Measuring a Nation’s Income 5791
27. The government computes measures of income other than GDP because these other measures
usually tell different stories about overall economic conditions.
a. True
b. False
28. When an American doctor opens a practice in Bermuda, his production there is part of U.S.
GNP.
a. True
b. False
29. Disposable personal income is the income that households and noncorporate businesses have left after
satisfying all their obligations to the government.
a. True
b. False
5792 Measuring a Nation’s Income
30. Expenditures by households on education are included in the consumption component of GDP.
a. True
b. False
31. Expenditures by households on education are included in the investment component of GDP.
a. True
b. False
32. Most goods whose purchases are included in the investment component of GDP are used to
produce other goods in future periods.
a. True
b. False
Measuring a Nation’s Income 5793
33. New home construction is included in the consumption component of GDP.
a. True
b. False
34. Changes in inventory are included in the investment component of GDP.
a. True
b. False
35. If a firm produces a good and then adds it to its inventory rather than selling it, for the purposes of
GDP accounting the firm is considered to have “purchased” the good so it will count as part of
that period’s investment expenditures.
a. True
b. False
5794 Measuring a Nation’s Income
36. The investment component of GDP refers to financial investment in stocks and bonds.
a. True
b. False
37. The government’s purchases of goods but not its purchases of services are included in GDP.
a. True
b. False
38. The government purchases component of GDP includes salaries paid to soldiers but not Social
Security benefits paid to the elderly.
a. True
b. False
Measuring a Nation’s Income 5795
39. If the value of an economy’s imports exceeds the value of that economy’s exports, then net
exports is a negative number.
a. True
b. False
40. If someone in the United States buys a surfboard produced in Australia, then that purchase is
included in both the consumption component of U.S. GDP and the net exports component of
U.S. GDP.
a. True
b. False
41. A consumer buys toys made in China. The value of the toys is included only in the net exports
component of GDP.
a. True
b. False
5796 Measuring a Nation’s Income
42. If Brazil buys $100 million of tractors from the U.S., then U.S. net exports will decrease.
a. True
b. False
43. The overall effect of accounting for purchases of foreign goods in GDP reduces GDP.
a. True
b. False
44. If consumption is $4000, exports are $300, government purchases are $1000, imports are $400,
and investment is $800, then GDP is $5700.
a. True
b. False
Measuring a Nation’s Income 5797
45. If consumption is $7000, exports are $600, government purchases are $2000, government
transfers are $900, imports are $800, and investment is $1000, then GDP is $9,800.
a. True
b. False
46. If exports are $500, GDP is $8000, government purchases are $1200, imports are $700, and
investment is $800, then consumption is $6200.
a. True
b. False
47. If consumption is $1800, GDP is $4300, government purchases are $1000, imports are $700, and
investment is $1200, then exports are $300.
a. True
b. False
5798 Measuring a Nation’s Income
48. U.S. GDP was almost $14 billion in 2009.
a. True
b. False
49. In 2009, government purchases was the largest component of U.S. GDP.
a. True
b. False
50. The output of goods and services produced in the United States has grown on average 3 percent
per year since 1965.
a. True
b. False
Measuring a Nation’s Income 5799
51. If total spending rises from one year to the next, then the economy must be producing a larger
output of goods and services.
a. True
b. False
52. An increase in nominal U.S. GDP necessarily implies that the United States is producing a larger
output of goods and services.
a. True
b. False
53. Nominal GDP uses constant base-year prices to place a value on the economy’s production of
goods and services, while real GDP uses current prices to place a value on the economy’s
production of goods and services.
a. True
b. False
5800 Measuring a Nation’s Income
54. Real GDP evaluates current production using prices that are fixed at past levels and therefore
shows how the economy’s overall production of goods and services changes over time.
a. True
b. False
55. The term real GDP refers to a country’s actual GDP as opposed to its estimated GDP.
a. True
b. False
56. Changes in real GDP reflect only changes in the amounts being produced.
a. True
b. False
Measuring a Nation’s Income 5801
57. If real GDP and the GDP deflator both rise, then it must be that nominal GDP rose.
a. True
b. False
58. Real GDP is a better gauge of economic well-being than is nominal GDP.
a. True
b. False
59. Changes in the GDP deflator reflect only changes in the prices of goods and services.
a. True
b. False
5802 Measuring a Nation’s Income
60. If nominal GDP is $10,000 and real GDP is $8,000, then the GDP deflator is 125.
a. True
b. False
61. If nominal GDP is $12,000 and the GDP deflator is 80, then real GDP is $15,000.
a. True
b. False
62. Economists use the term inflation to describe a situation in which the economy’s overall production
level is rising.
a. True
b. False
Measuring a Nation’s Income 5803
63. The GDP deflator can be used to take inflation out of nominal GDP.
a. True
b. False
64. If the GDP deflator in 2009 was 160 and the GDP deflator in 2010 was 180, then the inflation rate
in 2010 was 12.5%.
a. True
b. False
65. If the GDP deflator in 2009 was 150 and the GDP deflator in 2010 was 175, then the inflation rate
in 2010 was 25%.
a. True
b. False
5804 Measuring a Nation’s Income
66. In 2009, the level of U.S. real GDP was close to four times its 1965 level.
a. True
b. False
67. Periods during which real GDP rises are called recessions.
a. True
b. False
68. Recessions are associated with lower incomes, rising unemployment, and falling profits.
a. True
b. False
Measuring a Nation’s Income 5805
69. If real GDP is higher in one country than in another, then we can be sure that the standard of
living is higher in the country with the higher real GDP.
a. True
b. False
70. Real GDP per person tells us the income and expenditure of the average person in the economy.
a. True
b. False
71. GDP does not directly measure those things that make life worthwhile, but it does measure our
ability to obtain many of the inputs into a worthwhile life.
a. True
b. False
5806 Measuring a Nation’s Income
72. GDP is a good measure of economic well-being for all purposes.
a. True
b. False
73. GDP does not make adjustments for leisure time, environmental quality, or volunteer work.
a. True
b. False
74. GDP is adjusted to reflect changes in the quality of the environment such as changes in air and
water quality.
a. True
b. False
Measuring a Nation’s Income 5807
75. Typically in countries with lower levels of real GDP person, a smaller percentage of the
population is literate.
a. True
b. False
76. Other things equal, in countries with higher levels of real GDP per person, life expectancy and
literacy rates are higher than in countries with lower levels of real GDP per person.
a. True
b. False
77. GDP is defined as the market value of all final goods and services produced within a country in a
given period of time. In spite of this definition, some production is left out of GDP. Explain why
some final goods and services are not included.
5808 Measuring a Nation’s Income
78. Explain why it is the case that the value of intermediate goods produced and sold during the year
is not included directly as part of GDP, but the value of intermediate goods produced and not sold
is included directly as part of GDP.
79. Since it is counted as investment, why doesn’t the purchase of earthmoving equipment from China
by a U.S. corporation increase U.S. GDP?
Measuring a Nation’s Income 5809
80. Identify the immediate effect of each of the following events on U.S. GDP and its components.
a. James receives a Social Security check.
b. John buys an Italian sports car.
c. Henry buys domestically produced tools for his construction company.
81. Between 1929 and 1933, NNP measured in current prices fell from $96 billion to $48 billion. Over
the same period, the relevant price index fell from 100 to 75.
a. What was the percentage decline in nominal NNP from 1929 to1933?
b. What was the percentage decline in real NNP from 1929 to 1933? Show your work.