Measuring a Nation’s Income 5631
44. Janet bought flour and used it to bake bread she ate. ABC Bakery bought flour which it used to
bake bread that customers purchased. In which case will the flour be counted as a final good?
a. Janet’s purchase and ABC Bakery’s purchase.
b. ABC Bakery’s purchase but not Janet’s purchase.
c. Janet’s purchase but not ABC Bakery’s purchase.
d. Neither Janet’s purchase nor ABC Bakery’s purchase.
45. Tim mows the yard for his neighbors. He spends $1 on gas and charges them $20 for each lawn
he mows. What’s the total contribution to GDP each time Tim mows a yard?
a. $1
b. $19
c. $20
d. $21
5632 Measuring a Nation’s Income
46. A dairy buys $50,000 worth of milk and spend $5,000 on cartons and utilities. It sells the cartons
of milk to a grocery store for $60,000 that then sells all of the cartons to consumers for $65,000.
How much do these actions add to GDP?
a. $55,000
b. $65,000
c. $120,000
d. None of the above are correct.
47. A U.S.-owned automobile factory uses $100,000 worth of parts purchased from foreign countries
along with U.S. inputs to produce 30 cars worth $20,000 each. Twenty of these cars are sold and
10 are left in inventory. How much did these actions add to GDP?
a. $300,000
b. $500,000
c. $600,000
d. $700,000
Measuring a Nation’s Income 5633
48. A U.S.-owned car factory in Mexico produces $5 million of cars. $2.5 million of these cars are
sold in Mexico and the other $2.5 million are sold in the U.S. In both cases $1 million of the value
of the cars was due to U.S-owned equipment located in Mexico and U.S. managers working in
Mexico. How much did this production contribute to U.S. GDP?
a. $0
b. $1 million
c. $2 million
d. None of the above are correct
49. Suppose there are only two firms in an economy: Cowhide, Inc. produces leather and sells it to
Couches, Inc., which produces and sells leather furniture. With each $1,000 worth of leather that
it buys from Cowhide, Inc., Couches, Inc. produces a couch and sells it for $2,600. Neither firm
had any inventory at the beginning of 2015. During that year, Cowhide produced enough leather
for 25 couches. Couches, Inc. bought 80% of that leather for $20,000 and promised to buy the
remaining 20% for $5,000 in 2016. Couches, Inc. produced 20 couches during 2015 and sold each
one during that year for $2,600. What was the economy’s GDP for 2015?
a. $25,000
b. $52,000
c. $57,000
d. $65,000
5634 Measuring a Nation’s Income
50. Suppose there are only two firms in an economy: Rolling Rawhide produces rawhide and sells it to
Chewy Chomp, Inc., which uses the rawhide to produce and sell dog chews. With each $1 worth
of rawhide that it buys from Rolling Rawhide, Chewy Chomp, Inc. produces a dog chew and sells
it for $2.50. Neither firm had any inventory at the beginning of 2014. During that year, Rolling
Rawhide produced enough rawhide for 2000 dog chews. Chewy Chomp, Inc. bought 90% of that
rawhide for $1800 and promised to buy the remaining 10% for $200 in 2015. Chewy Chomp, Inc.
produced 1800 dog chews during 2014 and sold each one during that year for $2.50. What was
the economy‘s GDP for 2014?
a. $3,800
b. $4,500
c. $4,700
d. $5,000
51. In 2014, a farmer grows and sells $3 million worth of corn to Big Flakes Cereal Company. Big
Flakes Cereal Company produces $8 million worth of cereal in 2014, with sales to households
during the year of $7 million. The unsold $1 million worth of cereal remains in Big Flake Cereal
Company’s inventory at the end of 2014. The transactions just described contribute how much to
GDP for 2014?
a. $3 million
b. $7 million
c. $8 million
d. $11 million
Measuring a Nation’s Income 5635
52. Fine Edge manufactures lawn mowers. In 2014 it had $2 million worth of lawn mowers in
inventory. In 2015 it sold $10 million worth of lawn mowers to consumers and had $1 million
worth of lawn mowers in inventory. How much did the lawn mowers produced by Fine Edge add
to GDP in 2015?
a. $11 million
b. $10 million
c. $7 million
d. $9 million
53. A newspaper article informs you that most businesses reduced production in the last quarter but
also sold from their inventories during the last quarter. Based on this information GDP likely
a. increased.
b. decreased.
c. stayed the same.
d. may have increased, decreased, or stayed the same.
5636 Measuring a Nation’s Income
54. Which of the following domestically produced items is not included in GDP?
a. a bottle of shampoo
b. a hairdryer
c. a haircut
d. All of the above are included in GDP.
55. Which of the following is not included in GDP?
a. a can of bug spray
b. the services of an exterminator
c. the honey produced and sold by a beekeeper
d. All of the above are included in GDP.
Measuring a Nation’s Income 5637
56. Which of the following transactions is not included in GDP?
a. oranges sold to households by a grocer.
b. orange juice sold by a restaurant to its diners.
c. oranges sold by a farmer to a grocery store.
d. All of the above are included in GDP.
57. Gross domestic product includes all
a. legal and illegal final goods, but it excludes all legal and illegal final services.
b. legal and illegal final goods and all legal and illegal final services.
c. legal final goods and services, but it excludes illegal final goods and services.
d. legal and illegal final goods and legal final services, but it excludes illegal final services.
5638 Measuring a Nation’s Income
58. Transactions involving items produced in the past, such as the sale of a 5-year-old automobile by
a used car dealership or the purchase of an antique rocking chair by a person at a yard sale, are
a. included in current GDP because GDP measures the value of all goods and services sold in the
current year.
b. included in current GDP but valued at their original prices.
c. not included in current GDP because it is difficult to determine their value.
d. not included in current GDP because GDP only measures the value of goods and services
produced in the current year.
59. Which of the following transactions would be included in GDP for 2015?
a. In February 2015, Amanda sells a 2009 Hyundai to Isabella.
b. In March 2015, Amanda buys a ticket to visit a zoo in Florida. She visits the zoo in February
2016.
c. In November 2015, Isabella eats onions that she harvested from her backyard garden in
October 2015.
d. All of the above are correct.
Measuring a Nation’s Income 5639
60. Jennifer lives in a home that was newly constructed in 2011 for which she paid $240,000. In 2014
she sold the house for $260,000. Which of the following statements is correct regarding the sale of
the house?
a. The 2014 sale increased 2014 GDP by $260,000 and had no effect on 2011 GDP.
b. The 2014 sale increased 2014 GDP by $20,000 and had no effect on 2011 GDP.
c. The 2014 sale increased 2014 GDP by $260,000; furthermore, the 2014 sale caused 2011 GDP
to be revised upward by $20,000.
d. The 2014 sale affected neither 2014 GDP nor 2011 GDP.
61. The Patersons bought a home that was newly constructed in 2007 for $275,000. They sold the
home in 2015 for $255,000. Which of the following statements is correct regarding the sale of the
house?
a. The 2015 sale increased 2015 GDP by $255,000 and had no effect on 2007 GDP.
b. The 2015 sale reduced 2015 GDP by $20,000 and had no effect on 2007 GDP.
c. The 2015 sale increased 2015 GDP by $255,000; and caused 2007 GDP to be revised
downward by $20,000.
d. The 2015 sale affected neither 2007 GDP nor 2015 GDP.
5640 Measuring a Nation’s Income
62. In early 2010 Molly paid $200,000 for a house built in 2000. She spent $30,000 on new materials
to remodel the house. Although Molly lived in the house after she remodeled it, its rental value
rose. Which of the following contributed to real GDP in 2010?
a. the price of the house, the cost of remodeling materials, the increase in rental value
b. the price of the house and the cost of remodeling materials, but not the increase in rental value
c. the costs of the remodeling materials and the increase in rent, but not the price of the house
d. None of the above are correct.
63. Tom and Lilly rented a house for $12,000 last year. At the start of the year they bought the house
they had been renting directly from the owner for $250,000. They believe they could rent it for
$12,000 this year, but stay in the house. How much does Tom and Lilly’s decision to buy the
house change GDP?
a. it reduces GDP by $12,000
b. it does not change GDP
c. it raises GDP by $238,000
d. it raises GDP by $250,000
Measuring a Nation’s Income 5641
64. Sally purchased a log-splitter five years ago. This year, she purchases some new parts, gasoline,
oil, and spends 2 hours repairing the log-splitter. Which of the following is included in this year’s
GDP?
a. the amount she paid to buy the new parts
b. the amount she paid to buy new parts and gasoline
c. the amount she paid to buy new parts, gasoline, and oil.
d. the amount she paid to buy new parts, gasoline, oil, and the market value of the 2 hours spent to
repair the log-splitter.
65. Tyler and Camille both live in Oklahoma. A new–car dealer in Oklahoma bought a new car from
the manufacturer for $18,000 and sold it to Tyler for $22,000. Later that year, Tyler sold the car to
Camille for $17,000. By how much did these transactions contribute to U.S. GDP for the year?
a. $18,000
b. $22,000
c. $39,000
d. $57,000
5642 Measuring a Nation’s Income
66. Consider two cars manufactured by Chevrolet in 2014. During 2014, Chevrolet sells one of the
two cars to Emily for $20,000. Later in the same year, Emily sells the car to Jim for $18,000. The
second automobile, with a market value of $19,000, is unsold at the end of 2014 and it remains in
Chevrolet’s inventory. The transactions just described contribute how much to GDP for 2014?
a. $20,000
b. $37,000
c. $38,000
d. $39,000
67. AA Appliances sells refrigerators. In 2015 it added $100,000 to its inventory. $10,000 of this
addition was from used refrigerators, and the remaining $90,000 was from their purchases of
newly manufactured refrigerators. How much of AA’s inventory is included in 2015 GDP?
a. $0
b. $10,000
c. $90,000
d. $100,000
Measuring a Nation’s Income 5643
68. Which of the following is included in Singapore’s GDP?
a. The value of production by a Singaporean working in the U.S.
b. The value of production by an American working in Singapore
c. The value of production by a Singaporean that crosses the border to work in Malaysia.
d. All of the above are correct.
69. Sheri, a U.S. citizen, works only in Germany. The value she adds to production in Germany is
included
a. in both German GDP and U.S. GDP.
b. in German GDP, but is not included in U.S. GDP.
c. in U.S. GDP, but is not included in German GDP.
d. in neither German GDP nor U.S. GDP.
5644 Measuring a Nation’s Income
70. Martin, a U.S. citizen, travels to Mexico and buys a newly manufactured motorcycle made there.
His purchase is included in
a. both Mexican GDP and U.S. GDP.
b. Mexican GDP, but it is not included in U.S. GDP.
c. U.S. GDP, but it is not included in Mexican GDP.
d. neither Mexican GDP nor U.S. GDP.
71. An American company operates a fast food restaurant in Paris, France. Which of the following
statements is accurate?
a. The value of the goods and services produced by the restaurant is included in both French
GDP and U.S. GDP.
b. The value added by American workers and equipment in France is included in U.S. GDP and
the value added by French workers and equipment is added to French GDP.
c. The value of the goods and services produced by the restaurant is included in French GDP, but
not in U.S. GDP.
d. The value of the goods and services produced by the restaurant is included in U.S. GDP, but
not in French GDP.
Measuring a Nation’s Income 5645
72. Michigan Cranberry Company sold $10 million worth of cranberries it produced. In producing
cranberries, it purchased $1 million dollars worth of supplies from foreign countries and paid
workers who reside in Canada but commute to the U.S. $1 million. How much did these
transactions add to U.S. GDP?
a. $12 million
b. $11 million
c. $10 million
d. $9 million
73. Quality Motors is a Japanese-owned company that produces automobiles; all of its automobiles
are produced in American plants. In 2010 Quality Motors produced $30 million worth of
automobiles, with $17 million in sales to Americans, $9 million in sales to Canadians, and $4
million worth of automobiles added to Quality Motors’ inventory. The transactions just described
contribute how much to U.S. GDP for 2010?
a. $17 million
b. $21 million
c. $26 million
d. $30 million
5646 Measuring a Nation’s Income
74. Quality Motors is a Japanese-owned company that produces automobiles; all of its automobiles
are produced in American plants. In 2008, Quality Motors produced $25 million worth of
automobiles and sold $12 million in the U.S. and $13 million in Mexico. In addition, it sold $2
million from the previous year’s inventory in the U.S. The transactions just described contribute
how much to U.S. GDP for 2008?
a. $12 million
b. $14 million
c. $25 million
d. $27 million
75. Which of the following items is included in U.S. GDP?
a. goods produced by foreign citizens working in the United States
b. the difference in the price of the sale of an existing home and its original purchase price
c. known illegal activities
d. None of the above is included in U.S. GDP.
Measuring a Nation’s Income 5647
76. Which of the following items is included in U.S. GDP?
a. final goods and services that are purchased by the U.S. federal government
b. intermediate goods that are produced in the U.S. but that are unsold at the end of the GDP
accounting period
c. goods and services produced by foreign citizens working in the U.S.
d. All of the above are included in U.S. GDP.
77. Which of the following items is included in U.S. GDP?
a. the estimated value of production accomplished at home, such as backyard production of fruits
and vegetables
b. the value of illegally–produced goods and services
c. the value of cars and trucks produced in foreign countries and sold in the U.S.
d. None of the above is included in U.S. GDP.
5648 Measuring a Nation’s Income
78. Which of the following is not included in U.S. GDP?
a. The market value of an oil change that Ben performs on his own car.
b. The market value of an oil change at Speedy Lube.
c. The market value of oil purchased by Ben.
d. Production of foreign citizens living in the United States that work in an oil packaging facility.
79. Which of the following is not included in U.S. GDP?
a. additions of newly produced output to inventory
b. production of U.S citizens working in foreign countries.
c. the estimated rental value of owner-occupied housing
d. the value of food purchased from a grocery store to make meals at home without pay
Measuring a Nation’s Income 5649
80. Which of the following values would be included in U.S. GDP for 2015?
a. the rent that Sam, an American citizen, would have paid on his home in Houston in 2015 had he
not owned that home.
b. the rent that Jim, an American citizen, paid on his apartment in San Francisco in 2015.
c. the value of the legal services provided by Juan, an attorney and a Mexican citizen, who lived in
San Antonio and practiced law there in 2015
d. All of the above would be included in U.S. GDP for 2015.
81. Which of the following examples of production of goods and services would be included in U.S.
GDP?
a. Sally, a Canadian citizen, works on a drilling crew in North Dakota for Northland Gas Services,
and Northland sells the natural gas to a utility company in Canada.
b. Jim grows pecans for his family in the yard of their San Antonio home.
c. Joe grows marijuana in his Kansas City home and sells it to his friends and neighbors.
d. None of the above examples of production would be included in U.S. GDP.
5650 Measuring a Nation’s Income
82. Which of the following transactions adds to U.S. GDP for 2015?
a. In 2015, Ann sells a car that she bought in 2011 to Bill for $7,000.
b. An American management consultant works in Canada during the summer of 2015 and earns
the equivalent of $40,000 during that time.
c. When Ken and Kim were both single, they lived in separate apartments and each paid $800 in
rent. Ken and Kim got married in 2015 and they bought a previously unoccupied house that,
according to reliable estimates, could be rented for $1,700 per month.
d. None of the above transactions adds to U.S. GDP for 2015.
83. Which of the following transactions adds to U.S. GDP for 2015?
a. In 2015, Frank’s Feta manufactures 2000 pounds of cheese that will eventually be sold to
grocery stores.
The 2000 pounds of cheese remains in Frank’s inventory at the end of 2015.
b. An Irish marketing consultant works in Richmond during the summer of 2015 and earns
$45,000 during that time.
c. When Len and Mika were both single, they lived in separate apartments and each paid $700 in
rent. Len and Mika got married in 2015 and they bought a previously unoccupied house that,
according to reliable estimates, could be rented for $1,500 per month.
d. All of the above transactions add to U.S. GDP for 2015.