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Measuring a Nation’s Income 5611
3. Which of the following is a way to compute GDP?
a. total income earned.
b. total expenditures on final goods.
c. add up the market values of all final goods and services.
d. All of the above are correct.
4. In order to include many different goods and services in an aggregate measure, GDP is computed
using, primarily,
a. values of goods and services based on surveys of consumers.
b. market prices.
c. quantities purchased by a typical urban household.
d. profits from producing goods and services.
5612 Measuring a Nation’s Income
5. Gross domestic product adds together many different kinds of goods and services into a single
measure of the value of economic activity. To do this, GDP makes use of
a. market prices.
b. statistical estimates of the value of goods and services to consumers.
c. prices based on the assumption that producers make no profits.
d. the maximum amount consumers would be willing to pay.
6. In computing GDP, market prices are used to value final goods and services because
a. market prices do not change much over time, so it is easy to make comparisons between years.
b. market prices reflect the values of goods and services.
c. market prices reflect the quantity sold.
d. None of the above is correct; market prices are not used in computing GDP.
Measuring a Nation’s Income 5613
7. GDP includes the value of all
a. final goods and services produced within a country using primarily market prices to measure the
value of goods and services.
b. final goods and services produced within a country using primarily a survey of consumers to
measure the value of goods and services.
c. goods and services produced within a country using primarily market prices to measure the value
of goods and services.
d. goods and services produced within a country using primarily a survey of consumers to measure
the value of goods and services.
8. If the price of a dress is three times the price of a pair of shoes, then a pair of shoes contributes
a. exactly one-third as much to GDP as does a dress.
b. more than one-third as much to GDP as does a dress.
c. less than one-third as much to GDP as does a dress.
d. exactly one-fourth as much to GDP as does a dress.
9. Suppose that an economy produces 20,000 units of good A which sells at $3 a unit and 40,000 units
of good B which sells at $1 per unit. Production of good A contributes
a. 1/3 times as much to GDP as the production of good B.
b. 3/2 times as much to GDP as the production of good B.
c. 3 times as much to GDP as the production of good B.
d. 2/3 times as much to GDP as production of good B.
10. Suppose that an economy produces 30,000 units of good A which sells at $3 a unit and 60,000
units of good B which sells at $2 per unit. Production of good A contributes
a. 1/2 times as much to GDP as the production of good B.
b. 3/2 times as much to GDP as the production of good B.
c. 3/4 times as much to GDP as the production of good B.
d. 4/3 times as much to GDP as production of good B.
Measuring a Nation’s Income 5615
11. Which of the following is included in GDP?
a. the market value of rental housing services, but not the market value of owner-occupied
housing services.
b. the market value of owner-occupied housing services, but not the market value of rental
housing services
c. both the market value of rental housing services and the market value of owner-occupied
housing services
d. neither the market value of owner-occupied housing services nor the market value of rental
housing services.
12. Which of the following is included in the calculation of GDP?
a. The purchase of tutoring services from a tutor who holds citizenship outside the country but
resides within the country.
b. The purchase of a new edition of a foreign textbook that was produced in a different nation.
c. The purchase of ink and paper supplies by a textbook company for the production of new
textbooks.
d. The purchase of a used textbook from a friend who took the same class last year.
5616 Measuring a Nation’s Income
13. The value of the housing services provided by the economy's owner-occupied houses is
a. included in GDP, and the estimated rental values of the houses are used to place a value on
these housing services.
b. included in GDP, and the actual mortgage payments made on the houses are used to estimate
the value of these rental services.
c. excluded from GDP since these services are not sold in any market.
d. excluded from GDP since the value of these housing services cannot be estimated with any
degree of precision.
14. Estimates of the values of which of the following non-market goods or services are included in
GDP?
a. unpaid housework but not the rental value of owner-occupied homes.
b. the rental value of owner-occupied homes but not unpaid housework.
c. unpaid housework and the rental value of owner-occupied homes.
d. Neither unpaid housework nor the rental value of owner-occupied homes.
Measuring a Nation’s Income 5617
15. Suppose an apartment complex converts to a condominium, so that the former renters are now
owners of their housing units. Suppose further that a current estimate of the value of the
condominium owners' housing services is the same as the rent they previously paid. What
happens to GDP as a result of this conversion?
a. GDP necessarily increases.
b. GDP necessarily decreases.
c. GDP is unaffected because neither the rent nor the estimate of the value owner-occupied
housing services is included in GDP.
d. GDP is unaffected because previously the rent payments were included in GDP and now the
rent payments are replaced in GDP by the estimate of the value of owner occupied housing
services.
16. James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives
in the other house. If he were to rent the house in which he lives, he could earn $12,000 per year
in rent. How much do the housing services provided by the two houses contribute to GDP?
a. $0
b. $10,000
c. $12,000
d. $22,000
5618 Measuring a Nation’s Income
17. Ryan lives in an apartment where he pays $7,000 a year in rent. Sarah lives in a house that could
be rented for $21,000 a year. How much do these housing services contribute to GDP?
a. $21,000
b. $28,000
c. $7,000
d. $14,000
18. Most goods and services produced at home
a. and most goods and services produced illegally are included in GDP.
b. are included in GDP while most goods and services produced illegally are excluded from GDP.
c. are excluded from GDP while most goods and services produced illegally are included in GDP
d. and most goods and services produced illegally are excluded from GDP.
Measuring a Nation’s Income 5619
19. GDP excludes most items that are produced and sold illegally and most items that are produced
and consumed at home because
a. the quality of these items is not high enough to contribute value to GDP.
b. measuring them is so difficult.
c. the government wants to discourage the production and consumption of these items.
d. these items are not reported on income tax forms.
20. Estimates of the values of which of the following non-market goods or services are included in
GDP?
a. the value of unpaid housework
b. the value of services provided by major household appliances purchased in a previous period
c. the estimated rental value of owner-occupied homes
d. All of the above are included in GDP.
5620 Measuring a Nation’s Income
21. Over the last few decades, Americans have chosen to cook less at home and eat more at
restaurants. This change in behavior, by itself, has
a. reduced measured GDP.
b. not affected measured GDP.
c. increased measured GDP by the value of the restaurant meals.
d. increased measured GDP by the value added by the restaurant’s preparation and serving of the
meals.
22. Over time, people have come to rely more on market-produced goods and services and less on
goods and services they produce for themselves. For example, busy people with high incomes,
rather than cleaning their own houses, hire people to clean their houses. By itself, this change has
a. caused measured GDP to fall.
b. not caused any change in measured GDP.
c. caused measured GDP to rise.
d. probably changed measured GDP, but in an uncertain direction; the direction of the change
depends on the difference in the quality of the cleaning that has resulted.
Measuring a Nation’s Income 5621
23. Joe and Jim purchase vegetables at a grocery store, but Jim also grows vegetables in his back
yard. Regarding these two practices, which of the following statements is correct?
a. Only Joe’s grocery store purchases are included in GDP.
b. Only Joe’s and Jim’s grocery store purchases are included in GDP.
c. Joe’s and Jim’s grocery store purchases are included in GDP. The vegetables from Jim’s
backyard garden are included at their market value.
d. Joe’s and Jim’s grocery store purchases are included in GDP. The vegetables from Jim’s
backyard garden are included at their market value, if Jim provides this information.
24. Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself.
Which of the following is correct? The value of changing the oil is
a. included in GDP whether Susan pays Speedy Lube to change it or changes it herself.
b. included in GDP if Susan pays Speedy Lube to change it but not if she changes it herself.
c. included in GDP if Susan changes it herself, but not if she pays Speedy Lube to change it.
d. not included in GDP whether Susan pays Speedy lube to change it or she changes it herself.
5622 Measuring a Nation’s Income
25. Rachel babysits for her sister for no pay. When she babysits for someone else she charges $8 an
hour. When is Rachel’s babysitting included in GDP?
a. When she babysits for her sister and when she babysits for someone else.
b. When she babysits for her sister, but not when she babysits for someone else.
c. When she babysits for someone else, but not when she babysits for her sister.
d. Neither when she babysits for her sister nor for someone else.
26. Which of the following is not included in GDP?
a. carrots grown in your garden and eaten by your family
b. carrots purchased at a farmer’s market and eaten by your family
c. carrots purchased at a grocery store and eaten by your family
d. None of the above are included in GDP.
Measuring a Nation’s Income 5623
27. A professional gambler moves from a state where gambling is illegal to a state where gambling is
legal. Most of his income was, and continues to be, from gambling. His move
a. raises GDP.
b. decreases GDP.
c. doesn't change GDP because gambling is never included in GDP.
d. doesn't change GDP because in either case his income is included.
28. If a state made a previously-illegal activity, such as gambling or prostitution, legal, then, other
things equal, GDP
a. decreases.
b. increases.
c. doesn't change because both legal and illegal production are included in GDP.
d. doesn't change because these activities are never included in GDP.
5624 Measuring a Nation’s Income
29. Which of the following is included in GDP?
a. medical marijuana purchased from a government-run pharmacy by a glaucoma patient
b. recreational marijuana purchased from a drug dealer by a college student
c. recreational marijuana produced and consumed by a man in his attic
d. All of the above are included in GDP.
30. Darin grows and sells marijuana to Jennifer. Thomas is an organic farmer who sells broccoli to
Jennifer. Marijuana is an illegal good and broccoli is a legal good. Assume that if Jennifer marries
either, they give her what they use to sell her. Which of the following statements is consistent
with the way GDP is computed?
a. GDP will fall if Jennifer marries either Darin or Thomas.
b. GDP will fall if Jennifer marries Darin but not if she marries Thomas.
c. GDP will fall if Jennifer marries Thomas but not if she marries Darin.
d. GDP remains the same whether Jennifer marries Darin or Thomas.
Measuring a Nation’s Income 5625
31. A farmer produces oranges and sells them to Fresh Juice, which makes orange juice. The
oranges produced by the farmer are called
a. inventory goods.
b. transitory goods.
c. final goods.
d. intermediate goods.
32. The purchase of rice produced this period is included in GDP if the rice is
a. used in a meal a restaurant sells during the same period they buy the rice.
b. purchased by a family who uses it to make tuna casserole for its supper.
c. purchased by a frozen food company to increase its inventory.
d. B and C are correct.
5626 Measuring a Nation’s Income
33. A farmer sells $25,000 worth of apples to individuals who take them home to eat, $50,000 worth
of apples to a company that uses them all to produce cider, and $75,000 worth of apples to a
grocery store that will sell them to households. How much of the farmer’s sales will be included
as apples in GDP?
a. $25,000
b. $150,000
c. $100,000
d. $125,000
34. Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian citizen,
commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose value of services
preparing meals is included in U.S. GDP?
a. Sam’s and Ellen’s.
b. Sam’s but not Ellen’s.
c. Ellen’s but not Sam’s.
d. Neither Sam’s nor Ellen’s.
Measuring a Nation’s Income 5627
35. Grapes are considered intermediate goods
a. whether the purchaser uses them to make wine to sell or eats them.
b. if the purchaser uses them to make wine to sell others but not if the purchaser eats them.
c. if the purchaser eats them, but not if the purchaser uses to them to make wine to sell.
d. None of the above is correct.
36. Gasoline is considered a final good if it is sold by a
a. gasoline station to a bus company that operates a bus route between San Francisco and Los
Angeles.
b. pipeline operator to a gasoline station in San Francisco.
c. gasoline station to a motorist in Los Angeles.
d. All of the above are correct.
5628 Measuring a Nation’s Income
37. A steel company sells some steel to a bicycle company for $150. The bicycle company uses the
steel to produce a bicycle, which it sells for $250. Taken together, these two transactions
contribute
a. $150 to GDP.
b. $250 to GDP.
c. between $250 and $400 to GDP, depending on the profit earned by the bicycle company when
it sold the bicycle.
d. $400 to GDP.
38. Al’s Aluminum Company sells $1 million worth of aluminum to Shiny Foil Company, which uses
the aluminum to make aluminum foil. Shiny Foil Company sells $4 million worth of aluminum foil
to households. The transactions just described contribute how much to GDP?
a. $1 million
b. $3 million
c. $4 million
d. $5 million
Measuring a Nation’s Income 5629
39. One bag of flour is sold for $1.00 to a bakery, which uses the flour to bake bread that is sold for
$3.00 to consumers. A second bag of flour is sold for $1 to a grocery store who sells it to a
consumer for $2.00. Taking these four transactions into account, what is the effect on GDP?
a. GDP increases by $3.00.
b. GDP increases by $5.00.
c. GDP increases by $6.00.
d. GDP increases by $7.00.
40. A farmer sells five pounds of pecans to a Smith’s Fresh Pecans for $10. Smith’s Fresh Pecans
resells three pounds for $4.50 per pound. The remaining pecans are shelled and canned and sold
for a total of $8.00 Taking these transactions into account, how much is added to GDP?
a. $22.50 b. $29.50 c. $21.50 d. $31.50
41. A painter pays $500 for paint he uses to repaint a house. He then presents a bill for $1200 that
covers his time and expenses to the homeowner. How much do these transactions add to GDP?
a. $500
b. $700
c. $1200
d. $1700
5630 Measuring a Nation’s Income
42. Wholesome Wheat Bakery buys $10.00 worth of flour from Mikes’ Mill and uses the flour to
make bread. Wholesome Wheat sells the bread to the public for $22.00. Taking these two
transactions into account, what is the effect on GDP?
a. GDP increases by $10.00
b. GDP increases by $12.00
c. GDP increases by $22.00
d. GDP increases by $32.00
43. A tire manufacturer produces 400 tires valued at $20 each. Three hundred tires are sold to a tire
shop, which then sells them to households for $50 each. The remaining tires are unsold and are
added to the tire manufacturer’s inventory. How much is added to GDP?
a. $8,000
b. $15,000
c. $17,000
d. $13,000
