File: Chapter 25 Measuring and Describing the Aggregate Economy
True/False
[QUESTION]
1. Aggregate accounting enables us to measure and analyze how much a nation is producing and
consuming.
2. Gross domestic product (GDP) is the total market value of the final goods and services
produced by an economy in a one-year period.
3. To compute GDP, you must add up the value of all the goods and services produced in a
country in a year.
4. Your visit to the dentist, college tuition, and any commissions earned by a used car salesman
are all included in GDP.
5. Gross domestic product (GDP) can be calculated using either the expenditure method or the
income method.
6. Gross domestic product equals the sum of consumption, investment, and government
purchases.
7. Net exports is the key to the equality of aggregate expenditures and aggregate income.
8. T-accounts reflects double-entry bookkeeping that keeps income and production equal.
9. Inflation is a sustained rise in the general price level.
10. If an economy is comprised of two goods and the price of one good rises by 5% and the
price of the second good rises 3%, a possible rate of inflation for the economy is 5%.
11. When news reports state that inflation has increased, they could be referring to a change in
the GDP deflator.
12. Comparisons of per capita gross domestic product across countries provide a very good
measure of how similar living standards are across countries.
13. Nominal GDP can never be equal to real GDP.
14. Because official price indexes do not account for some improvements in product quality,
official estimates of real GDP overestimate the true increase in real output.
15. If measurement errors did not exist, real per capita GDP would be an undeniably accurate
measure of human welfare.
16. Aggregate accounting:
A. is used primarily by microeconomists.
B. provides a way of measuring total or aggregate production.
C. was first developed in the 1970s.
D. cannot be used to measure national consumption.
17. Which of the following statements about aggregate accounting is false?
A. It provides a way of measuring total, or aggregate, production.
B. It provides a way of measuring how much a nation is producing and consuming.
C. It did not exist before the 1930s because economists focused on microeconomics before the
1930s.
D. It is the best way to measure social welfare for an economy.
18. GDP is the:
A. market value of an economy’s production of final goods and services in a one year period.
B. sum of coins, bills, and demand deposits circulating in an economy one year period.
C. total expenditures of the federal government over the period of one year.
D. market value of an economy’s production of all goods and services in a one year period.
19. The U.S. produces and sells millions of types of products. To add them up to a single
aggregate, each good is weighted by its:
A. cost of production.
B. market price.
C. utility to consumers.
D. contribution to corporate profits.
20. If an economy produces 50 oranges sold at $1 each and 100 bananas at $0.50 each, using
GDP as the measure of output:
A. oranges are weighted as being 2 times more important than bananas.
B. oranges are weighted as being ½ as important as bananas.
C. bananas are weighted as being 2 times more important than oranges.
D. bananas are weighted as being ½ as important as oranges.
21. If an economy produces 100 pencils and 100 pens, and pencils sell for twice as much as
pens:
A. pencils are weighted as twice as important in the economy compared to pens.
B. pens are weighted as twice as important in the economy compared to pencils.
C. pencils are weighted as equally important in the economy as pens.
D. nothing can be said about the relative importance of pens and pencils in the economy.
22. If an economy produces 100 pencils valued at $0.25 each and 500 sheets of ruled paper at
$0.01 each, using GDP as the measure of output:
A. pencils are weighted as being 25 times more important than ruled paper.
B. pencils are weighted as being 5 times more important than ruled paper.
C. ruled paper is weighted as being 25 times more important than pencils.
D. ruled paper is weighted as being 5 times more important than pencils.
23. To calculate GDP:
A. add the quantity of all final goods and services produced in an economy in a year.
B. add the quantity of all goods and services sold in an economy in a year.
C. weight the output of each final good and service produced in an economy in a year by its
price in that year and then total the result.
D. weight the output of each good and service produced in an economy in a year by its price in
that year and then total the result.
24. The total market value of all final goods and services produced in a country in a year is:
A. NNP.
B. GNP.
C. NDP.
D. GDP.
25. Conceptually, a country’s GDP equals:
A. the sum of the value of its final output and the value of the intermediate goods used to
produce that output.
B. the difference between the value of its final output and the value of the intermediate goods
used to produce that output.
C. the sum of the value added at all stages of production.
D. the sum of the value of all the intermediate goods used to produce final output.
26. The largest expenditure component of GDP is:
A. consumption.
B. investment.
C. net exports.
D. government spending.
27. If you decide not to spend $1,000 you earned at your summer job but instead intend to buy
shares in a mutual fund, in terms of aggregate economic accounting you would be:
A. consuming.
B. saving.
C. investing.
D. transferring.
28. In what category is the purchase of a computer by a person for household use in national
income accounting?
A. It is counted as consumption
B. It is counted as consumption if the computer was manufactured in the United States;
otherwise it is ignored
C. It is included as part of investment
D. The purchase is not included at all, but the value of services the computer gives is included in
consumption each year
29. In what category is the purchase of a computer by a business in national income accounting?
A. It is ignored because computers are considered intermediate goods—an input in the
production of other goods and services
B. It is considered consumption
C. It is a form of investment spending
D. It is a form of savings
30. Personal consumption expenditures consist of:
A. household and individual purchases of services and durable and nondurable goods.
B. foreign investments in the United States.
C. foreign plus domestic investments.
D. domestic investments.
31. A change in business inventories is:
A. not counted in GDP because it does not represent final sales.
B. counted in GDP as investment.
C. counted in GDP as consumption.
D. counted in GDP as net exports.
32. Net exports are defined as:
A. GDP minus exports.
B. exports less imports.
C. imports less exports.
D. exports plus imports.
33. If U.S. imports of goods and services exceed exports U.S.:
A. GDP is less than the sum of consumption, investment, and government purchases.
B. GDP exceeds the sum of consumption, investment, and government purchases.
C. net exports are positive.
D. GDP equals the sum of consumption, investment, and government purchases.
34. If U.S. net exports are positive, then U.S.:
A. GDP is less than the sum of consumption, investment, and government purchases.
B. GDP exceeds the sum of consumption, investment, and government purchases.
C. imports must exceed U.S. exports.
D. GDP equals the sum of consumption, investment, and government purchases.
35. Negative net exports means:
A. GDP is lower than it would have been if net exports had equaled zero.
B. GDP is higher than it would have been if net exports had equaled zero.
C. exports exceed imports.
D. depreciation exceed investment.
36. Which of the following equations is the correct equation for GDP?
A. GDP = C + I + G
B. GDP = C + I + G + X + M
C. GDP = C + I + G – X – M
D. GDP = C + I + G + X – M
37. Using the expenditure approach, gross domestic product equals:
A. gross national product.
B. gross national product minus net exports.
C. the sum of consumption, investment, government purchases.
D. the sum of consumption, investment, government purchases, and net exports.
38. In 2008, the value of the stocks listed on the New York Stock Exchange decreased
tremendously. As a direct result:
A. both U.S. GDP and U.S. GNP declined by the same amount.
B. U.S. GDP declined by the amount of the stock market decline but U.S. GNP was unaffected.
C. U.S. GNP declined by the amount of the stock market decline but U.S. GDP was unaffected.
D. neither U.S. GDP nor U.S. GNP were affected.
39. Which of the following would not be included in personal consumption expenditure?
A. College tuition
B. Medical expenses
C. Federal police protection
D. A movie ticket
40. Investment includes:
A. an increase in corporate stock volumes during the year.
B. the purchase of medical supplies by the National Guard.
C. an increase in government purchases.
D. an increase in business inventories.
41. For the purposes of calculating GDP, investment includes:
A. the value of new residential construction.
B. purchases of stock.
C. purchases of old automobiles.
D. purchases of government bonds.
42. A government purchases that are counted as part of GDP can be less than the government’s
total budget because:
A. government purchases are not counted as part of GDP.
B. taxes are not counted as part of GDP.
C. transfer payments are not counted as part of GDP.
D. only the budget surplus or deficit is counted as part of GDP.
43. Government expenditures for Social Security and unemployment insurance are, for GDP
accounting purposes, considered:
A. transfers, and are included in government spending as part of GDP.
B. transfers, and are not included in government spending as part of GDP.
C. purchases, and are included in government spending as part of GDP.
D. purchases, and are not included in government spending as part of GDP.
44. How does stock differ from flow?
A. A flow concept has meaning over a specified period of time, while a stock concept is a value
at a point in time.
B. A flow concept is a value at a point in time, while a stock concept has meaning over a
specified period of time.
C. They do not differ; both flow and stock concepts have meaning only over a specified period
of time.
D. The do not differ; both flow and stock concepts are values at a point in time.
45. GDP is a:
A. stock concept and refers to the market value of all output sold.
B. stock concept and refers to the market value of final output.
C. flow concept and refers to the market value of all output sold.
D. flow concept and refers to the market value of final output.
46. Great Basin National Park, the only national park wholly within the borders of Nevada,
occupies 77,180 acres and contains 42 known caves. About 90,000 people visit the park each
year. It has 25 permanent staff who, with the seasonal staff, collect $280,00 in fees a year, mostly
for the 2,400 cave tours. The park also has about 80 volunteers who contribute 9,400 hours of
work a year. Because the park suverys for springs in the 25 watersheds, the park service does not
burning any acreage, which is part of standard maintenance in some parks.
Some of the data in this paragraph are flow measurements and some are stock measurements. An
example of a flow measurement is:
A. staff positions in the park.
B. acres in the park.
C. cave tours given.
D. caves in the park.
47. Great Basin National Park, the only national park wholly within the borders of Nevada,
occupies 77,180 acres and contains 42 known caves. About 90,000 people visit the park each
year. It has 25 permanent staff who, with the seasonal staff, collect $280,00 in fees a year, mostly
for the 2,400 cave tours. The park also has about 80 volunteers who contribute 9,400 hours of
work a year. Because the park suverys for springs in the 25 watersheds, the park service does not
burning any acreage, which is part of standard maintenance in some parks.
Some of the data in this paragraph are flow measurements and some are stock measurements. An
example of a stock measurement is:
A. fees collected.
B. number of visitors.
C. number of watersheds.
D. number of acres burned.
48. Which of the following is a stock concept?
A. Income
B. Wealth
C. Rent
D. Expenditures
49. Which of the following is a flow concept?
A. body weight
B. wealth
C. gallons of water in a pool
D. expenditures
50. The value of intermediate goods is:
A. included in both GDP and GNP.
B. included in GDP but not GNP.
C. included in GNP but not GDP.
D. excluded from both GDP and GNP.
51. Which of the following is an example of an intermediate product?
A. A pair of skis sold by a sporting goods retailer to a skier
B. A share of IBM stock
C. The lumber produced by Boise Cascade and sold to a builder of old houses
D. An antique car sold to the highest bidder
52. The reason economists include only the value of final goods and services when they
calculate GDP is that intermediate goods:
A. do not create value added.
B. do not add to economic welfare.
C. have no social value.
D. would be double counted otherwise.
53. Double counting in the national income accounts will occur if GDP is computed by
summing up:
A. final output sales.
B. value added.
C. all sales.
D. the income earned by a country’s residents.
54. Double counting in the national income accounts will be avoided if GDP is computed by
totaling all:
A. sales of final output.
B. sales of final output and intermediate goods.
C. sales.
D. production costs.
55. Value added is calculated by:
A. subtracting the cost of materials used in production from the value of sales.
B. adding the cost of materials used in production to the value of sales.
C. subtracting the value of sales from the cost of materials used in production.
D. adding the value of output to the value of inputs.
56. The sum of the value added by all of a nation’s individuals and businesses in a year equals:
A. the value of intermediate products.
B. the value of investment goods.
C. total profits.
D. GDP.
57. Suppose the value of your home increases from $100,000 to $125,000. If you continue to
live in your home, the increase in its value:
A. adds nothing to GDP.
B. increases GDP by $25,000.
C. increases GDP by $100,000.
D. increases GDP by $125,000.
58. Which of the following is a part of GDP?
A. The value of a homemaker’s services
B. The value of a haircut
C. The value of an old car purchased during a year
D. The value of an existing house sold during a year
59. Which of the following would increase this year’s GDP?
A. A mother quits her job to take care of her newborn child
B. A commission charged by your broker when you sold 100 shares of Borden stock
C. A $10,000 inheritance from Aunt Mary
D. Receipts from a yard sale
60. Which of the following is not counted in GDP?
A. The services provided by a maid
B. Aan increase in inventories held by firms
C. The change in Social Security payments received by individuals
D. The commissions earned by a salesman
61. Transfers of assets, such as stock sales are:
A. included in GDP because they raise domestic production.
B. included in GDP because they increase domestic wealth.
C. not included in GDP because they do not increase domestic production.
D. not included in GDP because they do not increase domestic wealth.
62. Which of the following is not a part of U.S. GDP?
A. The payments for an insurance policy on an old BMW sold by a U.S. company
B. The value of a BMW imported from Germany
C. The value of a BMW produced in the United States
D. The commissions earned by a BMW dealership in the United States