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Measuring a Nation’s Income 5691
46. Which of the following items is counted as part of government purchases?
a. The federal government pays the salary of a Navy officer.
b. The state of Nevada pays a private firm to repair a Nevada state highway.
c. The city of Las Vegas, Nevada pays a private firm to collect garbage in that city.
d. All of the above are correct.
47. Which of the following is included in government purchases?
a. unemployment benefits a state pays
b. Social Security payments the U.S. government makes
c. the services of a U.S. government attorney valued at the cost of her salary
d. All of the above are correct.
48. Recently, the U.S. national income accounts have switched to calling government purchases
a. government spending and transfer payments.
b. transfer payments and gross investment by government.
c. government consumption expenditure and gross investment.
d. government wages, salaries, and investment expenditure.
5692 Measuring a Nation’s Income
49. A form of government spending that is not made in exchange for a currently produced good or
service is called
a. a transfer payment.
b. consumption.
c. investment.
d. None of the above is correct.
50. A transfer payment is
a. a payment for moving expenses a worker receives when he or she is transferred by an
employer to a new location.
b. a payment that is automatically transferred from your bank account to pay a bill or some other
obligation.
c. a form of government spending that is not made in exchange for a currently produced good or
service.
d. the benefit that a person receives from an expenditure by government minus the taxes that
were collected by government to fund that expenditure.
Measuring a Nation’s Income 5693
51. Transfer payments
a. are payments that flow from government to households.
b. are not made in exchange for currently produced goods or services.
c. alter household income, but they do not reflect the economy’s production.
d. All of the above are correct.
52. A transfer payment is a payment made by
a. consumers, but not in exchange for a tangible product.
b. firms, but not in exchange for capital equipment.
c. foreigners, but not in exchange for a domestically-produced good or service.
d. government, but not in exchange for a currently produced good or service.
53. Transfer payments are
a. included in GDP because they represent income to individuals.
b. included in GDP because they eventually will be spent on consumption.
c. not included in GDP because they are not payments for currently produced goods or services.
d. not included in GDP because taxes will have to be raised to pay for them.
5694 Measuring a Nation’s Income
54. Which of the following represents a transfer payment?
a. You transfer $1,000 from your bank account to a mutual fund.
b. The government sends your grandfather his Social Security check.
c. You make a payment to get legal documents showing you purchased a previously owned home.
d. Your employer automatically transfers $100 each month from your wages to a non-taxable
medical spending account.
55. Social Security payments are
a. included in GDP because they represent current income.
b. included in GDP because they represent potential consumption.
c. excluded from GDP because they are not private pensions.
d. excluded from GDP because they do not reflect the economy’s production.
Measuring a Nation’s Income 5695
56. Unemployment compensation is
a. part of GDP because it represents income.
b. part of GDP because the recipients must have worked in the past to qualify.
c. not part of GDP because it is a transfer payment.
d. not part of GDP because the payments reduce business profits.
57. To encourage formation of small businesses, the government could provide subsidies; these
subsidies
a. would be included in GDP because they are part of government purchases.
b. would be included in GDP because they are part of investment expenditures.
c. would not be included in GDP because they are transfer payments.
d. would not be included in GDP because the government raises taxes to pay for them.
5696 Measuring a Nation’s Income
58. After the terrorist attacks on September 11, 2001, governments within the United States raised
expenditures to increase security at airports. These purchases of goods and services are
a. not included in GDP since they do not represent production.
b. not included in GDP since the government collects taxes to pay for them.
c. included in GDP since government expenditures on goods and services are included in GDP.
d. included in GDP only to the extent that the federal government, rather than state or local
governments, paid for them.
59. Which of the following items is counted as part of government purchases?
a. The federal government pays $2,000 in Social Security benefits to a retired person.
b. The city of Athens, Ohio pays $10,000 to a tree-trimming firm to trim trees along city
boulevards.
c. The state of Nebraska pays $1,000 to help a low-income family pay its medical bills.
d. All of the above are correct.
Measuring a Nation’s Income 5697
60. The U.S. government pays an economist at the U.S. Department of Commerce $100,000 in salary
in 2013. The economist then retires. In 2014, the government pays him $60,000 in Social Security
benefits. Which of the following is correct?
a. The 2013 payment is included in 2013 GDP as government purchases, and the 2014 payment is
included in 2014 GDP as government purchases.
b. The 2013 payment is included in 2013 GDP as government purchases, but the 2014 payment is
not included in 2014 GDP.
c. The 2013 payment is included in 2013 GDP as government purchases, and the 2014 payment is
included in 2014 GDP as government transfer payments.
d. The 2013 payment is included in 2013 GDP as government purchases, and the 2014 payment is
allocated to previous years' GDP according to the amount of work performed by the economist
each year.
61. Consider the following three items of spending by the government: (i) the federal government pays
a $500 unemployment benefit to an unemployed person; (ii) the federal government makes a
$2,000 salary payment to a Navy lieutenant; (iii) the city of Bozeman, Montana makes a $10,000
payment to ABC Lighting Company for street lights in Bozeman. Which of these payments
contributes directly to government purchases in the national income accounts?
a. only item (i)
b. only item (ii)
c. only items (i) and (ii)
d. only items (ii) and (iii)
5698 Measuring a Nation’s Income
62. Which of the following subcomponents of GDP can be either positive or negative?
a. inventory investment
b. exports
c. government purchases
d. All of the above are correct.
63. Net exports equal
a. exports plus imports.
b. exports minus imports.
c. imports minus exports.
d. GDP minus imports.
Measuring a Nation’s Income 5699
64. Net exports equal
a. exports plus imports.
b. imports minus exports.
c. Y - (C + I + G).
d. Y - (C - I - G).
65. If net exports is a negative number for a particular year, then
a. the value of firms’ inventories declined over the course of the year.
b. consumption exceeded the sum of investment and government purchases during the year.
c. the value of goods sold to foreigners exceeded the value of foreign goods purchased during the
year.
d. the value of foreign goods purchased exceeded the value of goods sold to foreigners during the
year.
5700 Measuring a Nation’s Income
66. If a U.S. citizen buys a television made in Korea by a Korean firm, then
a. U.S. net exports decrease and U.S. GDP decreases.
b. U.S. net exports are unaffected and U.S. GDP decreases.
c. U.S. net exports are unaffected and U.S. GDP is unaffected.
d. U.S. net exports decrease and U.S. GDP is unaffected.
67. A U.S. grocery chain purchases olive oil from Tunisia and sells it to U.S. consumers. In which of
the following is this transaction included?
a. U.S. consumption and U.S. imports
b. U.S. consumption but not U.S. imports
c. U.S. imports but not U.S. consumption
d. neither U.S. consumption nor U.S. imports
Measuring a Nation’s Income 5701
68. When a U.S. citizen buys $500 of Chinese-made parts for a motorcycle,
a. U.S. consumption falls by $500, U.S. net exports decline by $500, and U.S. GDP declines by
$1000.
b. U.S. consumption does not change, U.S. net exports decline by $500, and U.S. GDP declines
by $500.
c. U.S. consumption increases by $500, U.S. net exports remain the same, and U.S. GDP
increases by $500.
d. U.S. consumption increases by $500, U.S. net exports decline by $500, and U.S. GDP remains
the same.
69. If a U.S. company buys an electrical generator made in Japan by a Japanese firm, and the
Japanese firm uses the payment to buy stocks issued by a U.S. company then
a. U.S. exports and U.S imports increase.
b. U.S. exports but not U.S. imports increase.
c. U.S. imports but not U.S. exports increase.
d. neither U.S. exports nor U.S. imports increase.
5702 Measuring a Nation’s Income
70. A German citizen buys an automobile produced in the United States by a Japanese company. As a
result,
a. U.S. net exports increase, U.S. GDP is unaffected, Japanese GNP increases, German net
exports decrease, and German GNP and GDP are unaffected.
b. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease,
German GNP is unaffected, and German GDP decreases.
c. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease,
and German GNP and GDP are unaffected.
d. U.S. net exports and GDP are unaffected, Japanese GNP increases, and German net exports,
GNP, and GDP decrease.
71. A U.S. citizen buys a tea kettle manufactured in China by a company that is owned and operated
by U.S citizens. In which of the following components of U.S. GDP is this transaction accounted
for?
a. consumption and imports
b. consumption but not imports
c. imports but not consumption
d. neither consumption nor imports
Measuring a Nation’s Income 5703
72. If a U.S. citizen buys a dress made in Nepal by a Nepalese firm, then
a. U.S. consumption increases, U.S. net exports decrease, and U.S. GDP decreases.
b. U.S. consumption increases, U.S. net exports decrease, and U.S. GDP is unaffected.
c. U.S. consumption decreases, U.S. net exports increase, and U.S. GDP increases.
d. U.S. consumption decreases, U.S. net exports increase, and U.S. GDP is unaffected.
73. When an American household purchases a bottle of Italian wine for $100,
a. U.S. consumption does not change, U.S. net exports decrease by $100, and U.S. GDP
decreases by $100.
b. U.S. consumption does not change, U.S. net exports increase by $100, and U.S. GDP
increases by $100.
c. U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does
not change.
d. U.S. consumption increases by $100, U.S. net exports do not change, and U.S. GDP increases
by $100.
5704 Measuring a Nation’s Income
74. An American retailer purchased 100 pairs of shoes from a company in Mexico in the second
quarter of 2016 but does not sell them to a consumer until the third quarter of 2016. In which
quarter(s) does(do) the value of the shoes add to U.S. GDP?
a. the second and third quarters
b. the second quarter but not the third quarter
c. the third but not the second quarter
d. neither the second nor the third quarter
75. An American retailer purchased 500 pairs of shoes from a company in Thailand in the second
quarter of 2016 but does not sell them to a consumer until the third quarter of 2016. Which of the
following components of U.S. GDP is affected by this transaction in the third quarter of 2016?
a. consumption, investment and imports
b. only consumption and investment
c. only consumption and imports
d. only investment and imports
Measuring a Nation’s Income 5705
76. The city of Ann Arbor Michigan buys a police car manufactured in Germany. In the GDP
accounts this transaction is included in
a. in government expenditures and exports.
b. government expenditures and imports.
c. exports, but not government expenditures.
d. imports, but not government expenditures.
77. When an Egyptian firm purchases a cement mixer from Slovakia,
a. Egyptian investment does not change, Egyptian net exports decrease, Egyptian GDP decreases,
Slovakian net exports increase, and Slovakian GDP increases.
b. Egyptian investment increases, Egyptian net exports decrease, Egyptian GDP is unaffected,
Slovakian net exports increase, and Slovakian GDP increases.
c. Egyptian investment decreases, Egyptian net exports increase, Egyptian GDP is unaffected,
Slovakian net exports decrease, and Slovakian GDP decreases.
d. Egyptian investment increases, Egyptian net exports do not change, Egyptian GDP increases,
Slovakian net exports do not change, and Slovakian GDP is unaffected.
5706 Measuring a Nation’s Income
78. The U.S. Air Force pays a Turkish citizen $30,000 to work on a U.S. base in Turkey. As a result,
a. U.S. government purchases increase by $30,000; U.S. net exports decrease by $30,000; and
U.S. GDP is unaffected.
b. U.S. government purchases increase by $30,000; U.S. net exports are unaffected; and U.S.
GDP increases by $30,000.
c. U.S. government purchases, net exports, and GDP are unaffected.
d. U.S. government purchases are unaffected; U.S. net exports decrease by $30,000; and U.S.
GDP decreases by $30,000.
79. A Texas household receives a Social Security check for $1500, which it uses to purchase a $40
pair of shoes made in Thailand by a Thai firm, a $1240 television made by a Korean firm in
Korea, and $220 on groceries from a local store. As a result, U.S. GDP
a. increases by $40.
b. increases by $220.
c. increases by $280.
d. increases by $1500.
Measuring a Nation’s Income 5707
80. An American soldier stationed in North Carolina receives a paycheck from the federal
government for $300, which she uses to purchase a $100 MP3 player made in China by a
Chinese firm and $200 for fruit and vegetables from a local farmers market. As a result, U.S.
GDP increases by
a. $200.
b. $300.
c. $500.
d. $600.
81. Suppose a country has government expenditures of $3,500, taxes of $2,200, consumption of
$9,000, exports of $2,500, imports of $2,700, transfer payments of $750, capital depreciation of
$800, and investment of $3,000. GDP equals
a. $24,450.
b. $11,550.
c. $15,300.
d. $20,700.
5708 Measuring a Nation’s Income
82. In the economy of Talikastan in 2015, consumption was $700, exports were $200, government
purchases were $300, imports were $150, and investment was $400. What was Talikastan’s GDP
in 2015?
a. $1350
b. $1450
c. $1050
d. $1750
83. In the economy of Talikastan in 2015, consumption was $5000, exports were $400, government
purchases were $1000, imports were $600, and investment was $1200. What was Talikastan’s
GDP in 2015?
a. $6200
b. $6400
c. $7000
d. $8200
Measuring a Nation’s Income 5709
84. In the economy of Talikastan in 2015, exports were $200, GDP was $2000, government
purchases were $200, imports were $270, and investment was $500. What was Talikastan’s
consumption in 2015?
a. $830
b. $1230
c. $1370
d. $1770
85. In the economy of Talikastan in 2015, exports were $500, GDP was $6400, government
purchases were $1700, imports were $400, and investment was $1800. What was Talikastan’s
consumption in 2015?
a. $2000
b. $2800
c. $3000
d. $3800
5710 Measuring a Nation’s Income
86. In the economy of Talikastan in 2015, consumption was $6000, exports were $1000, GDP was
$10,000, government purchases were $1800, and imports were $1200. What was Talikastan’s
investment in 2015?
a. $0
b. $1200
c. $2400
d. $5600
87. In the economy of Talikastan in 2015, consumption was $3000, exports were $1200, GDP was
$8000, government purchases were $1200, and imports were $600. What was Talikastan’s
investment in 2015?
a. $3200
b. $5600
c. $2000
d. $4400
