuring a Nation’s Income
36. A manufacturer produces 1 million televisions in the first quarter of the year. It sells 900,000 of
them before the end of the first quarter, and holds the others in its warehouse. How will the
100,000 unsold televisions be treated in the GDP statistics?
a. Since the televisions eventually will be bought by consumers, they will be included as
consumption in the first quarter.
b. Since the televisions were not purchased in the first quarter, they will be counted as an increase
in second- quarter GDP.
c. The televisions will be counted as a change in inventory in the first quarter and so will be
included in first- quarter GDP.
d. The televisions will be counted as a change in inventory in the first quarter, and when sold in
the second quarter will raise second-quarter GDP.
37. The local car dealership has an increase in inventory of 100 newly produced cars in 2015. In 2016,
it sells all 100 cars. Which of the following statements is correct?
a. The value of the cars in inventory will be counted as part of 2015 GDP, and the value of the
cars sold in 2016 will not increase 2016 GDP.
b. The value of the cars in inventory will not affect 2015 GDP, and the value of the cars sold in
2016 will increase 2016 GDP.
c. The value of the cars in inventory will be counted as part of 2015 GDP, and the value of the
cars sold in 2016 will increase 2016 GDP.
d. The value of the cars in inventory will not affect 2015 GDP, and the value of the cars sold in
2016 will not increase 2016 GDP.
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38. A U.S. firm produces nail guns in the first quarter of 2010 and adds them to its inventory. In the
second quarter of 2010 the firm sells the nail guns to a U.S. construction company. In which
quarter(s) does(do) these transactions raise investment?
a. the first and the second
b. the first but not the second
c. the second but not the first
d. neither the first nor the second
39. A U.S. firm produces nail guns in the first quarter of 2010 and adds them to its inventory. In the
second quarter of 2010 the firm sells the nail guns to a U.S. construction company. In which
quarter(s) is (are) GDP higher?
a. the first and the second
b. the first but not the second
c. the second but not the first
d. neither the first nor the second
5688 Measuring a Nation’s Income
40. A U.S. firm produces sweatshirts in the first quarter of 2010 and adds them to its inventory. In
the second quarter of 2010 the firm sells the sweatshirts to consumers. In which quarter(s)
does(do) these transactions raise consumption?
a. the first and the second
b. the first but not the second
c. the second but not the first
d. neither the first nor the second
41. A good is produced by a firm in 2009, added to the firm’s inventory in 2010, and sold to a
household in 2010. As a result, on net,
a. 2009 GDP increased and 2010 GDP decreased.
b. 2009 GDP decreased and 2010 GDP increased.
c. 2009 GDP did not change and 2010 GDP increased.
d. 2009 GDP increased and 2010 GDP did not change.
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42. A stove is produced by a firm in 2014, added to the firm’s inventory in 2014, and sold to a
household in 2015. It follows that
a. the value of the good is added to the investment category of 2014 GDP, added to the
consumption category of 2015 GDP, and subtracted from the investment category of 2015
GDP.
b. the value of the good is added to the investment category of 2014 GDP, added to the
consumption category of 2015 GDP, and not included in the investment category of 2015 GDP.
c. the value of the good is added to the investment category of 2014 GDP, subtracted from the
consumption category of 2015 GDP, and not included in the investment category of 2015 GDP.
d. the value of the good is added to the investment category of 2014 GDP, subtracted from the
consumption category of 2015 GDP, and added to the investment category of 2015 GDP.
43. Rocket Energy Drink Company buys sugar to produce energy drinks. At the end of a quarter both
its inventory of sugar and its inventory of energy drinks has increased. Investment for the quarter
will include
a. both the increased inventory of sugar and the increased inventory of energy drinks.
b. the increased inventory of sugar, but not the increased inventory of energy drinks.
c. the increased inventory of energy drinks, but not the increased inventory of sugar.
d. neither the increased inventory of sugar nor the increased inventory of energy drinks.
44. Which of the following items is included in GDP?
a. the sale of stocks and bonds
b. the sale of used goods
c. the sale of services such as those performed by a doctor
d. All of the above are included in GDP.
45. Government purchases include spending on goods and services by
a. the federal government, but not by state or local governments.
b. federal and state governments, but not by local governments.
c. federal, state, and local governments.
d. federal, state, and local governments, as well as household spending by employees of those
governments.