Chapter 8 Measuring the Economy s Performance 157
85) 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.
86) If consumption expenditures are $100 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 $225 million B) GDP $180 million
C) GDP $295 million D) GDP $195 million
87) 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.
88) 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.
89) 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.
90) Which of the following statements is true?
A) GDP NDP B) GDP NI C) GDP GDI D) GDP PI
91) 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.
92) 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.
93) The largest component of gross domestic income is
A) interest payments. B) wages.
C) profits. D) taxes.
94) 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.
95) If households receive $100 in interest payments and make interest payments of $110, 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.
96) Because of terrible winter storms, 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.
97) 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
98) 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.
99) Indirect business taxes include
A) property taxes and corporate income taxes.
B) sales taxes and income taxes.
C)
b
usiness property taxes and sales taxes.
D) income taxes and Social Security taxes.
100) If no other national income variables change when ________ increase, then GDP will decrease.
A) inventories B) imports
C) investments D) levels of pollution
101) 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.
102) Why are exports added to (rather than subtracted from) the other expenditure components to
arrive at GDP using the expenditure method?
A)
b
ecause 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)
b
ecause exports have a higher profit margin for manufacturers than do similar products
sold in domestic markets
C)
b
ecause exported goods are not valued properly, due to problems with the purchasing
power parity index
D)
b
ecause it is only through exporting that we can generate jobs in our own economy
103) 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.
104) 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.
105) 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.
106) 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.
107) 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.
108) 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.
109) 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.
110) 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
111) 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 $12,400 D) GDP $13,000
112) 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
113) To calculate GDP once national income has been computed, we must
A) add indirect business taxes and transfers and subtract profits.
B) add depreciation and subtract indirect business taxes.
C) add depreciation and indirect business taxes and transfer payments and subtract other
business income adjustments and net U.S. income earned abroad.
D) add indirect business taxes and transfers and subtract depreciation, other business income
adjustments, and net U.S. income earned abroad.
114) 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.
115) Which sector of our economy accounts for the largest percentage to total spending?
A) households B)
b
usinesses C) government D) exports
116) 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.
117) What constitutes investment when measuring gross private domestic investment?
118) If we sum up all factor payments, we will get gross domestic income. Do you agree or disagree
with this statement? Why?
119) Explain the two main methods used to measure GDP.
120) How do GDP and NDP differ? What does it mean if net investment is negative?
121) 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.
7) The total factor payments to all resource owners is called
A) net domestic product. B) personal income.
C) national income. D) gross domestic income.
8) Suppose net domestic product is $4.8 billion, net income earned abroad is $0.7 billion, other
business income adjustments net of indirect business taxes and transfers are $0.4 billion, and
personal income taxes are $0.8 billion. Then, national income equals
A) $2.9 billion. B) $3.6 billion. C) $5.9 billion. D) $6.7 billion.
9) Gross Domestic Product (GDP) $13.0 trillion, consumption $9.5 trillion, depreciation $1.8
trillion, other business income adjustments less indirect business taxes $0.2 trillion, and net
U.S. income earned abroad $0.1 trillion. Use this information to calculate national income (NI).
A) NI $11.0 billion B) NI $11.3 billion
C) NI $11.4 billion D) NI $11.5 billion
10) National income is income ________ the factors of production.
A) paid by B) earned by
C) invested in D) households owe to
11) Personal income is equal to
A) NDP minus national income.
B) disposable personal income plus personal income taxes.
C) disposable personal income plus personal and corporate income taxes.
D) national income minus (corporate income taxes and Social Security).
12) If you take national income and add transfer payments, then subtract income earned but not
received, the result will be
A) net national product. B) disposable personal income.
C) personal income. D) wages.
13) The difference between personal income and disposable personal income is that
A) disposable personal income includes only the funds available to spend on non necessities.
B) personal income taxes are not included in disposable personal income.
C) personal income includes personal income taxes and indirect business taxes, which are not
included in disposable personal income.
D) personal income does not include transfer payments, such as Social Security payments or
welfare payments and disposable personal income includes them.
14) The amount of income received by households prior to the payment of personal income taxes is
called
A) disposable wages. B) personal income.
C) national income. D) net domestic product.
15) If disposable personal income (DPI) $800 and personal income taxes $80, then what is
personal income (PI)?
A) $720 B) $800
C) $880 D) can t tell from the information provided
16) Which of the following will be the smallest in value?
A) National income B) Net domestic product
C) Personal income D) Disposable personal income
17) Disposable personal income is found by taking
A) personal income taxes minus personal income.
B) personal income minus personal income taxes.
C) personal income taxes plus personal income.
D) personal income times personal income taxes.
18) Disposable personal income is equal to
A) national income minus personal income taxes.
B) personal income plus transfer payments.
C) Gross Domestic Product (GDP) minus depreciation.
D) personal income minus personal income tax payments.
19) Income earned by the factors of production is called
A) gross domestic income. B) disposable personal income.
C) personal income. D) national income.
20) Which of the following accurately describes represents income earned by all factors of
production?
A) National Income B) Personal Income
C) Disposable Personal Income D) Wages and salaries
21) Income received by the factors of production is called
A) gross domestic income. B) disposable personal income.
C) personal income. D) national income.
22) The income that individuals have after personal income taxes have been paid is called
A) gross domestic income. B) disposable personal income.
C) personal income. D) national income.
23) One key difference between national income and net domestic product is
A) net domestic product does not include income earned by the factors of production while
national income does.
B) net domestic product represents income that is available to individuals while national
income does not.
C) net domestic product includes indirect business taxes and transfers while national income
does not.
D) net domestic product only includes the net additions to the economy s stock of capital
while national income does not.
24) Individuals receive income and pay taxes over the course of a year. The difference between the
income they receive and the taxes they pay is referred to as
A) net national income. B) net domestic product.
C) per capita real GDP. D) disposable personal income.
25) The difference between personal income and disposable personal income is
A) disposable personal income is what is left after personal income taxes have been paid
while personal income includes personal income taxes.
B) personal income is what is left after personal income taxes have been paid while
disposable income includes personal income taxes.
C) personal income includes transfer payments while disposable personal income does not.
D) personal income includes indirect business taxes while disposable income does not.
26) Suppose gross domestic product is $5 billion, government transfer payments are $1 billion,
indirect business taxes and transfers are $0.5 billion, and depreciation is $0.5 billion. Then
national income equals
A) $5 billion. B) $4 billion. C) $3 billion. D) $2.7 billion.
27) Which of the following will have the smallest dollar value?
A) Personal income. B) Disposable personal income.
C) National income. D) Net domestic product.
28) One difference between net domestic product and national income is that
A) net domestic product includes depreciation.
B) national income includes government and business transfer payments.
C) net domestic product includes indirect business taxes and transfers.
D) net domestic product doesn t include Social Security taxes or corporate retained earnings.
29) An increase in Social Security contributions will make
A) net domestic product smaller. B) national income larger.
C) national income smaller. D) personal income smaller.
30) Personal income taxes are the difference between
A) national income and personal income.
B) personal income and disposable personal income.
C) national income and disposable personal income.
D) net domestic product and personal income.
31) National income is $500, corporate taxes are $20, Social Security contributions are $60, retained
earnings are $10, personal taxes are $100, and transfer payments are $80. Disposable income is
A) $510. B) $450. C) $410. D) $390.
32) An increase in corporate income taxes would reduce
A) net domestic product. B) gross domestic product.
C) national income. D) personal income.
33) Suppose Social Security contributions rise by $1 billion while Social Security benefits also rise by
$1 billion. Further, personal income taxes fall by $500 million. As a result,
A)
b
oth personal and disposable personal income should increase.
B) national income, personal income, and disposable income should increase.
C) disposable income should increase while personal income and national income are
unchanged.
D) personal income, disposable personal income, and national income remain unchanged.
34) What is the difference between personal income and disposable personal income?
A) the amount of personal income taxes B) indirect personal taxes and transfers
C) net U.S. income earned abroad D) depreciation
35) Transfer payments are included in
A) gross domestic product. B) net domestic product.
C) national income. D) personal income.
Government spending 50 Profit 28
Social Security contributions 20 Indirect business taxes 10
Corporate taxes 5 Imports 5
Personal income taxes 8 Exports 3
Rent 54 Interest 5
Wages 231 Depreciation 10
Consumption expenditures 250 Government transfer payments 8
Gross Private Domestic Investment 40
36) Using the above table, the Gross Domestic Product (GDP) for the country is
A) 662. B) 84. C) 746. D) 338.
37) Using the above table, the Net Domestic Product (NDP) for the country is
A) 662. B) 84. C) 328. D) 338.
38) Using the above table, the National Income (NI) for the country is
A) 338. B) 228. C) 318. D) 662.
39) Using the above table, the Personal Income (PI) for the country is
A) 84. B) 228. C) 155. D) 301.
40) Using the above table, the Disposable Personal Income (DPI) for the country is
A) 78. B) 220. C) 147. D) 293.
41) Personal income is
A) the sum of all incomes received by households on welfare.
B) the income households have after paying federal taxes.
C) the sum of all incomes received by households.
D) the sum of all incomes earned by sole proprietorships and partnerships.
42) Which of the following would NOT be a part of personal income?
A) indirect business taxes
B) payments received from Social Security
C) retirement checks
D) corporate dividend payments to shareholders
43) The amount of income that households actually receive before they pay personal income taxes
defines
A) national income (NI). B) personal income (PI).
C) disposable personal income (DPI). D) net domestic product (NDP).
Billions of Dollars
Consumption 6,500
Gross private domestic investment 1,900
Government spending less transfer payments 1,200
Imports 600
Exports 500
Depreciation 1,500
Indirect business taxes and transfers 750
44) Using the above table, the GDP is (in billions of dollars)
A) 10,200. B) 8,200. C) 8,900. D) 9,500.
45) Using the above table, the net domestic product is (in billions of dollars)
A) 8,000. B) 9,700. C) 8,300. D) 6,500.
46) Using the above table, the national income is (in billions of dollars)
A) 8,950. B) 7,250. C) 6,850. D) 8,050.
47) GDP minus depreciation equals
A) national income. B) aggregate spending.
C) personal income. D) net domestic product.
48) Which one of the following accounting identities is true?
A) Disposable personal income plus indirect business taxes equals personal income.
B) Disposable personal income plus non income expense items equals personal income.
C) Disposable personal income plus personal income taxes equals personal income.
D) National income plus profit equals personal income.
49) Social Security payments received by your grandmother
A) are excluded from GDP, but are included in personal income.
B) are included in both GDP and personal income.
C) are included in GDP , but are excluded from personal income.
D) are excluded in both GDP and personal income.
50) National income is
A) the total of factor payments to owners of resources.
B) the dollar value of all final goods and services produced in a country in a year.
C) the amount of monetary payments households actually receive before paying personal
income taxes.
D) the amount of monetary payments households actually receive after paying personal
income taxes.