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179. The equation representing the final demand approach to calculating GDP is
a.
Y = C + I + X + IM.
b.
Y = C + I + G.
c.
Y = G + I + X − IM.
d.
Y = C+ I + G + (X − IM).
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180. In calculating the nation’s total output, net exports
a.
represent exports of goods and services minus imports of goods and services.
b.
have been a negative number in the last several years.
c.
would include purchases of U.S.-made automobiles by foreigners minus purchase of foreign-made
automobiles by U.S. residents.
d.
All of the above are correct.
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181. The government component (G) of total output includes goods and services purchased by
a.
the federal government plus transfer payments.
b.
all government institutions plus transfer payments.
c.
all government institutions.
d.
all government institutions plus tax revenues.
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182. The majority of payments made by the federal government are for
a.
transfer payments.
b.
administrative expenses.
c.
foreign aid.
d.
defense purchases
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183. The accounting identity for the economy’s factor payments can be written as ____.
a.
b.
c.
d.
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184. Adding depreciation to net national product yields
a.
disposable income (DI).
b.
personal income (PI).
c.
net national product (NNP).
d.
gross domestic product (GDP).
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185. The difference between Gross National Product and Net National Product is the
a.
rate of inflation.
b.
statistical discrepancy encountered in calculating GDP.
c.
difference between real versus nominal GDP.
d.
depreciation of the economy’s capital stock.
Easy
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186. The sum of all factor payments in the economy yields
a.
gross domestic product.
b.
national income.
c.
disposable income.
d.
net domestic product.
Easy
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187. The term “depreciation” in the national income accounts refers to
a.
the adjustment of GDP for inflation.
b.
plant and equipment “used up” in producing current output.
c.
citizenship differences among income recipients.
d.
government transfer payments minus tax revenues.
Easy
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188. The national income accounts include a value for the amount of capital stock “used up” during the production of
current output. This dollar amount is called
a.
appreciation.
b.
dollarization.
c.
amortization.
d.
depreciation.
Easy
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189. The largest income component in the national income accounts is
a.
wages.
b.
rents.
c.
corporate profits.
d.
interest.
a
Easy
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190. Employee compensation accounts for about what percentage of national income?
a.
33 percent
b.
42 percent
c.
66 percent
d.
90 percent
c
Easy
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191. Based on the relative size of factor payments, the most important resource in the U.S. economy is
a.
capital.
b.
land.
c.
labor.
d.
natural resources.
c
Easy
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192. The value of intermediate goods is not included in the calculation of GDP to avoid the problem of
a.
depreciation.
b.
inflation.
c.
double counting.
d.
transfer payments.
c
Moderate
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193. GDP can be calculated by the value-added approach, which
a.
is useful in avoiding double counting.
b.
includes only the value-added portion from the sale of goods and services.
c.
includes the revenue a firm receives from selling a product minus the amount paid for goods purchased from
other firms.
d.
All of the above correct.
Easy
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194. National income can be calculated by subtracting
a.
depreciation from GDP.
b.
indirect business taxes from GDP.
c.
depreciation and indirect business taxes from GDP.
d.
transfer payments and taxes from GDP.
c
Easy
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195. Disposable income is obtained by
a.
subtracting personal income taxes from personal income.
b.
subtracting personal income taxes from national income.
c.
adding transfer payments to national income.
d.
adding transfer payments to personal income.
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196. Which of the following methods could be used to calculate GDP?
a.
the sum of all spending on final goods and services
b.
the sum of all factor payments plus depreciation and indirect business taxes
c.
the sum of all values added at each stage of production
d.
All of the above could be used.
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197. Which of the following is the best example of an intermediate good?
a.
a tire purchased by an auto company
b.
a new house purchased by a newly married couple
c.
grain sold to foreign farmers
d.
All of the above are intermediate goods.
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198. Whirlpool Corporation buys steel in sheets to manufacture refrigerators. Whirlpool also buys a new factory and a
metal press to mold the steel. Which purchases are included in GDP?
a.
the steel
b.
the steel, the factory, and the metal press
c.
the factory and the metal press
d.
the steel and the metal press
c
Moderate
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Table 8-1
Item
Amount (billions)
Personal Consumption Expenditures
600
Depreciation
50
Wages
800
Indirect Business Taxes
10
Rental Income
25
Gross Private Domestic Investment
150
Corporate Profits
75
Net Exports
5
Government Purchases of Goods and Services
200
Government Transfer Payments
50
199. According to the data in Table 8-1, the value of GDP is
a.
800.
b.
805.
c.
955.
d.
1055.
c
Difficult
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200. According to the data in Table 8-1, the value of NNP is
a.
900.
b.
805.
c.
750.
d.
705.
a
Difficult
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201. According to the data in Table 8-1, the value of GNP is
a.
900.
b.
950.
c.
955.
d.
960.
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202. Government-produced goods are added to GDP at
a.
their market value.
b.
the value they have to their users.
c.
the value of the inputs used to produce them.
d.
the value Congress places on them.
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203. Which of the following transactions is included in GDP?
a.
You buy a used car for $10,000.
b.
An unemployed worker receives a check for $450 as unemployment benefits.
c.
You buy a one-acre lot in Florida where you plan to build a beach house.
d.
Toyota builds 1,000 Accords in Kentucky at a cost of $25,000 each but is unable to sell them and, therefore,
they are added to inventory.
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204. National income is the sum of
a.
wages and profits.
b.
wages, interest, profits, and rent.
c.
interest and rent.
d.
wages, transfer payments, and tax revenues.
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205. In the national income accounts, new investment goods are considered
a.
intermediate goods, and therefore, not counted.
b.
final goods.
c.
subtractions from final output.
d.
depreciated goods
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206. The most volatile part of wealth is:
a.
transfer payments
b.
bonds
c.
the stockmarket
d.
savings accounts
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The Consumption Function and the Marginal Propensity to Consume
207. The most volatile component of aggregate demand is:
a.
consumer spending
b.
government purchases
c.
net exports
d.
investment spending
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The Extreme Variability of Investment
208. Define the following terms and explain their importance in the study of macroeconomics:
a.
consumer expenditures
b.
investment spending
c.
national income
d.
transfer payments
component of total spending and account for about two-thirds of GDP.
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Aggregate Demand, Domestic Product, and National Income
209. What is aggregate demand? What are its major components?
210. What is disposable income? How is it calculated?
211. Define investment?
The meaning of investment is different for economists. Explain.
212. What is the marginal propensity to consume (MPC) and why is it important in predicting consumer behavior?
213. Explain why national income and domestic product must be equal.
214. Which factors will cause the consumption function to shift? Which factors do not cause the function to shift?
215. For each of the following, how would they be included in the national income accounts?
a.
The University of California buys a new computer.
b.
Charles buys a new MP3 player.
c.
Marian buys a new mountain cabin.
d.
Vikki buys an old mansion with hopes of restoring it.
e.
Farmer Brown buys a used combine harvester.
a.
Government purchases. Purchased by a state university.
b.
Consumption. Purchased by an individual.
c.
Investment. New house purchased by an individual.
d.
Not included. Built in a previous year.
e.
Not included. Only newly produced goods are included.
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216. Why is investment spending a highly volatile component?
their investment plans will be very cautious if the economic outlook appears bleak.
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217. Discuss the major determinants of net exports.
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218. Changes in the value of stocks may play a big role in the consumption decisions of individuals. How would changes
in the stock market affect the consumption function?
219. Explain why it makes a difference if consumers consider a tax cut temporary rather than permanent. What does this
explanation tell us about the importance of government credibility? Put this in the context of the 2008 and 2009 tax cuts
favored by President Bush and President Obama.