Macroeconomics 2017 (Hubbard)
Chapter 8 GDP: Measuring Total Production and Income
8.1 Gross Domestic Product Measures Total Production
1) In 2015, Ford Motor Company’s sales were rising. These events were caused by
A) an economic recession.
B) an economic expansion.
C) an increase in advertising.
D) improving quality of service.
2) In 2015, the U.S. auto industry experienced rising sales. The automobile industry was experiencing
the effects of
A) inflation.
B) the underground economy.
C) the business cycle.
D) depreciation.
3) During a business cycle expansion, total production ________ and total employment ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
4) Macroeconomics, as opposed to microeconomics, includes the study of what determines the level of
A) employment in a specific industry.
B) employment in the economy.
C) output of a specific firm.
D) output of a specific industry.
5) Macroeconomics, as opposed to microeconomics, includes the study of what determines the
A) average price levels of goods and services in the economy.
B) price charged for laptop computers by Dell.
C) wages paid to employees by Dell.
D) quantity of Dell employees.
6) Macroeconomics seeks to understand
A) economic growth, business cycles, and inflation.
B) industry sales, marketing strategies, and corporate growth.
C) product demand, product cost, and profit maximization.
D) public choices, private choices, and consumer maximization.
7) Which of the following headlines would be more closely related to what macroeconomists study than
what microeconomists study?
A) Avocado prices rise due to a late frost in California.
B) The United Auto Workers sign a contract raising wages and benefits 7% over the next 3 years.
C) Real GDP grows by 2.3% in the second quarter.
D) Airlines raise ticket prices in response to rising fuel costs.
8) In calculating gross domestic product, the Bureau of Economic Analysis uses the sum of the market
value of final goods and services produced. This means that the BEA
A) simply counts the total number of goods produced in the market place and then adds them up.
B) values goods at their market prices, multiplies them by the quantity produced, and then adds them
up.
C) simply counts the total number of goods and services produced in the marketplace and then adds
them up.
D) values goods and services at their market prices, multiplies them by the quantity produced, and then
adds them up.
9) Suppose in 2016, you purchase a house built in 2003. Which of the following would be included in the
gross domestic product for 2016?
A) the value of the house in 2016
B) the value of the house in 2003
C) the value of the house in 2016 minus depreciation
D) the value of the services of the real estate agent
10) Gross domestic product is calculated by summing up
A) the total quantity of goods and services in the economy.
B) the total quantity of goods and services produced in the economy during a period of time.
C) the total market value of goods and services in the economy.
D) the total market value of final goods and services produced in the economy during a period of time.
11) Which of the following goods is directly counted in GDP?
A) the lettuce that Subway purchases for its sandwiches
B) the bread that Subway purchases for its sandwiches
C) a 12-inch Subway sandwich purchased by a student
D) the plastic bags that Subway purchases to wrap its sandwiches
12) Which of the following transactions represents the purchase of a final good?
A) Starbucks purchases coffee beans.
B) Delta buys a new European-made jetliner.
C) Apple computer buys computer processors from Intel.
D) Your father buys a new John Deere riding lawn mower.
13) Which of the following is not directly counted in GDP?
A) investment expenditures
B) government purchases
C) intermediate goods
D) consumer goods
14) Value added equals the market price of the firm’s product minus
A) wages and salaries.
B) the price of intermediate goods.
C) the price of all factors of production.
D) depreciation on plant and equipment.
15) Which of the following would be directly counted in GDP in 2016?
A) kitchen cabinets purchased from Home Depot in 2016 to be installed in a house built in 1997
B) kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a brand new country-
style home
C) kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a farm house built in
1950
D) none of the above
Table 8-1
Product
Quantity
Price
Sweatshirts
50
$35.00
Dental examinations
40
75.00
Coffee drinks
1,000
4.00
Coffee beans
2,000
0.50
16) Refer to Table 8-1. Suppose that a simple economy produces only four goods and services:
sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are
used in the production of the coffee drinks. Using the information in the above table, nominal GDP for
this simple economy equals
A) 3,090 units.
B) $7,250.
C) $8,750.
D) $9,750.
Table 8-2
Product
Quantity
Price
Shoes
40
$60.00
DVDs
100
18.00
Tomatoes
2,000
1.00
Ketchup
300
4.00
17) Refer to Table 8-2. Suppose that a simple economy produces only four goods and services: shoes,
DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchup and the
other half of the tomatoes are purchased by households. Using the information in the above table,
nominal GDP for this simple economy equals
A) $7,400.
B) $6,400.
C) $5,800.
D) 2,440 units.
18) In the circular flow model, the value of total income for an economy ________ the value of total
production.
A) equals
B) is greater than
C) is less than
D) may be greater than or less than
19) In the circular flow model, the value of total production for an economy ________ the value of total
expenditures on final goods and services.
A) equals
B) is greater than
C) is less than
D) may be greater than or less than
20) The nominal GDP of the U.S. in 2015 was approximately $17.3 trillion. This means that
A) the value of output in 2015 was around $17.3 trillion.
B) total income in 2015 was around $17.3 trillion.
C) total spending in 2015 was around $17.3 trillion.
D) all of the above are true.
21) Which of the following is not an example of a transfer payment?
A) unemployment insurance payments
B) health insurance payments to an army private
C) social security payments to retirees
D) social security payments to disabled persons
22) The purchase of a new automobile is included in
A) consumption expenditures on services.
B) consumption expenditures on nondurable goods.
C) consumption expenditures on durable goods.
D) investment expenditures.
23) Which of the following is not a durable good?
A) furniture
B) automobile
C) clothing
D) refrigerator
24) The factors of production include
A) wages.
B) capital.
C) investment.
D) transfers.
25) Investment, as defined by economists, would include the purchase of a
A) corporate bond.
B) government bond.
C) share of stock in ExxonMobil.
D) computer by an accounting firm.
26) An example of business fixed investment spending is
A) a purchase of a home by a household.
B) a purchase of a computer by an accounting firm.
C) a purchase of a bond by General Electric Corporation.
D) $200 million of unsold cars at a car dealership.
27) To calculate GDP by the expenditure method, one must add
A) wages, rents, interest, and profits.
B) consumption spending, investment spending, government spending, and net exports.
C) consumption spending, investment spending, government spending, and exports.
D) labor, natural resources, entrepreneurship, and capital.
28) Investment, as defined by economists, would not include which of the following? Ford
A) buys a new robotic machine (from a plant in Ohio) to assemble cars.
B) adds 1,000 new cars to inventories.
C) builds another assembly plant in the United States.
D) buys U.S. government bonds.
29) The purchase of a new house is included in
A) consumption expenditures.
B) investment expenditures.
C) government purchases.
D) net exports.
30) The purchase by a household in China of a CD produced in the United States is included in U.S.
A) consumption expenditures.
B) investment expenditures.
C) government purchases.
D) net exports.
31) The purchase by a foreign government of an airplane produced in the United States is included in
U.S.
A) consumption expenditures.
B) investment expenditures.
C) government purchases.
D) net exports.
32) In 2016, Kendall Ford, an automobile dealership, spent $20,000 on a new car lift for its repair shop,
$2,000 on a new copy machine for its sales division, and $600,000 on Ford Motor company stock.
Unsold cars and trucks were valued at $400,000 on January 1, 2016 and unsold cars and trucks were
valued at $900,000 on December 31, 2016. What is Kendall Ford’s total investment spending in 2016?
A) $22,000
B) $322,000
C) $522,000
D) $1,022,000
33) In 2014, which component of GDP had a negative value?
A) consumption
B) investment
C) government spending
D) net exports
34) What is the largest component of spending in the United States?
A) consumption spending
B) investment spending
C) government spending
D) net investment spending
35) In the United States in 2013, the Bureau of Economic Analysis began counting spending on research
and development as ________, which counts as a part of GDP.
A) investment
B) consumption
C) depreciation
D) intermediate goods
11
36) In the United States in 2013, the Bureau of Economic Analysis began counting spending by firms
and individuals on developing entertainment products as investment. This change will
A) take away from GDP.
B) add to GDP.
C) not change GDP.
D) only change GDP if the development occurs within the borders of the United States.
37) In the first half of 2011, automobile sales in the United States were lower than they were in the first
half of 2010. The decrease in auto sales impacts GDP because new automobiles are counted as ________
when purchased by households and ________ when purchased by businesses.
A) nondurable goods; durable goods
B) consumption; investment
C) investment; consumption
D) durable goods; nondurable goods
38) When consumers are less confident about their jobs or incomes, they are more likely to
A) reduce purchases of durable goods than nondurable goods.
B) reduce purchases of nondurable goods and increase purchases of durable goods.
C) increase investment spending and decrease consumption spending.
D) increase consumption spending and decrease investment spending.
Table 8-3
Consumption expenditures
$800
Investment expenditures
200
Government purchases
300
Exports
100
Imports
200
Wages
800
39) Refer to Table 8-3. Consider the data above (in billions of dollars) for an economy: Gross domestic
product (in billions of dollars) for this economy equals
A) $2,200.
B) $1,600.
C) $1,400.
D) $1,200.
Table 8-4
Consumption expenditures
$800
Investment expenditures
300
Government purchases
300
Government transfer payments
400
Exports
300
Imports
100
40) Refer to Table 8-4. Consider the data above (in billions of dollars) for an economy: Gross domestic
product (in billions of dollars) for this economy equals
A) $2,200.
B) $2,100.
C) $1,600.
D) $1,400.
41) Which of the following is not true about the composition of GDP in 2014?
A) The majority of consumer spending is on durable goods.
B) Purchases made by state and local governments are greater than purchases made by the federal
government.
C) Imports are greater than exports.
D) Business fixed investment is the largest component of investment.
42) The sum of the value added of every firm involved in producing all final goods and services
________ gross domestic product.
A) equals
B) is greater than
C) is less than
D) is sometimes greater than and other times less than
Table 8-5
Stage of Production
Seller
Buyer
Price
1
Steel mill
Auto manufacturer
$10,000
2
Auto manufacturer
Auto dealer
18,000
3
Auto dealer
Consumer
25,000
Consider the table above showing three stages of production of an automobile.
43) Refer to Table 8-5. The value added by the automobile dealer equals
A) $7,000.
B) $15,000.
C) $18,000.
D) $25,000.
44) Refer to Table 8-5. The value of each automobile in gross domestic product equals
A) $7,000.
B) $15,000.
C) $18,000.
D) $25,000.
Scenario 8-1
CANOES-R-US makes canoes. It buys the shell of the canoe from another firm for $300 and uses its
labor and intermediate goods to make the canoe. It sells the finished canoe to a retail canoe store for
$800. The retail canoe store then sells the canoe to a consumer for $1,200.
45) Refer to Scenario 8-1. The value added of CANOES-R-US for each canoe equals
A) $1,200.
B) $800.
C) $500.
D) $400.
46) Refer to Scenario 8-1. The value of each canoe in gross domestic product equals
A) $1,200.
B) $800.
C) $500.
D) $400.
47) Gross domestic product in the economy is measured by the
A) total number of goods and services produced in the economy.
B) dollar value of all final goods and services produced in the economy.
C) total number of goods produced in the economy.
D) total number of services produced in the economy.
48) In comparing China to Canada, China’s relatively ________ growth rate in GDP would make you
more likely to take a job in China, and China’s relatively ________ level of GDP would make you less
likely to take a job in China.
A) high; low
B) high; high
C) low; low
D) low; high
49) A final good is one that
A) is used in the production of another good.
B) is a natural resource used to produce a good.
C) is purchased as an input in the production process.
D) is purchased by its final user.
50) How are intermediate goods treated in the calculation of GDP?
A) Their value is not counted separately, but included as part of the value of the final good for which
they are an input.
B) Their value is counted separately, and their value is also included as part of the value of the final
good for which they are an input.
C) Their value is counted separately, but is not included as part of the value of the final good for which
they are an input.
D) They are included only if they are imported.
51) An example of an intermediate good would be
A) the bread that goes into a sub sandwich that is sold by Quiznos.
B) the soda pop sold by Quiznos.
C) a sub sandwich sold by Quiznos.
D) the potato chips sold by Quiznos.
52) An example of an intermediate good would be
A) a new car.
B) a used car.
C) the rims on a new car.
D) new rims to replace old rims on a used car.
53) An example of a final good would be
A) the soy milk sold to Starbucks.
B) the whipped cream sold to Starbucks.
C) a soy latte sold by Starbucks to a student.
D) the coffee beans sold to Starbucks.
54) Which of the following is included in gross domestic product for an economy in a given year?
A) the value of intermediate goods produced in that year
B) the value of used goods sold in that year
C) the value of final goods produced in that year
D) All of the above would be included in gross domestic product for an economy in a given year.
55) Home Depot sells new and used doors to contractors who build new homes. Home Depot also sells
new and used doors to homeowners. Which of the following would be counted in GDP?
A) the sale of a used door to a homeowner
B) the sale of a new door to homeowner
C) the sale of a used door to TapKon construction for installation into a new home
D) the sale of a new door to TapKon construction for installation into a new home
56) Which of the following transactions would be included in the official calculation of GDP?
A) A student buys a used textbook at the bookstore.
B) Firestone sells $2 million worth of tires to General Motors.
C) You wash and wax your father’s car as a favor to him.
D) You buy a new iPod.
E) You illegally download music off the Internet to put on your new iPod.
57) A car that is produced in 2016 is not sold until 2017. According to the definition of GDP, in which
year’s GDP should it be counted?
A) 2016
B) 2017
C) Half of the sales price will count as part of 2016 GDP and half will count as part of 2017 GDP.
D) The production cost will count as part of 2016 GDP while the sales price will count as part of 2017
GDP.
58) A transfer payment is a payment by the government to an individual
A) for a service.
B) for an investment good.
C) for a consumption good.
D) for which the government does not receive a good or service in return.
E) for a debt owed.
59) An example of a transfer payment is
A) a teacher’s paycheck.
B) a paycheck for a member of the National Guard.
C) a welfare payment.
D) a purchase of a new bridge in Alaska.
60) In the circular flow diagram, ________ supply the factors of production, and ________ goods and
services.
A) households; sell
B) households; buy
C) firms; sell
D) firms; buy
61) ________ is/are the payment for the factor of production ________.
A) Wages; capital
B) Interest; labor
C) Profit; entrepreneurship
D) Rent; capital
62) Investment spending includes spending on
A) stocks.
B) food.
C) changes in business inventories.
D) transfer payments.
63) Which of the following are not considered part of government purchases?
A) welfare benefits
B) teachers’ salaries paid by a local government
C) a tank purchased by the federal government
D) a bridge purchased by the state government
64) Consumption expenditures do not include household purchases of
A) medical care.
B) education.
C) new houses.
D) durable goods.
65) Which of the following is considered a durable good?
A) medical care
B) clothing
C) food
D) a washing machine
66) Government spending ________ is included in gross domestic product.
A) at federal, state, and local levels of government
B) at the federal level of government only
C) at state and local levels of government only
D) on defense goods only
67) Assuming that the United States is the domestic economy, ________ are goods and services
produced by ________ and purchased by ________.
A) exports; foreign countries; the United States
B) exports; the United States; the United States
C) imports; foreign countries; foreign countries
D) imports; foreign countries; the United States
68) The largest component of spending in GDP is
A) consumption spending.
B) investment spending.
C) government spending.
D) net export spending.