50) The largest category of gross domestic income is
A) interest.
B) rent.
C) wages.
D) profits.
51) If households pay $1,000 in interest payments and receive $1,200 in interest, wages equal
$9,000, rental receipts on land are $200, total business profits before taxes are $2,200,
depreciation is $1,750, and indirect business taxes are $1,000, then gross domestic income is
A) $15,350.
B) $14,350.
C) $13,150.
D) $11,400.
52) The two main methods of measuring GDP are
A) the income approach and the expenditure approach.
B) the income approach and the receipts approach.
C) the goods approach and the services approach.
D) the saving approach and the investment approach.
53) The expenditure approach to measuring GDP
A) adds the dollar value of final goods and services.
B) adds the income received by all factors of production.
C) excludes durable consumer goods since they last more than a year.
D) excludes profits since profits are a cost of production.
54) The computation of GDP by adding up the dollar value at current market prices of all final
goods and services is
A) the expenditure approach.
B) the income approach.
C) transfer payments.
D) the value of all securities.
55) The components of the expenditure approach to measuring GDP include all of the following
EXCEPT
A) net exports.
B) government purchases of goods and services.
C) expenditures for business investments.
D) the implicit payments for unpaid household work.
56) In calculating GDP, your tuition expenditures at college are classified as
A) consumer expenditures on services.
B) consumer expenditures on goods.
C) consumer expenditures on durable goods.
D) investment spending.
57) A consumer good that has a life span of more than three years is a(n)
A) durable consumer good.
B) nondurable consumer good.
C) service.
D) investment.
58) A consumer good that is used up within three years is a(n)
A) durable consumer good.
B) nondurable consumer good.
C) service.
D) investment.
59) Mental or physical labor or help purchased by consumers is a(n)
A) durable consumer good.
B) nondurable consumer good.
C) service.
D) investment.
60) Durable consumer goods are goods that last more than
A) one year.
B) three years.
C) five years.
D) seven years.
61) Which of the following would NOT be included in consumption expenditures when
calculating GDP?
A) an individual’s purchase of a new car
B) an individual’s purchase of medical services
C) an individual’s purchase of newly issued shares of IBM stock
D) an individual’s purchase of legal services
62) A nondurable good
A) has a life span of more than 3 years.
B) is used up within 3 years.
C) applies only to services.
D) is an intangible commodity.
63) A durable good
A) has a life span of more than 3 years.
B) is used up within 3 years.
C) applies only to services.
D) is an intangible commodity.
64) An example of a durable good is
A) a candy bar purchased at a grocery store.
B) a refrigerator.
C) a three-year contract of an Internet service.
D) a bottle of old wine.
65) An example of a nondurable good is
A) a turkey purchased at a grocery store.
B) a laptop computer.
C) the purchase of labor for a business.
D) the services of a cleaning person.
66) Which of the following is included in government expenditures when measuring GDP?
A) Medicare benefits for retirees
B) unemployment insurance payments
C) goods imported into the United States
D) the President’s income
67) When economists refer to investment expenditures they mean the
A) purchase of a consumer nondurable goods.
B) purchase of stocks or bonds.
C) use of today’s resources to expand tomorrow’s production or consumption.
D) production of intermediate goods.
68) Suppose a firm purchases new equipment to replace worn-out equipment at its factory. This
purchase of new equipment is considered
A) durable consumption goods.
B) inventory investment.
C) gross private domestic investment.
D) none of the above.
69) Any use of today’s resources to expand tomorrow’s production or consumption is a(n)
A) durable consumer good.
B) nondurable consumer good.
C) service.
D) investment.
70) An increase in fixed investment spending that increases GDP occurs when
A) a family purchases a new truck.
B) a business buys a new office desk.
C) inventories of new cars are drawn down on the lots of car dealers.
D) the government builds a new office building.
71) A capital good is
A) a good that lasts more than three years.
B) a good that is used to make other goods and services.
C) an intermediate product and therefore not part of GDP.
D) a good that should increase in value over time.
72) Capital purchases by businesses of newly produced durables is known as
A) the expenditure approach.
B) the income approach.
C) fixed investment.
D) inventory investment.
73) Changes in the stocks of finished goods and goods in process as well as changes in the raw
materials that businesses keep on hand is known as
A) the expenditure approach.
B) the income approach.
C) fixed investment.
D) inventory investment.
74) Fixed investment is
A) the change in stocks of finished goods.
B) the change in the stocks of goods in process.
C) capital purchase by businesses of newly produced durables.
D) purchases by consumers of newly produced consumer durables.
75) An increase in net exports
A) causes GDP to increase.
B) causes GDP to decrease.
C) causes an increase in imports of the same size.
D) can cause GDP to either increase or decrease, depending on whether the exports are durable
or nondurable.
76) Net exports equal the
A) total value of all exports.
B) total value of all government produced exports.
C) value of exports minus the value of imports.
D) value of imports minus the value of exports.
77) Using the expenditure approach, GDP is calculated as
A) wages + interest + rent + profits.
B) consumption expenditures + wages.
C) consumption expenditures + wages + interest.
D) consumption expenditures + investment expenditures + government expenditures + net
exports.
78) The components of GDP using the expenditure method are
A) consumption expenditures, investment expenditures, and government expenditures.
B) consumption expenditures, investment expenditures, government expenditures, and net
exports.
C) wages and interest.
D) wages, interest, rents, and profits.
79) C + I + G + X equals
A) GDP.
B) DPI.
C) NDP.
D) PI.
80) C + net I + G + X equals
A) GDP.
B) DPI.
C) NDP.
81) If imports are $100 million more than exports, government spending is $500 million,
consumer expenditures are $900 million, and investment spending is $500 million, then GDP is
A) $2.0 billion.
B) $1.9 billion.
C) $1.8 billion.
D) $2.1 billion.
69
82) If consumption expenditures are $500 million, spending on gross investment is $100 million,
imports are $50 million, exports are $55 million, government spending on goods and services is
$400 million, than GDP is
A) $790 million.
B) $905 million.
C) $1,005 million.
D) $1,010 million.
83) Gross domestic product is
A) NDP plus net exports.
B) NDP plus taxes.
C) NDP plus depreciation.
D) NDP less changes in inventories.
84) Net investment refers to
A) the change in the capital stock after subtracting out depreciation.
B) the change in inventories over a 1-year period.
C) the change in investment spending and the change in government expenditures on
infrastructure.
D) exports minus imports.
85) If consumption expenditures are $120 million, net investment is $50 million, imports are $20
million, exports are $10 million, government spending on goods and services is $40 million,
Social Security spending is $15 million, and sales of existing homes equals $40 million, then
what is the measure of GDP?
A) GDP = $185 million
B) GDP = $200 million
C) GDP = $225 million
D) GDP = $195 million
86) The components of GDP using the income method (excluding indirect business taxes and
depreciation) are
A) consumption expenditures, investment expenditures, and government expenditures.
B) consumption expenditures, investment expenditures, government expenditures, and net
exports.
C) wages and interest.
D) wages, interest, rents, and profits.
87) All of the following are included in the calculation of gross domestic income (GDI)
EXCEPT
A) consumer expenditures.
B) wages.
C) profits.
D) indirect business taxes.
88) Excluding indirect business taxes and depreciation, Gross Domestic Income (GDI)
A) is the sum of all income paid to the factors of production.
B) never equals GDP.
C) would equal GDP if there was no depreciation.
D) cannot be computed.
89) Which of the following statements is TRUE?
A) GDP = NDP
B) GDP = NI
C) GDP = GDI
D) GDP = PI
90) The income approach to measuring GDP
A) adds the dollar value of final goods and services.
B) adds the income received by all factors of production.
C) excludes durable consumer goods since they last more than a year.
D) excludes profits since profits are a cost of production.
91) The computation of GDP by adding up all components of national income including wages,
interest, rent and profits is
A) the expenditure approach.
B) the income approach.
C) transfer payments.
D) the value of all securities.
92) The largest component of gross domestic income is
A) interest payments.
B) wages.
C) profits.
D) taxes.
93) Indirect business taxes include all of the following EXCEPT
A) sales taxes.
B) taxes on business property.
C) taxes on corporate profits.
D) taxes on business equipment.
94) If, in an economy, households receive $200 in interest payments and make interest payments
of $210, wages equal $500, rental receipts are $200, royalties are $100, profits are $200,
depreciation is $50, and indirect business taxes are $50, then gross domestic income is
A) $1090.
B) $1110.
C) $1180.
D) $1280.
95) Because of a major hurricane, gross domestic product for the first quarter of the calendar
year falls by 10 percent. As a result, gross domestic income
A) falls by less than 10 percent.
B) also falls by 10 percent because they always have to be equal.
C) falls by more than 10 percent because incomes always vary more than GDP.
D) would not change since the time span is less than a year.
96) Which of the following is from the calculation of investment for GDP purposes?
A) the purchase of new capital goods
B) changes in business inventories
C) new home construction
D) all of the above
97) Net exports is equal to
A) total exports minus total imports.
B) total imports minus total exports.
C) total exports adjusted for price changes.
D) total exports minus transfer payments.
98) Indirect business taxes include
A) property taxes and corporate income taxes.
B) sales taxes and income taxes.
C) business property taxes and sales taxes.
D) income taxes and Social Security taxes.
99) If no other national income variables change when ________ increase, then GDP will
decrease.
A) inventories
B) imports
C) investments
D) levels of pollution
100) GDP can be calculated using
A) the expenditure approach and the production approach.
B) the expenditure approach and the income approach.
C) the expenditure approach and the factor of production approach.
D) the expenditure approach and the resource approach.
101) Why are exports added to (rather than subtracted from) the other expenditure components to
arrive at GDP using the expenditure method?
A) because exports account for those goods that were produced in the economy but that were not
devoted to domestic consumption, used for domestic investment, or provided as government
goods
B) because exports have a higher profit margin for manufacturers than do similar products sold
in domestic markets
C) because exported goods are not valued properly, due to problems with the purchasing power
parity index
D) because it is only through exporting that we can generate jobs in our own economy
102) Which one of the following is TRUE?
A) Net investment is negative when gross investment is greater than depreciation.
B) Our productive capacity declines when net investment is less than zero.
C) Negative net investment occurs when imports are less than exports.
D) Negative net investment occurs when exports are less than imports.
103) Inventory investment can be defined as
A) changes in the stocks of finished goods and raw materials.
B) the system of accounts that is used to count certain goods.
C) goods that must be excluded from the GDP to avoid double counting.
D) the value of monetary transactions by businesses.
104) Net exports for the United States
A) are always positive numbers.
B) may be negative.
C) are a result of decreasing investment in the manufacturing industries.
D) are a result of decreasing domestic consumption.
105) The expenditure approach to deriving gross domestic product sums the following categories
of spending
A) consumption, investment, government spending, and net exports.
B) consumption, income, government spending, and net exports.
C) consumption, savings, investment, and government spending.
D) consumption, government spending, transfer payments, and net exports.
106) Using the expenditure approach to deriving gross domestic product, if U.S. imports rise and
exports remain the same
A) GDP rises.
B) GDP remains the same.
C) GDP falls.
D) GDP indicates a recession.
107) Gross domestic income can be defined as
A) the sum of all incomes earned by all factors of production in a year.
B) the sum of all incomes earned by individuals.
C) the sum of all profits earned by businesses in a year.
D) the sum of all profits earned minus depreciation.
108) The two main approaches to measuring GDP are the
A) concept approach and the reality approach.
B) flow approach and the stock approach.
C) government approach and the consumer approach.
D) income approach and the expenditure approach.
109) What is the proper formula for computing the GDP using the expenditure approach?
A) S + I + G + X
B) C + I + G + X
C) C + O + G + S
D) 0.5(w + r) + k
110) Given the following data, calculate the GDP.
wages = $500 government spending = $2,500 private investment = $2,100
rent = $100 consumer spending = $7,800 net exports = $400
A) GDP = $11,400
B) GDP = $12,000
C) GDP = $12,800
D) GDP = $13,000
111) The appropriate formula for computing Gross Domestic Product using the income approach
(excluding depreciation and indirect income taxes) is
A) consumption + investment + government spending + net exports.
B) wages + rent + interest + profits.
C) wages + rent + interest + profits + indirect business taxes.
D) wages + rent + interest + profits + indirect business taxes + depreciation.
112) The difference between Gross Domestic Income (GDI) and Gross Domestic Product (GDP)
is that
A) GDI is GDP less indirect business taxes and depreciation.
B) GDP is GDI less indirect business taxes and depreciation.
C) GDI is equal to GDP.
D) GDP is always smaller than GDI.
113) Which sector of our economy accounts for the largest percentage to total spending?
A) households
B) businesses
C) government
D) exports
114) In calculating GDP using the expenditure approach, the largest component is
A) consumption spending.
B) government spending.
C) investment spending.
D) spending on durable goods.
115) Consumption expenditures do NOT include purchases of
A) durable goods.
B) nondurable goods.
C) intermediate goods.
D) services.
116) What constitutes investment when measuring gross private domestic investment?
117) “If we sum up all factor payments, we will get gross domestic income.” Do you agree or
disagree with this statement? Why?
118) Explain the two main methods used to measure GDP.
119) How do GDP and NDP differ? What does it mean if net investment is negative?
120) How is interest measured when used in deriving GDP?
8.4 Other Components of National Income Accounting
1) All of the following statements are correct EXCEPT
A) NDP = Gross Domestic Product (GDP) – depreciation (capital consumption allowance).
B) NI = NDP + indirect business taxes.
C) net exports = total exports – total imports.
D) Gross Domestic Product (GDP) = NDP + capital consumption allowance (depreciation).
2) If consumption expenditures are $500, spending on fixed investment is $100, imports are $40,
exports are $75, the capital consumption allowance is $25, government spending is $50, and
inventories have fallen by $5, then Gross Domestic Product (GDP) is
A) $25 greater than NDP.
B) $20 greater than NDP.
C) $50 greater than NDP.
D) the same as NDP.
3) National income includes all of the following EXCEPT
A) proprietors’ income.
B) net interest.
C) corporate profits.
D) depreciation.
4) The amount of income households receive after personal income taxes have been paid is
known as
A) national income.
B) personal income.
C) disposable personal income.
D) gross domestic income.
5) National income is equal to
A) Gross Domestic Product (GDP) plus depreciation and indirect business taxes.
B) the sum of all factor payments to resource owners.
C) Gross Domestic Product (GDP) minus indirect business taxes.
D) Gross Domestic Product (GDP) minus NDP.
6) The annual cost of producing the entire output of final goods and services in an economy is
A) equal to the quantity of total output produced.
B) greater than the total income of households in the economy.
C) equal to total income.
D) equal to the total income of households in the economy only if profits are zero.