1. The national income accounting system provides a measure of:
a.
only the total amount of profits made by business firms.
b.
the total value of all inputs used in production.
c.
the government budget surplus and deficit.
d.
the net exports of a nation.
e.
the output of an entire economy.
2. National income accounting can best be characterized as:
a.
a set of rules used to summarize economic activity over a given period of time.
b.
a method for comparing different political systems.
c.
a microeconomic model of the economy used by the Federal Reserve bank.
d.
a statistical measure of the income received by consumers as opposed to businesses.
e.
a standardized economic report authored by politicians.
MACR.BOYE.16.20 – ch. 05, 1
United States – Measuring the Economy
United States – Reflective Thinking
Measures of Output and Income
3. Identify the correct statement.
a.
National income accounting measures only the flow of output between different sectors of an economy.
b.
National income accounting summarizes the level of production in an economy over a decade.
c.
National income accounting explains diagrammatically the flow of goods and services and of money
expenditures (income).
d.
National income accounting summarizes and categorizes the productive activity in an economy over a year.
e.
National income accounting measures the total money supply in an economy.
MACR.BOYE.16.20 – ch. 05, 1
United States – Analytic – BB-Legal
United States – Measuring the Economy
Measures of Output and Income
4. Which of the following would be included in the calculation of the GDP for the year 2010?
a.
Purchase of a 2004 model Volkswagen sedan in 2010
MACR.BOYE.16.20 – ch. 05, 1
United States – Analytic – BB-Legal
Measures of Output and Income
b.
Swapping of baseball cards among two college students
c.
Car repairs done by a person
d.
Fresh lemonade sold at a local diner
e.
A lamp sold at a garage sale
5. Which of the following must be included in the calculation of GDP?
a.
b.
c.
d.
e.
MACR.BOYE.16.20 – ch. 05, 1
Measures of Output and Income
6. Productive activity in the underground economy:
a.
results in an overstatement of actual income and production in the national accounting system.
b.
consists of unrecorded cash transactions.
c.
is estimated and included in the national income accounting system.
d.
poses no problem for the measurement of gross domestic product.
e.
does not affect GDP but is included in the value-added computations.
MACR.BOYE.16.20 – ch. 05, 1
United States – Reflective Thinking
Measures of Output and Income
7. Which of the following would not be included in the calculation of GDP?
a.
Vegetables grown and consumed by a nonfarm family
b.
The purchase of a new Porsche
c.
The sale of meat at the local grocery store
d.
The government purchase of an F-14 fighter plane
MACR.BOYE.16.20 – ch. 05, 1
Measures of Output and Income
e.
The payment made to an accountant for the preparation of tax forms
8. If the value of intermediate goods and services are included in GDP, then:
a.
GDP would be understated.
b.
GDP would act as a true indicator of economic welfare.
c.
there would be double-counting.
d.
it would lead to depreciation.
e.
GDP would be able to give an exact estimate of the inventory in an economy.
MACR.BOYE.16.20 – ch. 05, 1
United States – Measuring the Economy
Measures of Output and Income
9. Which of the following will be categorized as an intermediate good in national income accounting?
a.
The value of oregano used as a seasoning for pizzas
b.
The crops consumed by a farmer’s family members
c.
The present value of a car produced a couple of years ago
d.
A clunker sold during the current year
e.
The value of an antique piece of jewelry handed down over generations in a family
MACR.BOYE.16.20 – ch. 05, 1
United States – Reflective Thinking
Measures of Output and Income
10. To avoid double counting in the calculation of GDP,
a.
net exports should be excluded.
b.
the value of intermediate goods and services should be excluded.
c.
the capital consumption allowance should be excluded.
d.
business investment should be excluded.
e.
government purchases should be excluded.
MACR.BOYE.16.20 – ch. 05, 1
Measures of Output and Income
11. The term “value added” is used to describe:
a.
the increase in the value of a product that occurs at each stage of production.
b.
the amount subtracted from the value of goods because of inflation.
c.
the total value of all intermediate goods used in the production of the final good.
d.
the amount paid in the final sale of a product or service.
e.
the amount subtracted from the value of resources because of depreciation.
Moderate
MACR.BOYE.16.20 – ch. 05, 1
Measures of Output and Income
Knowledge
12. A soft-drink bottling company supplies six-packs of orange flavored soda to retailers for a price of $2 each. If the
components in each six-pack costs the bottling company $1.50, the value added, to each six-pack, by the bottling
company is:
a.
$2.00.
b.
$1.50.
c.
$1.25.
d.
$1.00.
e.
$0.50.
Moderate
MACR.BOYE.16.20 – ch. 05, 1
United States – Reflective Thinking
Application
The table given below reports the value of sales at each stage of production of an economics book.
Table 5.1
The Production of an Economics Book
Production Stage
Sales Value
Purchase of Timber
$1.25
Processing of Timber into Paper
$7.75
Printing
$24.50
Retail Sales of Economics Book
$38.00
13. Refer to Table 5.1. What is the value-added by processing timber into paper?
Easy
MACR.BOYE.16.20 – ch. 05, 1
Measures of Output and Income
Knowledge
Revised
a.
$6.50
b.
$38
c.
$7.75
d.
$1.25
e.
$24.50
14. Refer to Table 5.1. What is the contribution to GDP from the production of an economics book?
a.
$13.50
b.
$7.75
c.
$24.50
d.
$38
e.
$71.50
d
Moderate
MACR.BOYE.16.20 – ch. 05, 1
Measures of Output and Income
Application
15. Refer to Table 5.1. Compute the market price of an economics book.
a.
$13.50
b.
$7.75
c.
$24.50
d.
$38
e.
$71.50
d
Moderate
MACR.BOYE.16.20 – ch. 05, 1
United States – Reflective Thinking
Measures of Output and Income
Application
The table given below shows various stages of production of a Corvette, a sports car produced by General Motors
Company (GMC):
Table 5.2
The Production of a Corvette
Production Stage
Sales Value
Steal Co. sells the raw material to Motor Inc.
$1,500
Moderate
MACR.BOYE.16.20 – ch. 05, 1
United States – Reflective Thinking
Measures of Output and Income
Application
Motor Inc. sells the engine to GMC
$2,350
Dealer buys car form GMC
$19,700
Dealer sells car (retail)
$36,000
16. According to Table 5.2, the value added by the dealer is:
a.
$2,350.
b.
$16,300.
c.
$19,700.
d.
$36,000.
e.
$59,550.
17. According to Table 5.2, the contribution to GDP from the production of this car is:
a.
$2,350.
b.
$16,300.
c.
$19,700.
d.
$36,000.
e.
$59,550.
d
Moderate
MACR.BOYE.16.20 – ch. 05, 1
Measures of Output and Income
Application
18. Identify the impact of an increase in the inventory stock during a year.
a.
Consumption spending will decrease thereby reducing the GDP.
b.
The GDP of a country should decrease by the amount of the increase in inventory.
c.
The capital investment in a country will increase.
d.
Neither the capital investment nor the GDP will change.
e.
The GDP of a country should increase by the amount of the increase in inventory.
Easy
MACR.BOYE.16.20 – ch. 05, 1
United States – Measuring the Economy
Measures of Output and Income
Knowledge
b
Moderate
MACR.BOYE.16.20 – ch. 05, 1
Measures of Output and Income
Application
19. When estimating GDP, changes in the level of inventory are calculated because:
a.
it indicates the level of employment in the economy.
b.
it provides information about a firm’s expectations.
c.
it is a good indicator of the competitiveness of the economy.
d.
it shows the level of business spending by firms.
e.
it determines the value of goods produced in a year but not sold in that year.
20. Which of the following accounts for the largest percentage of output in the United States?
a.
The government
b.
Business firms
c.
Households
d.
Banks
e.
The rest of the world
b
Easy
MACR.BOYE.16.21 – ch. 05, 2
United States – Measuring the Economy
Measures of Output and Income
Knowledge
21. What is the approximate percent of GDP produced by private firms in the United States?
a.
4 percent
b.
11 percent
c.
25 percent
d.
57 percent
e.
75 percent
Easy
MACR.BOYE.16.21 – ch. 05, 2
Measures of Output and Income
Knowledge
The table given below reports the sales value at each stage of production of the soft drink, Pepsi.
Table 5.3
Production Stage
Sales Value
Sugar cane
$0.05
Processed sugar
$0.10
Wholesale Pepsi
$0.40
Easy
MACR.BOYE.16.20 – ch. 05, 1
Measures of Output and Income
Knowledge
Pepsi in a vending machine
$0.60
22. Refer to Table 5.3. The value added by the wholesaler is equal to:
a.
$0.05.
b.
$0.40.
c.
$0.30.
d.
$1.15.
e.
$0.06.
23. Refer to Table 5.3. If Pepsi was the only good produced in the economy, then what would be the value of GDP,
according to the expenditures approach?
a.
$0.05
b.
$0.20
c.
$0.40
d.
$1.15
e.
$0.60
Moderate
MACR.BOYE.16.22 – ch. 05, 3
United States – Reflective Thinking
Measures of Output and Income
Application
Revised
24. Refer to Table 5.3. Compute GDP according to the income approach if Pepsi is assumed to be the only good produced
in the economy.
a.
$1.05
b.
$0.05
c.
$0.20
d.
$0.60
e.
$0.40
d
Challenging
MACR.BOYE.16.22 – ch. 05, 3
United States – Reflective Thinking
Measures of Output and Income
Moderate
MACR.BOYE.16.20 – ch. 05, 1
Measures of Output and Income
Application
Revised
25. Consider GDP calculated according to the expenditures approach. Which of the following components of GDP would
need to decrease for GDP to increase?
a.
Imports
b.
Consumption
c.
Exports
d.
Investment
e.
Government spending
26. Consider a hypothetical economy, whose GDP was $10,000, consumption equaled $9,800, investment equaled $125,
goods exported equaled $255, and goods imported equaled $500, in 2010. Calculate the government spending in this
economy during the year.
a.
$120
b.
$380
c.
$245
d.
$200
e.
$320
Moderate
MACR.BOYE.16.22 – ch. 05, 3
Measures of Output and Income
Application
27. Which of the following components of GDP accounts for the bulk of national expenditures in the United States?
a.
Government purchases
b.
Imports
c.
Consumption
d.
Investment
e.
Exports
Easy
MACR.BOYE.16.22 – ch. 05, 3
United States – Measuring the Economy
Measures of Output and Income
Knowledge
28. Bill Gates’ recent purchase of a new Rolls-Royce automobile produced in Great Britain will:
Moderate
MACR.BOYE.16.22 – ch. 05, 3
United States – Reflective Thinking
Comprehension
a.
increase the gross domestic product of the United States.
b.
have no effect on either country’s GDP.
c.
decrease Great Britain’s GDP.
d.
increase the net export component of U.S. gross domestic product.
e.
have to be subtracted from the U.S. GDP.
29. GDP, according to the income method, is the sum of:
a.
wages, rent, interest, and profits.
b.
consumption, gross investment, depreciation, and net exports.
c.
depreciation, net factor income from abroad, and indirect business taxes.
d.
gross investment, wages, profits, rent, and indirect business taxes.
e.
consumption, profits, interest, rent, and net exports.
Easy
MACR.BOYE.16.23 – ch. 05, 4
Measures of Output and Income
Knowledge
30. The stock of unused goods held by a firm is called a(n):
a.
depreciation.
b.
supplement.
c.
deadweight loss.
d.
excess capacity.
e.
inventory.
Easy
MACR.BOYE.16.23 – ch. 05, 4
United States – Measuring the Economy
Measures of Output and Income
Knowledge
Revised
31. The total expenditure on goods and services in a country must be the same as the total income earned from selling
goods and services because:
a.
the government’s annual budget has to balance.
b.
net exports in an economy is usually zero.
Moderate
MACR.BOYE.16.22 – ch. 05, 3
United States – Reflective Thinking
Measures of Output and Income
Application
c.
one sector’s expenditures are another sector’s income.
d.
total investment in an economy always equals total saving.
e.
the sum of consumption spending and saving is zero.
32. If ‘C’ denotes consumption expenditure, ‘I’ denotes investment expenditure, ‘G’ denotes government expenditure and
‘X’ denotes net exports, then C + I + G + X equals:
a.
net national product.
b.
disposable personal income.
c.
net exports.
d.
personal income.
e.
gross domestic product.
Easy
MACR.BOYE.16.23 – ch. 05, 4
Knowledge
Revised
33. A reduction in the value of capital goods over time due to their use in production is called:
a.
amortization.
b.
erosion.
c.
consumption.
d.
investment.
e.
depreciation.
Easy
MACR.BOYE.16.23 – ch. 05, 4
Measures of Output and Income
Knowledge
34. Which of the following is included in GDP computation according to the income method?
a.
Consumption
b.
Profits
c.
Investment
Easy
MACR.BOYE.16.23 – ch. 05, 4
United States – Measuring the Economy
Measures of Output and Income
Knowledge
Revised
d.
Government spending
e.
Imports
35. The term capital consumption allowance is defined as:
a.
the amount of net interest in an economy each year.
b.
the estimated value of depreciation and obsolescence in investment goods.
c.
the difference between exports and imports.
d.
the disposition of disposable personal income.
e.
the difference between earnings not received and receipts not earned.
b
MACR.BOYE.16.23 – ch. 05, 4
United States – Measuring the Economy
Measures of Output and Income
Revised
36. The difference between gross and net investment is referred to as:
a.
a personal tax.
b.
the income earned but not received.
c.
a capital consumption allowance.
d.
an indirect business tax.
e.
a statistical discrepancy.
MACR.BOYE.16.23 – ch. 05, 4
Measures of Output and Income
37. The purchase of a new machine to replace the one that is worn out is:
a.
not included in GDP.
b.
included in gross investment.
c.
considered a personal consumption expenditure.
d.
not included in GNP.
e.
an increase in inventories.
Easy
MACR.BOYE.16.23 – ch. 05, 4
United States – Measuring the Economy
Measures of Output and Income
Knowledge
38. Which of the following is true of indirect business taxes?
a.
They are included in corporate profits.
b.
They are not included in the GDP.
c.
They reduce the value of total economic output thereby reducing the value of the GDP.
d.
They are collected by business firms that act as agents for the government.
e.
They are the same as personal income taxes.
d
Easy
MACR.BOYE.16.23 – ch. 05, 4
United States – Measuring the Economy
Measures of Output and Income
Knowledge
39. Which of the following can be a valid reason for Canada’s GDP exceeding its GNP in 2001?
a.
Net factor income from abroad in Canada was negative.
b.
Canada’s GNP measurements were flawed.
c.
Canada’s indirect business taxes were exceptionally high.
d.
The World Bank underestimated Canada’s net exports.
e.
Canada’s residents received more foreign aid than they could spend.
Challenging
MACR.BOYE.16.23 – ch. 05, 4
United States – Reflective Thinking
Measures of Output and Income
Comprehension
40. Which of the following is subtracted from GNP when calculating net national product?
a.
Interest
b.
Capital consumption allowance
c.
Rent
d.
Indirect business taxes
e.
Income tax
Easy
MACR.BOYE.16.23 – ch. 05, 4
Challenging
MACR.BOYE.16.23 – ch. 05, 4
Measures of Output and Income
Knowledge
41. The difference between GNP and NNP is equal to:
a.
the statistical discrepancy in calculation.
b.
the capital consumption allowance.
c.
the transfer payments.
d.
the value of net exports.
e.
the change in inventory.
MACR.BOYE.16.23 – ch. 05, 4
United States – Measuring the Economy
Measures of Output and Income
42. If net investment spending in a nation is zero, we can conclude that:
a.
gross investment exceeds the capital consumption allowance.
b.
the capital consumption allowance exceeds gross investment.
c.
imports equal exports.
d.
gross investment equals the capital consumption allowance.
e.
no investment goods were produced in the economy.
MACR.BOYE.16.23 – ch. 05, 4
United States – Measuring the Economy
Measures of Output and Income
43. National income is the sum of:
a.
personal income and personal tax payments.
b.
proprietors’ income, rental income, compensation of employees, corporate profits, and interest receipts, net of
indirect business taxes and the capital consumption allowance.
c.
wages, transfer payments, interest paid to businesses, and tax revenue.
d.
NNP and the capital consumption allowance.
e.
consumption, investment, government spending, and net exports.
MACR.BOYE.16.23 – ch. 05, 4
United States – Measuring the Economy
United States – Measuring the Economy
Measures of Output and Income
44. Which of the following is not included in national income?
a.
Corporate profits
b.
Interest earnings
c.
Capital consumption allowance
d.
Rental income
e.
Stockbroker commissions
MACR.BOYE.16.23 – ch. 05, 4
United States – Analytic – BB-Legal
United States – Measuring the Economy
Measures of Output and Income
Scenario 5.1
Suppose that personal income is $250 billion. Furthermore, assume that retained corporate earnings are $2 billion, social
security taxes are $15 billion, social security benefit checks equal $16 billion, the capital consumption allowance is $32
billion, and corporate taxes amount to $40 billion.
45. Refer to Scenario 5.1. Gross national product of this nation will be:
a.
$177 billion.
b.
$259 billion.
c.
$291 billion.
d.
$343 billion.
e.
$323 billion.
MACR.BOYE.16.23 – ch. 05, 4
United States – Measuring the Economy
United States – Reflective Thinking
Measures of Output and Income
46. Refer to Scenario 5.1. What will be the value of net national product in this country?
a.
$209 billion
b.
$219 billion
c.
$283 billion
d.
$291 billion
e.
$323 billion
MACR.BOYE.16.23 – ch. 05, 4
United States – Reflective Thinking
47. Refer to Scenario 5.1. The national income of this nation will be:
a.
$236 billion.
b.
$249 billion.
c.
$251 billion.
d.
$279 billion.
e.
$290 billion.
Moderate
MACR.BOYE.16.23 – ch. 05, 4
United States – Reflective Thinking
Measures of Output and Income
Application
The table given below reports the value of different economic variables of a country during a year.
Table 5.4
GNP Data
(Adjusted for net factor income from abroad)
Net Investment
$400
Capital Consumption Allowance
$800
Indirect Business Taxes
$600
U.S. Exports
$200
U.S. Imports
$300
Government Purchases
$150
Consumption Spending
$2,030
48. Refer to Table 5.4. Compute the GNP of the country.
a.
$2,680
b.
$2,480
c.
$3,280
d.
$3,880
e.
$4,480
Moderate
MACR.BOYE.16.23 – ch. 05, 4
United States – Reflective Thinking
Measures of Output and Income
Application
49. Refer to Table 5.4. Calculate the NNP for this country.
a.
$2,680
b.
$2,480
c.
$3,280
d.
$3,880
e.
$4,480
Application
50. Refer to Table 5.4. What will be the value of gross investment?
a.
$400
b.
$1,200
c.
$1,000
d.
$1,800
e.
Indeterminate
b
Moderate
MACR.BOYE.16.23 – ch. 05, 4
United States – Reflective Thinking
Measures of Output and Income
Application
51. Refer to Table 5.4. Calculate the national income of this country.
a.
$1,880
b.
$2,480
c.
$3,280
d.
$3,880
e.
$4,280
b
Moderate
MACR.BOYE.16.23 – ch. 05, 4
Measures of Output and Income
Application
52. Personal income is equal to:
a.
NI minus personal income tax.
b.
NI minus net factor income from abroad.
c.
NI plus income currently earned but not received – income currently received but not earned.
d.
NI minus indirect business taxes.
e.
NI plus income currently received but not earned – income currently earned but not received.
Challenging
MACR.BOYE.16.23 – ch. 05, 4
Moderate
MACR.BOYE.16.23 – ch. 05, 4
Measures of Output and Income
Application