Measuring a Nation’s Income 5651
84. The government of a country, which has adopted American GDP accounting conventions,
reported that seasonally adjusted GDP in quarter 3 was $48 billion at an annual rate. This means
that the seasonally-adjusted market value of all final goods and services produced within this
country in quarter 3 was
a. $4 billion.
b. $12 billion.
c. $16 billion.
d. $48 billion.
85. The government of country A, which has adopted American GDP accounting conventions, has
calculated that the seasonally-adjusted market value of all final goods and services produced
within country A in quarter 1 was $5 billion. The government will report that GDP in quarter 1
was
a. $1.25 billion at an annual rate.
b. $4 billion at an annual rate.
c. $5 billion at an annual rate.
d. $20 billion at an annual rate.
5652 Measuring a Nation’s Income
86. The statistical discrepancy that regularly arises in national income accounting refers to the slight
difference between
a. personal income and personal disposable income.
b. estimates of GDP and actual GDP.
c. the income and expenditure approaches to the calculation of GDP.
d. the quarterly and annual approaches to the calculation of GDP.
87. A statistical discrepancy
a. exists because data sources are not perfect, so measures of expenditures and income are not
equal.
b. insures that GDP will approximately equal GNP.
c. explains the close association between GDP and quality of life measures such as literacy and
life expectancy.
d. explains the inadequacy of GDP in capturing the value of leisure and the value of a clean
environment.
Measuring a Nation’s Income 5653
88. Which government entity computes U.S. GDP every three months?
a. the Council of Economic Advisers
b. the Department of Commerce
c. the Department of Treasury
d. the Federal Reserve
89. Which of the following correctly orders U.S. income measures from largest to smallest?
a. disposable personal income, gross national product, national income, net national product,
personal income
b. personal income, net national product, national income, gross national product, disposable
personal income
c. gross national product, net national product, national income, personal income, disposable
personal income
d. disposable personal income, personal income, national income, net national product, gross
national product
5654 Measuring a Nation’s Income
90. U.S. GDP and U.S. GNP are related as follows:
a. GNP = GDP + Value of exported goods – Value of imported goods.
b. GNP = GDP – Value of exported goods + Value of imported goods.
c. GNP = GDP + Income earned by foreigners in the U.S. – Income earned by U.S. citizens
abroad.
d. GNP = GDP – Income earned by foreigners in the U.S. + Income earned by U.S. citizens
abroad.
91. U.S. GNP
a. includes production of foreigners working in the U.S. and production of U.S. citizens working in
foreign countries.
b. includes production of foreigners working in the U.S. but excludes production of U.S. citizens
working in foreign countries.
c. excludes production of foreigners working in the U.S. but includes production by U.S. citizens
working in foreign countries.
d. excludes production of foreigners working in the U.S. and production by U.S. citizens working
in foreign countries.
Measuring a Nation’s Income 5655
92. How does U.S. gross domestic product (GDP) differ from U.S. gross national product (GNP)?
a. GNP = GDP – losses from depreciation
b. GNP = GDP + income earned by U.S. citizens abroad – income that foreign citizens earned in
the U.S.
c. GNP = GDP + transfer payments to households + – indirect sales taxes
d. GNP = GDP – depreciation – retained earnings
93. If foreign citizens earn less income in the U.S. than U.S. citizens earn in foreign countries,
a. U.S. net factor payments from abroad are positive, and its GDP is larger than its GNP.
b. U.S. net factor payments from abroad are positive, and its GNP is larger than its GDP.
c. U.S. net factor payments from abroad are negative, and its GDP is larger than its GNP.
d. U.S. net factor payments from abroad are negative, and its GNP is larger than its GDP.
5656 Measuring a Nation’s Income
94. The residents of Ireland earn $200 million of income from abroad. Residents of other countries
earn $300 million in Ireland. Therefore, Ireland’s
a. net factor payments from abroad are positive, and its GDP is larger than its GNP.
b. net factor payments from abroad are positive, and its GNP is larger than its GDP.
c. net factor payments from abroad are negative, and its GDP is larger than its GNP.
d. net factor payments from abroad are negative, and its GNP is larger than its GDP.
95. The residents of country A earn $500 million of income from abroad. Residents of other countries
earn $200 million in country A. These earnings are accounted for in country A’s
a. GNP which is larger than GDP in country A.
b. GNP which is smaller than GDP in country A.
c. GDP which is larger than GNP in country A.
d. GDP which is smaller than GNP in country A.
Measuring a Nation’s Income 5657
96. Jackie, a Canadian citizen, works only in the United States. The value of the output she produces
is
a. included in both U.S. GDP and U.S. GNP.
b. included in U.S. GDP, but it is not included in U.S. GNP.
c. included in U.S. GNP, but it is not included in U.S. GDP.
d. included in neither U.S. GDP nor U.S. GNP.
97. Thomas, a U.S. citizen, works only in Canada. The value of the output he produces is
a. included in both U.S. GDP and U.S. GNP.
b. included in U.S. GDP, but it is not included in U.S. GNP.
c. included in U.S. GNP, but it is not included in U.S. GDP.
d. included in neither U.S. GDP nor U.S. GNP.
5658 Measuring a Nation’s Income
98. A Mexican oil field service company works on oil rigs in the U.S. The value of the company’s
services produced by Mexican citizens and the equipment they own is included in
a. Mexican GNP and U.S. GNP.
b. Mexican GDP and U.S. GNP.
c. Mexican GNP and U.S. GDP.
d. Mexican GDP and U.S. GDP.
99. Gina, a U.S. citizen, works only in Bermuda. The value of Gina’s production is included in
a. U.S. GDP and Bermudan GDP.
b. U.S. GDP and Bermudan GNP.
c. U.S. GNP and Bermudan GDP.
d. U.S. GNP and Bermudan GNP.
Measuring a Nation’s Income 5659
100. U.S. GDP
a. includes production of foreigners working in the U.S. and production by U.S. residents
working in foreign countries.
b. includes production of foreigners working in the U.S. but excludes production by U.S.
residents working in foreign countries.
c. excludes production of foreigners working in the U.S. but includes production by U.S.
residents working in foreign countries.
d. excludes production of foreigners working in the U.S. and production by U.S. residents
working in foreign countries.
101. Which of the following is not correct?
a. GNP equals net national product plus losses from depreciation.
b. For most countries, including the United States, GDP and GNP are nearly the same.
c. GDP and GNP typically move in opposite directions.
d. Personal income equals disposable personal income plus personal taxes plus certain nontax
payments.
5660 Measuring a Nation’s Income
102. For monitoring fluctuations in the national economy, which measure of income is best?
a. GDP
b. GNP
c. NNP
d. It does not matter very much which measure we use.
103. How is net national product (NNP) calculated?
a. Saving is subtracted from the total income of a nation’s citizens.
b. Saving is added to the total income of a nation’s citizens
c. Depreciation losses are subtracted from the total income of a nation’s citizens.
d. Depreciation losses are added to the total income of a nation’s citizens.
104. In the national income accounts, depreciation is called
a. “consumption of fixed capital.”
b. “negative investment.”
c. “diminished value.“
d. “loss due to wear.”
Measuring a Nation’s Income 5661
105. Which of the following is an example of depreciation?
a. falling stock prices
b. the retirement of several employees
c. computers becoming obsolete
d. All of the above are examples of depreciation.
106. How is net national product (NNP) calculated?
a. Saving is added to the total income of a nation’s citizens.
b. Saving is added to the total income earned within a nation.
c. Depreciation losses are subtracted from the total income of a nation’s citizens.
d. Depreciation losses are subtracted from the total income earned within a nation.
5662 Measuring a Nation’s Income
107. National income is defined as
a. the total income of a nation’s permanent residents minus losses from depreciation.
b. the income that households and noncorporate businesses receive.
c. the total income earned by a nation’s permanent residents in the production of goods and
services.
d. the income that households and noncorporate businesses have left after satisfying all their
obligations to the government.
108. National income differs from net national because
a. it includes profits of corporations.
b. of a statistical discrepancy.
c. it includes transfer payments.
d. it excludes depreciation.
Measuring a Nation’s Income 5663
109. The income that households and noncorporate businesses receive is called
a. personal income.
b. net national product.
c. disposable personal income.
d. national income.
110. Unlike national income, personal income
a. includes retained earnings, indirect business taxes, corporate income taxes and social
insurance contributions, and excludes interest and transfer payments received by households
from the government.
b. excludes retained earnings, indirect business taxes corporate income taxes, social insurance
contributions and interest and transfer payments received by households from the government.
c. excludes retained earnings, indirect business taxes, corporate income taxes and social
insurance contributions, and includes interest and transfer payments received by households
from the government.
d. includes retained earnings, indirect business taxes, corporate income taxes, social insurance
contributions, and interest and transfer payments received by households from the
government.
5664 Measuring a Nation’s Income
111. Retained earnings is income that
a. households retain after paying taxes.
b. businesses retain after paying taxes.
c. corporations have earned but have not used to invest in plant, equipment, and inventories.
d. corporations have earned but have not paid out to their owners.
112. Disposable personal income is the income that
a. households have left after paying taxes and non-tax payments to the government.
b. businesses have left after paying taxes and non–tax payments to the government.
c. households and noncorporate businesses have left after paying taxes and non-tax payments to
the government.
d. households and businesses have left after paying taxes and non–tax payments to the
government.
Measuring a Nation’s Income 5665
113. Disposable income is
a. the total income earned by a nation’s permanent residents.
b. the total income earned by a nation’s residents in the production of goods and services.
c. the income that households and non-corporate businesses receive.
d. the income that households and businesses have remaining after satisfying their obligations to
the government.
Table 23-1
The table below contains data for Chereaux for the year 2015.
GDP
$200
Income earned by citizens abroad
$9
Income foreigners earn here
$5
Losses from depreciation
$6
Indirect business taxes
$10
Statistical discrepancy
$0
Retained earnings
$8
Corporate income taxes
$12
Social insurance contributions
$30
Interest paid to households by government
$8
Transfer payments to households from government
$55
Personal taxes
$60
Nontax payments to government
$11
5666 Measuring a Nation’s Income
114. Refer to Table 23-1. The market value of all final goods and services produced within
Chereaux in 2015 is
a. $214.
b. $200.
c. $204.
d. $230.
115. Refer to Table 23–1. Gross national product for Chereaux in 2015 is
a. $186.
b. $214.
c. $200.
d. $204.
Measuring a Nation’s Income 5667
116. Refer to Table 23-1. Net national product for Chereaux in 2015 is
a. $194.
b. $196.
c. $198.
d. $204.
117. Refer to Table 23–1. Personal income for Chereaux in 2015 is
a. $178.
b. $201.
c. $259.
d. $196.
5668 Measuring a Nation’s Income
118. Refer to Table 23-1. Disposable personal income for Chereaux in 2015 is
a. $190.
b. $211.
c. $130.
d. $141.
Multiple Choice – Section 03: The Components of GDP
1. In the equation Y = C + I + G + NX,
a. Y represents the economy’s total expenditure.
b. C represents household expenditures on services and durable goods.
c. all of the variables are always positive numbers.
d. All of the above are correct.
Measuring a Nation’s Income 5669
2. GDP is equal to
a. the market value of all final goods and services produced within a country in a given period of
time.
b. Y.
c. C + I + G + NX.
d. All of the above are correct.
3. An identity is an equation that
a. describes an equilibrium.
b. pertains to macroeconomics, not to microeconomics.
c. must be true because of how the variables in the equation are defined.
d. involves final goods, not intermediate goods.
5670 Measuring a Nation’s Income
4. The consumption component of GDP includes spending on
a. durable goods and nondurable goods, but not spending on services.
b. durable goods and services, but not spending on nondurable goods.
c. nondurable goods and services, but not spending on durable goods.
d. durable goods, nondurable goods, and services.
5. Which of the following correctly lists what is included in the consumption component of GDP?
a. household purchases of services and household purchases of nondurable goods but not any
household purchases of durable goods
b. household purchases of nondurable goods and durable goods other than residential construction
but not household purchases of services
c. household purchases of services, nondurable goods, and all durable goods
d. household purchases of services, nondurable goods, and durable goods other than residential
construction