Macroeconomics, 8e (Abel/Bernanke/Croushore)
Chapter 2 The Measurement and Structure of the National Economy
2.1 National Income Accounting
1) The accounting framework used in measuring current economic activity is called
A) the U.S. expenditure accounts.
B) the national income accounts.
C) the flow of funds accounts.
D) the balance of payments accounts.
2) The three approaches to measuring economic activity are the
A) cost, income, and expenditure approaches.
B) product, income, and expenditure approaches.
C) consumer, business, and government approaches.
D) private, public, and international approaches.
3) The value of a producer’s output minus the value of the inputs it purchases from other
producers is called the producer’s
A) surplus.
B) profit.
C) value added.
D) gross product.
4) The value added of a producer is the
A) total amount for which all its products sell minus its change in inventories.
B) value of its total sales once externalities are accounted for.
C) value of its output minus the value of the inputs it purchases from other producers.
D) quality-adjusted amount of its total sales less any commissions paid.
5) The Bigdrill company drills for oil, which it sells for $200 million to the Bigoil company to be
made into gas. The Bigoil company’s gas is sold for a total of $600 million. What is the total
contribution to the country’s GDP from companies Bigdrill and Bigoil?
A) $200 million
B) $400 million
C) $600 million
D) $800 million
6) Sam’s Semiconductors produces computer chips, which it sells for $10 million to Carl’s
Computer Company (CCC). CCC’s computers are sold for a total of $16 million. What is the
value added of CCC?
A) $6 million
B) $10 million
C) $16 million
D) $26 million
7) The Compagnie Naturelle sells mounted butterflies, using butterfly bait it buys from another
firm for $20,000. It pays its workers $35,000, pays $1,000 in taxes, and has profits of $3,000.
What is its value added?
A) $3,000
B) $19,000
C) $39,000
D) $59,000
8) The equation total production = total income = total expenditure is called
A) the goods-market equilibrium condition.
B) the total identity.
C) the fundamental identity of national income accounting.
D) Say’s Law.
9) The fundamental identity of national income accounting is
A) total production = total income – total expenditure.
B) total production = total income + total expenditure.
C) total production = total income = total expenditure.
D) total production = total income / total expenditure.
10) To ensure that the fundamental identity of national income accounting holds, changes in
inventories are
A) treated as part of expenditure.
B) treated as part of saving.
C) ignored.
D) counted as consumption.
11) Describe the three different approaches to measuring the amount of economic activity that
occurs during a period of time and explain why they all give identical measurements.
2.2 Gross Domestic Product
1) To what extent are homemaking and child-rearing accounted for in the government’s GDP
accounts?
A) Not at all
B) Only to the extent that they are provided for pay
C) Only to the extent that taxes are paid on them
D) All homemaking and child-rearing are accounted for
2) The measurement of GDP includes
A) nonmarket goods such as homemaking and child-rearing.
B) the benefits of clean air and water.
C) estimated values of activity in the underground economy.
D) purchases and sales of goods produced in previous periods.
3) Which of the following is included in U.S. GDP?
A) The sale of a new car from a manufacturer’s inventory
B) The purchase of a watch from a Swiss company
C) The sale of a used car
D) A newly constructed house
4) Government statisticians adjust GDP figures to include estimates of
A) the value of homemaking (work done within the home).
B) the underground economy.
C) child-rearing services provided by stay-at-home parents.
D) the costs of pollution to society.
5) Because government services are not sold in markets,
A) they are excluded from measurements of GDP.
B) the government tries to estimate their market value and uses this to measure the government’s
contribution to GDP.
C) they are valued at their cost of production.
D) taxes are used to value their contribution.
6) Intermediate goods are
A) capital goods, which are used up in the production of other goods but were produced in earlier
periods.
B) final goods that remain in inventories.
C) goods that are used up in the production of other goods in the same period that they were
produced.
D) either capital goods or inventories.
7) Capital goods are
A) a type of intermediate good.
B) final goods, because they are not used up during a given year.
C) produced in the same year as the related final good, whereas intermediate goods are produced
in different years.
D) produced in one year, whereas final goods are produced over a period of more than one year.
8) Capital goods are
A) not counted in GDP as final goods.
B) not used to produce other goods.
C) used up in the same period that they are produced.
D) goods used to produce other goods.
9) Marvin’s Metal Company produces screws that it sells to Ford, which uses the screws as a
component of its cars. In the national income accounts, the screws are classified as
A) inventory.
B) final goods.
C) capital goods.
D) intermediate goods.
10) Larry’s Lathe-makers Limited produces lathes, which are purchased by furniture
manufacturers all over the world. The standard lathe depreciates over a twenty-five year period.
In the national income accounts, the lathes are classified as
A) inventory.
B) raw materials.
C) capital goods.
D) intermediate goods.
11) Fred the farmer purchased five new tractors at $20,000 each. Fred sold his old tractors to
other farmers for $50,000. The net increase in GDP of these transactions was
A) $50,000.
B) $100,000.
C) $125,000.
D) $150,000.
12) Inventories include each of the following except
A) unsold finished goods.
B) goods in process.
C) raw materials held by firms.
D) office equipment.
13) GDP differs from GNP because
A) GDP = GNP – net factor payments from abroad.
B) GNP = GDP – net factor payments from abroad.
C) GDP = GNP – capital consumption allowances.
D) GNP = GDP – capital consumption allowances.
14) If an American construction company built a road in Kuwait, this activity would be
A) excluded from U.S. GNP.
B) fully included in U.S. GDP.
C) included in U.S. GNP only for that portion that was attributable to American capital and
labor.
D) included in U.S. GDP but not in U.S. GNP.
15) Nations such as Egypt and Turkey may have wide differences between GNP and GDP
because both the countries
A) have a high level of imports and exports relative to GNP.
B) have a large portion of their GNP produced by multinational corporations.
C) have a large number of citizens working abroad.
D) purchase large amounts of military wares from other countries.
16) If C = $500, I = $150, G = $100, NX = $40, and GNP = $800, how much is NFP?
A) -$10
B) -$5
C) $5
D) $10
17) If C = $250, I = $50, G = $60, NX =- $20, and NFP = $5, how much is GNP?
A) $365
B) $335
C) $340
D) $345
18) If C = $400, I = $100, G = $50, NX = $30, and NFP = $5, how much is GDP?
A) $580
B) $575
C) $585
D) $550
19) The income-expenditure identity says that
A) Y = C + S + T.
B) Y = C + I + G.
C) Y = C + I + G + NX.
D) Y = C + I + G + NX + CA.
20) Which of the following is not a category of consumption spending in the national income
accounts?
A) Consumer durables
B) Nondurable goods
C) Services
D) Housing purchases
21) Consumer spending is spending by ________ households on final goods and services
produced ________.
A) domestic; domestically and abroad
B) domestic; domestically
C) domestic and foreign; domestically and abroad
D) domestic and foreign; domestically
22) Business fixed investment includes purchases of
A) capital equipment and structures.
B) land and energy.
C) long-term bonds.
D) inventories.
23) In the expenditure approach to GDP, which of the following would be excluded from
measurements of GDP?
A) Government payments for goods produced by foreign firms
B) Government payments for goods produced by firms owned by state or local governments
C) Government payments for welfare
D) All government payments are included in GDP.
24) Net national product equals
A) gross national product minus statistical discrepancy.
B) gross national product minus depreciation.
C) national income minus taxes on production and imports.
D) national income plus depreciation.
25) Monica grows coconuts and catches fish. Last year she harvested 1500 coconuts and 600
fish. She values one fish as having a worth of three coconuts. She gave Rachel 300 coconuts and
100 fish for helping her to harvest coconuts and catch fish, all of which were consumed by
Rachel. In terms of fish, Monica’s income would equal
A) 700 fish.
B) 900 fish.
C) 1100 fish.
D) 2700 fish.
26) Monica grows coconuts and catches fish. Last year she harvested 1500 coconuts and 600
fish. She values one fish as having a worth of three coconuts. She gave Rachel 300 coconuts and
100 fish for helping her to harvest coconuts and catch fish, all of which were consumed by
Rachel. Monica consumed the remaining fish and coconuts. In terms of fish, total consumption
by both Monica and Rachel would equal
A) 700 fish.
B) 900 fish.
C) 1100 fish.
D) 2700 fish.
27) Private disposable income equals
A) GNP – taxes + transfers + interest.
B) NNP – taxes + transfers + interest.
C) national income – taxes + transfers + interest.
D) national income – taxes – transfers + interest.
28) Carl’s Computer Center sells computers to business firms. Businesses then use the computers
to produce other goods and services. Over the past year, sales representatives were paid $3.5
million, $0.5 million went for rent on the building, $0.5 million went for taxes, $0.5 million was
profit for Carl, and $10 million was paid for computers at the wholesale level. What was the
firm’s total contribution to GDP?
29) Pete the Pizza Man produced $87,000 worth of pizzas in the past year. He paid $39,000 to
employees, paid $11,000 for vegetables and other ingredients, and paid $5,000 in taxes. He
began the year with ingredient inventories valued at $1,000, and ended the year with inventories
valued at $2,000. What was Pete’s (and his employees’) total contribution to GDP this year?
30) What is the main conceptual difference between GDP and GNP? How different are GDP and
GNP for the United States? For countries with many citizens who work abroad?
31) Citizens of the country of Heehaw produce hay and provide entertainment services (banjo
playing). In one year they produced $15 million worth of hay, with $11 million consumed
domestically and the other $4 million sold to neighboring countries. They provided $7 million
worth of banjo-playing services, $5 million in Heehaw, and $2 million in neighboring countries.
They purchased $6 million worth of soda pop from neighboring countries.
Calculate the magnitudes of GNP, GDP, net factor payments from abroad, net exports, and the
current account balance.
32) In the country of Kwaki, people produce canoes, fish for salmon, and grow corn. In one year
they produced 5000 canoes using labor and natural materials only, but sold only 4000, as the
economy entered a recession. The cost of producing each canoe was $1000, but the ones that
sold were priced at $1250. They fished $30 million worth of salmon. They used $3 million of the
salmon as fertilizer for corn. They grew and ate $55 million of corn. What was Kwaki’s GDP for
the year?
33) In one year in the country of Countem, workers earned $4150, proprietor’s income was $392,
rental income was $20, corporate profits were $683, net interest was $228, taxes on production
and imports were $329, business current transfer payments were $12, the current surplus of
government enterprises was $3, statistical discrepancy was $28, consumption of fixed capital
was $882, factor income received from the rest of the world was $331, and payments of factor
income to the rest of the world was $623. Based on these data, compute national income, net
national product, gross national product, and gross domestic product.
2.3 Saving and Wealth
1) The value of a household’s assets minus the value of its liabilities is called
A) wealth.
B) income.
C) debt.
D) stock.
2) Private saving is defined as
A) private disposable income minus consumption.
B) net national product minus consumption.
C) private disposable income minus consumption plus interest.
D) private disposable income minus consumption plus interest plus transfer payments.
3) In a given year, a country’s GDP = $9841, net factor payments from abroad = $889, taxes =
$869, transfers received from the government = $296, interest payments on the government’s
debt = $103, consumption = $8148, and government purchases = $185. The country had private
saving equal to
A) $285.
B) $3850.
C) $2397.
D) $2112.
4) In a given year, a country’s GDP = $9841, net factor payments from abroad = $889, taxes =
$869, transfers received from the government = $296, interest payments on the government’s
debt = $103, consumption = $8148, and government purchases = $185. The country had
government saving equal to
A) $285.
B) $3850.
C) $2397.
D) $2112.
5) In a given year, a country’s GDP = $9841, net factor payments from abroad = $889, taxes =
$869, transfers received from the government = $296, interest payments on the government’s
debt = $103, consumption = $8148, and government purchases = $185. The country had private
saving equal to
A) $285.
B) $3850.
C) $2397.
D) $2112.
6) If a local government collects taxes of $500,000, has $350,000 of government consumption
expenditures, makes transfer payments of $100,000, and has no interest payments or investment,
its budget would
A) show a surplus of $150,000.
B) show a surplus of $50,000.
C) be in balance with neither a surplus nor a deficit.
D) show a deficit of $50,000.
7) If a local government collects taxes of $250,000, has $175,000 of government consumption
expenditures, makes transfer payments of $75,000, and has no interest payments or investment,
its budget would
A) show a surplus of $100,000.
B) show a surplus of $75,000.
C) be in balance with neither a surplus nor a deficit.
D) show a deficit of $75,000.
8) The government budget surplus equals
A) government purchases plus transfers.
B) government receipts minus government outlays.
C) government purchases minus net receipts.
D) government purchases minus transfers.
9) National saving equals private saving plus government saving, which in turn equals
A) C + S + T.
B) GDP + C + G.
C) GDP + NFP.
D) GDP + NFP – C – G.