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Economics Chapter 7 A—Taking the Nation's Economic Pulse
MULTIPLE CHOICE
1. Which of the following would be included in this year's GDP?
a.
the value of a used car, at its sale price
b.
the value of a new domestic automobile, at its sale price
c.
a sale of Microsoft stock from one individual to another
d.
the face value of a life insurance policy paid to a woman at the death of her husband
2. When the expenditure approach is used to measure GDP, the major components of GDP are
a.
consumption, investment, indirect business taxes, and depreciation.
b.
employee compensation, rents, interest, self-employment income, and corporate profits.
c.
employee compensation, corporate profits, depreciation, and indirect business taxes.
d.
consumption, investment, government consumption and gross investment, and net exports.
3. If you wanted to measure whether the output of an economy was increasing or decreasing across time
periods, you would use the real GDP data rather than the nominal GDP data because
a.
exports are excluded from real GDP but not nominal.
b.
real GDP incorporates the impact of federal budget deficits and surpluses; nominal GDP
does not.
c.
real GDP reflects the impact of transfer payments on the economy, but nominal GDP does
not.
d.
real GDP adjusts for changes in the general level of prices, but nominal GDP does not.
4. Which of the following is GDP designed to measure?
a.
the total market value of goods and services produced domestically during the year
b.
changes in the cost of purchasing the typical consumer market basket of goods from one
year to another
c.
the total size of the domestic underground economy
d.
the standard of living of the average citizen
5. The GDP deflator is designed to
a.
adjust nominal GDP for changes in the unemployment rate.
b.
adjust nominal GDP so as to include the problem of externalities.
c.
adjust nominal GDP for changes in the price level.
d.
calculate changes in the price of food and other consumer goods.
6. A real estate salesperson sells a house in 2011 that was built in 1994. How does this transaction get
counted in the GDP statistics?
a.
The price of the house and the real estate salesperson's commission are both included in
2011's GDP.
b.
Neither the price of the house or the commission is included in 2011's GDP.
c.
The real estate salesperson's commission but not the price of the house is included in
2011's GDP.
d.
The price of the house would be included in both 1994's GDP and the GDP for 2011.
7. Suppose that the nominal value of GDP increased by approximately 2 percent during a given year, but
real GDP decreased by 3 percent. Which of the following best explains these events?
a.
The money supply decreased by approximately 5 percent.
b.
Prices fell by approximately 5 percent.
c.
Prices increased by approximately 5 percent.
d.
The real productive capacity of the economy increased by approximately 5 percent.
8. If national income accountants fail to make an adequate adjustment for increases in the quality of
goods and services over time,
a.
real GDP will overstate the growth rate of real output.
b.
the GDP deflator will underestimate inflation.
c.
the GDP deflator will overestimate inflation.
d.
real GDP will overstate the growth of real output, and the GDP deflator will understate
inflation.
9. The primary value of real GDP is its ability to measure year to year changes in
a.
real output.
b.
income inequality.
c.
real social welfare.
d.
the general level of prices.
10. Last year your job at the university cafeteria paid you $9 an hour and the price of a ten-minute long
distance call to your girlfriend in California was $4. This year your cafeteria job pays $9.90 per hour
and the ten-minute phone call now costs $4.10. You are clearly
a.
worse off because of inflation.
b.
worse off because the phone call is now relatively more expensive.
c.
better off because your wage rate went up.
d.
better off because the phone call now costs less work.
11. Gross domestic product is
a.
the market value of all goods and services exchanged within a country during a time
period.
b.
the market value of all domestic assets, regardless of whether they are owned by citizens
or foreigners.
c.
the compensation received during a period for labor services plus interest, rents, and
corporate profits.
d.
the market value of final goods and services produced within a country during a time
period.
12. Gross domestic product is equal to the market value of all goods and services
a.
exchanged during a period.
b.
produced domestically during a period.
c.
produced by the citizens of a nation during a period.
d.
produced domestically during a period minus the depreciation of productive assets.
13. Gross domestic product is a measure of both
a.
the market value of a nation's capital assets (physical capital) and the costs that were
incurred producing those assets.
b.
the expenditures on and sales revenues derived from all goods and services exchanged
during a period.
c.
the market value of the output produced during a period and the cost of producing that
output.
d.
the asset holdings of people and the happiness that they derived from the ownership of
those assets.
14. Gross domestic product
a.
is the sum of all exchanges of goods and services during a period.
b.
includes financial transactions such as the purchase of stocks or bonds traded during a
period.
c.
is the sum of expenditures for both intermediate and final user goods.
d.
is the sum of the total spending on all final-user goods and services produced domestically
during a period.
15. A firm purchases $600,000 worth of raw materials and pays wages and salaries of $100,000 and
dividends of $200,000. If the firm sells its output for $1 million, the firm's value added to GDP is
a.
$300,000.
b.
$400,000.
c.
$900,000.
d.
$1,000,000.
16. A firm purchases $400,000 worth of raw materials and pays wages and salaries of $300,000 and
dividends of $100,000. If the firm sells its output for $1 million, the firm's value added to GDP is
a.
$400,000.
b.
$600,000.
c.
$800,000.
d.
$1,000,000.
17. Which one of the following transactions would be included in GDP?
a.
Ava pays $50 for a used picture frame at a neighborhood garage sale.
b.
Ethan donates $500 to his town's junior college scholarship fund.
c.
Emily pays $500 to fix the front end of her car damaged in a recent accident.
d.
Mia pays $5,000 to purchase 100 shares of Microsoft stock.
18. 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.
necessarily raises GDP.
b.
necessarily 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.
19. General Motors Corporation (a U.S.-based firm) produces a Saab vehicle in Sweden, and sells it in the
United States. In which country's GDP is it included?
a.
Sweden and the United States
b.
The United States because it was sold there
c.
The United States because GM is a U.S. company
d.
Sweden because it was produced there
20. If Honda (a Japan-based firm) produces a car in Ohio and exports it to Japan, in which country's GDP
will the car be counted?
a.
Japan's, because Honda is a Japanese company
b.
Japan's because that is where the car is purchased
c.
The GDP of the United States because that is where it was built
d.
Both Japan and the United States
21. In computing GDP, market prices are used to value final goods and services because
a.
market prices reflect the values of goods and services to the buyer.
b.
market prices do not change much over time, so it is easy to make comparisons between
years.
c.
if market prices are out of line with how people value goods, the government sets price
ceilings and price floors.
d.
None of the above is correct; market prices are not used in computing GDP.
22. Which of the following would increase the GDP of the United States?
a.
A resident of California buys a case of wine from a winery in France.
b.
A resident of Germany buys a software program from a company in Washington.
c.
A resident of Florida spends $3,000 on a vacation in Mexico.
d.
A Japanese investor purchases 100 shares of a computer company located in Illinois.
23. Which of the following transactions would be included in this year's GDP?
a.
Noah purchases a five-year-old house from William.
b.
Noah rents a five-year-old house from William.
c.
Noah purchases 100 shares of AT&T stock from William.
d.
Noah purchases an antique at William's garage sale.
24. Which of the following would not affect this year's GDP?
a.
the paint you purchased when painting your house
b.
the new car your parents purchased and gave to you as a birthday present
c.
a Gateway computer purchased by the U.S. government
d.
the value of a used car you purchased, at its sale price
25. A business produced $10 million of goods in 2010 but sold only $9 million. Is the $1 million increase
in inventory counted as part of the 2010 gross domestic product?
a.
No, because inventories are intermediate goods.
b.
No, because if these inventories were sold in 2011, they would be counted twice.
c.
Yes, because these inventories are part of the output of the economy in 2010.
d.
Yes, but they will be added to the 2010 GDP only if they are sold in 2011.
26. Which of the following does not contribute to GDP?
a.
You lose $50 playing cards with friends.
b.
You pay a doctor $200 to treat an arm that you broke in an accident.
c.
You pay $300 for this month's rent on your apartment.
d.
Your economics textbook is revised, and you buy the new edition.
27. Which of the following transactions would enter directly into the determination of GDP?
a.
a bicycle you purchased at a garage sale
b.
the retirement check your uncle received for spending 25 years in the Marine Corps
c.
the DVD player you purchased from Best Buy
d.
the five shares of Microsoft stock your grandparents gave you for making an A in
economics
28. If a used car dealer purchases a used car for $3,000, makes repairs and refurbishes it, then sells it for
$8,000, the
a.
dealer contributes value added equal to $5,000, but nothing is added to GDP.
b.
dealer contributes value added equal to $5,000, and consequently $5,000 is added to GDP.
c.
dealer contributes nothing to production because only existing goods are involved.
d.
dealer contributes value added equal to $8,000, but only $5,000 is added to GDP.
29. If a local shop buys a used motorcycle for $1,000, makes repairs and refurbishes it, then resells it for
$2,500, the
a.
shop contributes value added equal to $1,500, but nothing is added to GDP.
b.
shop contributes value added equal to $1,500, and consequently $1,500 is added to GDP.
c.
shop contributes nothing to production because only existing goods are involved.
d.
shop contributes value added equal to $2,500, but only $1,500 is added to GDP.
30. Which of the following would increase GDP?
a.
buying a used car
b.
buying a newly constructed house
c.
buying an imported rug
d.
giving a domestically produced rug to charity
31. Which of the following transactions would increase GDP?
a.
a new tricycle purchased at a department store sale by the parents of a three-year-old child
b.
the retirement check your uncle received for spending 25 years in the Marine Corps
c.
the five shares of Microsoft stock your grandparents gave you for making an A in
economics
d.
the $200 you lost when your wallet was stolen
32. Which of the following events will increase GDP?
a.
losing $500 playing blackjack in your dorm
b.
selling an antique writing desk for $500 cash
c.
a burglar stealing your CD player
d.
the police department hiring an extra detective to track down the burglar who stole your
CD player
33. Which of the following would increase GDP?
a.
You buy 100 shares of Wal-Mart stock.
b.
Your car is destroyed by a fire, and you purchase a two-year-old car to replace it.
c.
Your car is damaged by a fire, and you hire a mechanic to repair it.
d.
Your car is damaged by a fire, and you reduce the number of hours you work to repair the
car yourself.
34. Which of the following events will reduce GDP?
a.
A hurricane destroys your house.
b.
You lose $500 playing poker.
c.
You pay $500 to repair the damage done to your house by a hurricane.
d.
You work 15 hours less this month so that you can repair the damage done to your home
by a hurricane.
35. Which one of the following events will reduce GDP?
a.
Mrs. Lee hires a housekeeper.
b.
You buy the ingredients to bake a loaf of bread, but you burn the bread and throw it away.
c.
You decide to work five more hours per week at your bookkeeper job, even though you
need more time to study.
d.
An automobile manufacturer lays off 200 workers as the result of a fire in the paint shop.
36. Which of the following activities is not counted in our calculations of GDP?
a.
the purchase of a hammer for household repairs
b.
the labor services of a volunteer group building a home for a poor widow
c.
the purchase of new, domestically-produced tires for your old foreign car
d.
a haircut received and paid for at a beauty salon
37. Which of the following would not be included in GDP?
a.
the real estate commission on the sale of a used home
b.
an attorney's fee for handling the sale of a used home
c.
the value of a used home, at its sale price
d.
fees paid to have the house cleaned
38. Which of the following events will leave GDP unchanged?
a.
You purchase 100 shares of Wal-Mart stock.
b.
You pay $500 to repair the damage done to your car by an uninsured motorist.
c.
You decide to work five more hours per week at your job to pay for the repairs performed
on your car.
d.
You purchase a new car at an auction.
39. Which one of the following events will leave GDP unchanged?
a.
You pay $500 to repair your car damaged in an accident.
b.
You buy a new domestic car to replace one that was stolen.
c.
You lose $500 playing blackjack with friends.
d.
You work extra hours this month to help make up for the money you lost playing
blackjack.
40. Which of the following would contribute to GDP?
a.
An American company buys stock in another American company.
b.
An American company produces goods in Canada.
c.
A Canadian company buys stock in an American company.
d.
A Canadian company produces goods in the United States.
41. Which of the following transactions would be included in this year's GDP for the United States?
a.
You buy a rug imported from Mexico.
b.
You buy stock in an American textile company.
c.
You purchase a table over the Internet from a North Carolina furniture manufacturer.
d.
You purchase a table over the Internet from a Mexican manufacturer.
42. Which of the following transactions would be included in this year's GDP for the United States?
a.
Deion sends $100 to a hotel in Costa Rica as a deposit for his vacation.
b.
Deion buys a travel guide written by a Costa Rican woman living in the United States.
c.
Deion buys a shirt while on vacation in Costa Rica.
d.
Deion spends money in an American-owned restaurant in Costa Rica.
43. One bag of flour is sold for $1.50 to a bakery, which uses the flour to bake bread that is sold for $4.00
to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these
three transactions into account, what is the effect on GDP?
a.
GDP increases by $1.50.
b.
GDP increases by $3.50.
c.
GDP increases by $6.00.
d.
GDP increases by $7.50.
44. Until recently, George lived in a home that was newly constructed in 2005. In 2005, he paid $200,000
for the brand new house. He sold the house in 2006 for $225,000. Which of the following statements is
correct regarding the sale of the house?
a.
The 2006 sale increased 2006 GDP by $225,000 and had no effect on 2005 GDP.
b.
The 2006 sale increased 2006 GDP by $25,000 and had no effect on 2005 GDP.
c.
The 2006 sale increased 2006 GDP by $225,000; furthermore, the 2006 sale caused 2005
GDP to be revised upward by $25,000.
d.
The 2006 sale affected neither 2005 GDP nor 2006 GDP.
45. The GDP of a country can be derived by summing
a.
the expenditures on final user goods and services produced domestically during the year.
b.
the payments to employees and owners of capital resources and then subtracting
depreciation and indirect business taxes.
c.
the market value of all goods and services produced domestically during the period and
then subtracting net exports from that figure.
d.
the income payments to the resource suppliers and net exports.
46. Gross domestic product during a period is measured by adding
a.
incomes received by households minus the sale of factor services supplied domestically.
b.
factor payments made by domestic firms minus retained earnings and indirect business
taxes.
c.
expenditures on new final goods and services produced domestically.
d.
the market value of all goods and services produced domestically and then subtracting net
exports from that figure.
47. GDP during a period can be calculated by summing either
a.
the purchases of domestically produced final goods and services or the cost incurred in the
production of those goods.
b.
the amount received by business firms for consumer goods and services or the spending of
business firms on investment goods and services.
c.
all household expenditures on final goods and services or all business purchases of factors
of production.
d.
sales of goods and services to foreigners or the purchase of goods and services from
foreigners
48. Gross domestic product equals the sum of
a.
all income earned by domestic producers of goods and services minus indirect business
taxes and depreciation during the year.
b.
the purchases of final goods and services produced domestically during a year.
c.
the amount received by firms for consumer goods and services.
d.
incomes received by households minus the sale of factor services supplied domestically.
49. U.S. GDP and U.S. GNP are related as follows:
a.
GNP = GDP − Income earned by foreigners in the U.S. + Income earned by U.S. citizens
abroad.
b.
GNP = GDP + Income earned by foreigners in the U.S. − Income earned by U.S. citizens
abroad.
c.
GNP = GDP + Value of exported goods − Value of imported goods.
d.
GNP = GDP − Value of exported goods + Value of imported goods.
50. Suppose a country had $3.5 billion of net exports and bought $6.8 billion of goods and services from
foreign countries. This country would have
a.
$10.3 billion of exports and $6.8 billion of imports.
b.
$10.3 billion of imports and $6.8 billion of exports.
c.
$6.8 billion of exports and $3.5 billion of imports.
d.
$6.8 billion of imports and $3.5 billion of exports.
51. Suppose a country had net exports of $7.5 billion and sold $44.6 billion of goods and services abroad.
This country had
a.
$44.6 billion of imports and $52.1 billion of exports.
b.
$52.1 billion of exports and $44.6 billion of imports.
c.
$44.6 billion of imports and $37.1 billion of exports.
d.
$44.6 billion of exports and $37.1 billion of imports.
52. U.S. imports are
a.
not added to U.S. GDP because they are produced abroad
b.
added to U.S. GDP because they are consumed domestically
c.
added to U.S. GDP because they represent an increase in inventories
d.
added to U.S. GDP as government purchases because the government decides what goods
may be imported
e.
not added to U.S. GDP because they are intermediate goods
53. U.S. exports are
a.
not included in U.S. GDP because they are consumed abroad
b.
included in U.S. GDP because they are produced domestically
c.
included in U.S. GDP because they represent an increase in inventories
d.
included in U.S. GDP as government purchases because the government decides what
goods may be exported
e.
not included in U.S. GDP because they are not subject to a tariff
54. If U.S. net exports are negative,
a.
U.S. consumers are spending less on foreign goods than foreign consumers are spending
on U.S. goods
b.
U.S. consumers are spending more on foreign goods than foreign consumers are spending
on U.S. goods
c.
the government must promote imports to balance international trade
d.
U.S. consumers are spending more on foreign goods than they are spending on U.S. goods
e.
U.S. disposable income is low
55. The amount of U.S. exports purchased by the rest of the world is primarily determined by
a.
real disposable income in the United States
b.
real disposable income in other nations
c.
the real interest rate in other nations
d.
the real interest rate in the United States
e.
the government budget deficits in other nations
56. Gross private domestic investment
a.
excludes all investment in the United States by foreign firms.
b.
includes all capital in the United States.
c.
includes net additions to the capital stock plus all new corporate stocks and bonds.
d.
includes business expenditures on new factories, tools, and machinery.
57. What does gross private domestic investment include?
a.
Business purchases of capital goods, all new construction, and purchases of consumer
durable goods.
b.
Business purchases of capital goods, all new construction, and inventory investment.
c.
Business purchases of capital goods, all new commercial construction, and inventory
investment.
d.
Business purchases of capital goods, all new residential construction, and inventory
investment.
e.
Business purchases of all types of durable goods, all new construction, and inventory
investment.
58. New residential housing is counted in GDP as
a.
a durable consumption good.
b.
a household durable good.
c.
an investment good.
d.
an inventory expansion.
e.
a long-term durable good.
59. Which of the following would count as an investment expenditure in national income accounting?
a.
General Motors hires 10 electrical engineers.
b.
Boeing purchases a new metal stretching machine used to produce airplane wings.
c.
Ms. Quantum buys 100 shares of Microsoft stock.
d.
A large corporation spends $10,000 per month on long-distance phone charges.
60. Jayden, a U.S. citizen, works only in Canada. The value that his labor contributes to U.S. output 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.
61. Madison, a U.S. citizen, works only in Germany. The value she adds to production in Germany is
included
a.
in U.S. GDP, but it is not included in German GDP.
b.
in German GDP, but it is not included in U.S. GDP.
c.
in both German GDP and U.S. GDP.
d.
in neither German GDP nor U.S. GDP.
62. Government purchases include spending on goods and services by
a.
the federal government only.
b.
state and federal governments only.
c.
local, state and federal governments.
d.
local, state and federal governments, as well household spending by employees of those
governments.
63. A Minnesota farmer buys a new tractor made in Iowa by a German company. As a result,
a.
U.S. investment and GDP increase, but German GDP is unaffected.
b.
U.S. investment and German GDP increase, but U.S. GDP is unaffected.
c.
U.S. investment, U.S. GDP, and German GDP are unaffected, because tractors are
intermediate goods.
d.
U.S. investment, U.S. GDP, and German GDP all increase.
64. Double counting in the resource cost-income approach to GDP refers to
a.
corporate income being taxed twice
b.
the amount of income taxes paid to states that is taxable by the federal government
c.
calculating GDP twice using the income and expenditures methods
d.
adding the value of exports to GDP and subtracting the value of imports
e.
counting the total value of a final output in addition to the value of the inputs used to make
it
65. Double counting in the resource cost-income approach to GDP statistics is avoided by
a.
correct accounting of the values of exports and imports
b.
choosing only one method to calculate GDP--either the income or the expenditures
method
c.
counting only the value added at each stage of a good's production process
d.
counting the value of final and intermediate goods and services
e.
subtracting the total value of intermediate goods and services from the total value of final
goods and services
66. Using the resource cost-income approach, indirect business taxes have to be added to get gross
domestic product because the
a.
selling price of a product includes these taxes, which are income to the government .
b.
selling price of a product includes these taxes, which are resource payments.
c.
selling price of a product excludes these taxes and therefore they have to be added.
d.
selling price includes these taxes which are actually not income to any sector of the
economy.
67. Which one of the following would count as investment in the national income accounts?
a.
buying a U.S. government bond
b.
buying 100 shares of Wal-Mart stock
c.
buying an existing house
d.
a freight-hauling firm buying a new domestically produced truck
68. Which one of the following would count as investment in the national income accounts?
a.
purchase of a new airplane by an airline
b.
purchase of a U.S. government bond
c.
purchase of 100 shares of Wal-Mart stock
d.
purchase of an existing house
69. Geri purchases a newly constructed house built by a private contractor. Her spending on the house is
included in GDP as a part of
a.
personal consumption expenditures.
b.
depreciation.
c.
gross private investment.
d.
personal saving.
70. If an economy's capital stock is greater at the end of the year than at the beginning of the year, over
this period,
a.
net investment has been positive.
b.
depreciation has exceeded net investment.
c.
depreciation has exceeded gross investment.
d.
net investment has exceeded gross investment.
71. A business spends $10 million on new capital equipment, and during the same year, $7 million of its
existing capital wears out. Which of the following is correct?
a.
The firm's gross investment is $7 million, and its net investment is $10 million.
b.
The firm's gross investment is $3 million, and its net investment is $7 million.
c.
The firm's gross investment is $7 million, and its net investment is $3 million.
d.
The firm's gross investment is $10 million, and its net investment is $3 million.
72. Which of the following about inventory changes and GDP is true?
a.
Inventory investment adds to GDP because it represents goods produced during the
current period.
b.
Inventory investment is subtracted from GDP because the goods were not sold during the
period.
c.
Inventory investment does not affect GDP because the goods were not sold during the
period.
d.
Inventory investment does not affect GDP because it does not represent goods produced
during the period.
73. If inventory investment during a year was minus $6 billion, producers must have
a.
produced only $6 billion of new capital assets during the year.
b.
sold $6 billion more goods and services during the year than they produced.
c.
added goods valued at $6 billion to their stock of unsold goods and raw materials.
d.
produced new capital assets that exceeded the depreciation allowance by $6 billion.
74. Which of the following would be included in the government consumption and investment component
of GDP?
a.
the export of 100 fighter jets to Japan
b.
construction costs of a new public school building
c.
food stamps used by the Smith family
d.
a $1,000 check issued by the federal government as part of the Pell Grant program to help
college students pay for school
Use the table below to choose the correct answer.
Table 7-1
Employee compensation
$800
Rents
90
Government consumption and gross investment
50
Depreciation
200
Gross private investment
400
Personal income taxes
140
Net exports
50
Personal consumption
640
Interest income
100
75. Given the information in Table 7-1, the GDP equals
a.
$1,140.
b.
$1,330.
c.
$1,650.
d.
$2,670.
Consider the following information for the U.S. economy (figures in billions).
Table 7-2
Personal Consumption
$7,761
Gross private investment
1,666
Government consumption and gross investment
2,075
Net exports
−498
Indirect business taxes
339
Depreciation
1,380
Self-employment Income
834
76. Refer to Table 7-2. Gross domestic product is equal to
a.
$7,761.
b.
$11,004.
c.
$13,557.
d.
$14,055
Use the table below to choose the correct answer.
Table 7-3
Personal consumption expenditures
$600
Government consumption and gross investment
230
Rent income
150
Net investment expenditures
200
Gross imports
30
Personal savings
250
Gross exports
20
Depreciation (private sector)
100
77. Refer to Table 7-3. Gross domestic product equals
a.
$1,100.
b.
$1,120.
c.
$1,190.
d.
$1,220.
78. The Department of Commerce sums the payments made to resources to arrive at GDP in the form of
wages, self-employment income, rents, interest, profits, indirect taxes, and depreciation. This method
of deriving GDP is called the
a.
opportunity cost approach.
b.
resource cost-income approach.
c.
expenditure approach.
d.
monetarist approach.
79. If a country has attracted a relatively large number of foreign workers and a large amount of foreign
investment,
a.
national income will generally exceed gross national product.
b.
gross national product will generally exceed gross domestic product.
c.
net domestic product will generally exceed gross domestic product.
d.
gross domestic product will generally exceed gross national product.
80. Which of the following best illustrates the difference between GDP and GNP?
a.
GDP measures the goods consumed by the citizens of a country, while GNP measures
output exported to other countries.
b.
GDP measures the output produced by the citizens within a country, while GNP measures
output produced by noncitizens within a country.
c.
GDP measures the output produced by the citizens of a country, while GNP measures
output produced within the borders of a country.
d.
GDP measures the output produced within the borders of a country, while GNP measures
output produced by the citizens of a country.
81. Which of the following statements about gross domestic product and gross national product is true?
a.
Gross domestic product includes income payments to foreigners for their work
domestically; gross national product does not.
b.
Gross domestic product includes the income earned abroad by domestic citizens; gross
national product does not.
c.
Gross domestic product includes exports; gross national product does not.
d.
GDP and GNP are equal.
82. Which of the following correctly states the relationship between GDP and GNP for the U.S.?
a.
GDP equals GNP minus the net income of foreigners.
b.
GDP equals GNP plus the net income of foreigners.
c.
GDP equals GNP minus indirect business taxes.
d.
GDP equals GNP.
83. An automobile manufacturing plant opens in Alabama, and its owner, all of the workers, and all raw
materials are from Japan. How would the purchase of an automobile from this plant change U.S. GDP
and GNP?
a.
It would increase GNP and GDP.
b.
It would increase GNP and leave GDP unchanged.
c.
It would increase GDP and leave GNP unchanged.
d.
It would leave both GDP and GNP unchanged.
84. An American-owned McDonald's opens in Russia. How would the net revenue earned by this
restaurant affect the GDP and GNP of the United States?
a.
It would increase GNP and GDP.
b.
It would increase GNP and leave GDP unchanged.
c.
It would increase GDP and leave GNP unchanged.
d.
It would leave both GDP and GNP unchanged.
Use the table below to answer the following question(s).
Table 7-5
Corporate profits
$100
Interest income
200
Indirect business taxes
180
Depreciation
200
Employee compensation
1,110
Proprietors' income
100
Rents
20
Personal consumption
1,300
Government consumption and gross investment
400
Net exports
10
Income received by citizens for factors of production supplied abroad
300
Income paid to foreigners for their contribution to domestic output
250
85. Refer to Table 7-5. Gross domestic product equals
a.
$1,860.
b.
$1,380.
c.
$1,910.
d.
$4,170.
86. Refer to Table 7-5. Gross national product equals
a.
$1,860.
b.
$1,910.
c.
$1,380.
d.
$4,170.
87. Refer to Table 7-5. National income equals
a.
$1,380.
b.
$1,530.
c.
$1,860.
d.
$4,170.
Consider the following information for the U.S. economy (figures in billions).
Table 7-6
Employee Compensation
$6,289
Proprietors' Income
834
Rents
154
Corporate Profits
1,021
Interest Income
543
Indirect business taxes
339
Depreciation
1,380
Net Income of Foreigners
−55
88. Refer to Table 7-6. What was the value of national income?
a.
$7,123
b.
$7,666
c.
$8,841
d.
$11,004
Use the table below to choose the correct answer.
Table 7-7
Corporate profits
$300
Interest income
200
Indirect business taxes
360
Depreciation
400
Employee compensation
3,000
Proprietors' income
200
Rents
40
Personal consumption
2,700
Government consumption and gross investment
800
Net income earned abroad
20
89. Refer to Table 7-7. Gross domestic product equals
a.
$3,700.
b.
$3,900.
c.
$4,080.
d.
$4,480.
90. The consumer price index (CPI) is designed to measure
a.
the impact of price changes on the value of real GDP.
b.
the nominal value of consumer spending on food, clothing, and energy.
c.
the total spending of households as a percentage of GDP.
d.
the impact of price changes on the cost of the typical bundle of goods purchased by
households.
