Chapter 8 Measuring the Economy s Performance 117
25) Why might a homemaker be upset with the way Gross Domestic Product (GDP) is calculated?
A) Because the government always underestimates the dollar value of the household services
produced at home and outside the market that are included in the Gross Domestic Product
(GDP) statistic
B) Because household services produced at home and outside the market are only included in
Gross Domestic Product (GDP) if the homemaker is a man
C) Because household services produced at home and outside the market that are sold to
others are not included in Gross Domestic Product (GDP)
D) Because none of the household services produced for at home and outside the market are
included in Gross Domestic Product (GDP) even though they contribute greatly to the
welfare of the family
26) Social Security payments are
A) included in Gross Domestic Product (GDP).
B) not included in Gross Domestic Product (GDP), but are included in Gross Domestic
Income accounts.
C) not included in Gross Domestic Product (GDP).
D) not included in Gross Domestic Product (GDP), but are included in Net Domestic Product.
27) Which of the following statements is FALSE?
A) Gross Domestic Product (GDP) measures the market value of final goods and services
produced during a particular time period.
B) Transfers of used goods are not included in Gross Domestic Product (GDP).
C) Private transfer payments, such as an inheritance, are included in the Gross Domestic
Product (GDP).
D) If statisticians counted intermediate goods, the estimate of Gross Domestic Product (GDP)
would be too high.
28) A car sold from a used car lot
A) would be counted in Gross Domestic Product (GDP).
B) would fall under net exports, and would then be counted in Gross Domestic Product
(GDP).
C) would not be counted in Gross Domestic Product (GDP).
D) would only be counted in Gross Domestic Product (GDP) if it was a foreign made car.
29) Which of the following is included in Gross Domestic Product (GDP)?
A) The buying and selling of securities
B) Government transfer payments
C) Private transfer payments
D) The sale of used goods
E) None of the above
30) A valid rationale for the decision NOT to include non compensated housework in Gross
Domestic Product (GDP) calculations is that
A) it would decrease the employment rate for domestic work.
B) there is some difficulty in measuring quality and quantity.
C) it is not a product or service.
D) it would understate the value of production in the economy.
31) Which of the following is NOT included in the calculation of Gross Domestic Product (GDP)?
A) The purchase of a raincoat by Mr. Z
B) Mrs. T s use of a lawyer
C) Mr. J s purchase of a share of General Motors stock
D) All of these would be included
32) The purchase of a share of stock is excluded in the calculation of Gross Domestic Product (GDP)
because it
A) is an intermediate good.
B) produces value added.
C) only represents the transfer of ownership rights.
D) is a final service and not a good.
33) Which of the following transactions would be included in Gross Domestic Product (GDP)?
A) The purchase of new tires by a family to replace worn out tires on the family car
B) The purchase of a used car
C) The purchase of 100 shares of General Motors stock
D) The purchase of 2 grams of cocaine
34) If you buy stocks and bonds, the dollar value of those stocks and bonds is
A) included in Gross Domestic Product (GDP) under investment.
B) included in Gross Domestic Product (GDP) under consumer expenditures.
C) not included in calculating Gross Domestic Product (GDP) for they merely represent a
transfer of ownership.
D) included in Gross Domestic Product (GDP) if the stocks and bonds were issued by
business firms but not if they were issued by governments.
35) Gross Domestic Product (GDP) figures may understate the value of goods and services due to
A) the exclusion of the underground economy.
B) the inclusion of household production.
C) the inclusion of legal non reported, non taxed income.
D) the exclusion of the value of stocks.
36) Which of the following would NOT be included in a nation s Gross Domestic Product (GDP)?
A) The government purchases 100 new trucks for the Army.
B) The inventory of paper towels goes up.
C) A landlord rents an apartment.
D) In a poker game a student wins $500 that he does not report as income.
37) National income accounting is
A) how the amount of unemployment in the system is measured.
B) used only to determine the government deficit.
C) an approach to measuring an economy s aggregate performance.
D) the system that measures the value of the Dow Jones average.
38) Which of the following items are included in GDP?
A) a used cars B) all transactions involving bonds
C) all new homes D) all food stamps
39) Which of the following is included in GDP?
A) A computer manufacturer produces and sells a computer.
B) A woman mows her own yard and trims her own hedges.
C) An individual smuggles illegal drugs into the country and sells them.
D) An illegal gambling operation profits from secret betting activities.
40) Which of the following items is excluded from GDP?
A) Services a barber performs in cutting hair
B) Production and sale of hair cutting equipment
C) Services a barber performs in repairing his own hair cutting equipment
D) The construction of a new barbershop
41) Gross Domestic Product (GDP) is
A) the total wholesale value of all final goods and services produced by factors of production
owned by citizens of a nation.
B) the total market value of all services produced by factors of production located within a
nation s borders.
C) the total market value of all goods produced within a nation s borders.
D) the total market value of all final goods and services produced by factors of production
located within a nation s borders.
42) The total value of all final goods and services produced by factors of production located within
a nation s borders is
A) GDP. B) NI.
C) PI. D) net investment.
43) Suppose that in 2010, the total value of all final services produced in a nation was $300 billion;
the total value of all final goods produced in that nation was $400 billion; and the total value of
all final goods and services produced by that nation s firms in other countries was $200 billion.
Gross domestic product was
A) $600 billion. B) $500 billion. C) $900 billion. D) $700 billion.
44) GDP
A) is a stock measure since it represents the total market value.
B) is a flow measure since it represents the value of a flow of production over a year s period.
C) is neither a stock or flow measure since it is measured in dollars.
D) could be either a stock or flow measure depending upon whether it is measured in dollars
or units of production.
45) GDP is a
A) stock because it measures income for the entire country.
B) stock because it measures wealth at a distinct point in time.
C) flow because dollar values are used.
D) flow because it measures income over a period of time.
46) When dealing with anything that is measured as a flow, one must
A) use dollar values.
B) make sure the thing can be measured accurately.
C) specify a time period.
D) specify one day in time.
47) Intermediate goods are
A) goods that are used up entirely in the production of final goods.
B) the stock of all resources excluding labor.
C) goods that get sold to the U.S. government.
D) equal to the receipts of firms.
48) GDP does NOT include intermediate goods because
A) intermediate goods are not valuable.
B) intermediate goods are not useful to consumers.
C) that would count the value of intermediate goods twice.
D) that would understate the true size of GDP.
49) The farmer pays 15 cents for wheat seeds. When the wheat is grown and harvested, the farmer
sells it to the miller for 30 cents, who makes flour and sells the flour to the baker for 60 cents.
The baker makes bread and sells it to the grocer for 90 cents, and the grocer sells it to a family
for $1.25. The contribution to GDP is
A) 35 cents. B) $1.25. C) $1.95. D) $3.20.
50) Value added is
A) the price of an intermediate product.
B) the amount of dollar value contributed to a product at each stage of its production.
C) the sum of the prices of intermediate products.
D) the dollar value contributed to a product at the last stage of its production.
51) The dollar value of an industry s sales minus the value of intermediate goods is
A) GDP. B) NDP.
C) transfer payments. D) value added.
52) The total value added
A) equals the retail price.
B) equals the wholesale price.
C) equals the sum of the prices on the intermediate goods.
D) equals the retail price less the wholesale price.
Stage of Production Dollar Value of Sale Value Added
0.08
Stage 1 0.08
Stage 2 0.10
Stage 3 0.25
Stage 4 0.32
0.75
53) Refer to the above table. The production of this good goes through 4 different stages of
production. What is the value added at Stage 2?
A) $0.02 B) $0.08 C) $0.10 D) $0.75
54) Refer to the above table. The production of this good has been through the first 3 stages of
production. What is the total value added in Stage 1 through 3?
A) $0.75
B) $0.43
C) $0.07
D) Cannot be computed without more information.
55) Refer to the above table. The production of this good goes through 4 different stages of
production. What is the total dollar value added when production is completed?
A) $0.07
B) $0.32
C) $0.75
D) Cannot be computed without more information.
56) Refer to the above table. The production of this good goes through 4 different stages of
production. What does the total value added equal?
A) $0.07
B) $0.32
C) $0.75
D) Cannot be computed without more information.
57) A farmer buys seed for 15 cents that is used to grow wheat. The farmer sells the wheat to the
miller for 30 cents, who makes flour. The flour is sold to the baker for 60 cents and the baker
makes bread, which is sold to the grocer for 90 cents. The grocer sells the bread for $1.25. What
is the value added for the miller?
A) 60 cents B) 45 cents C) 30 cents D) 90 cents
58) The production of a certain good involves 5 stages. The value added after the first stage of
production occurs is is $1.20. The sale price of the good is $2.50. What amount is used to
measure GDP?
A) $0.025 B) $1.20 C) $1.30 D) $2.50
59) A farmer buys seed for 15 cents that is used to grow wheat. The farmer sells the wheat to the
miller for 30 cents, who makes flour. The flour is sold to the baker for 60 cents and the baker
makes bread, which is sold to the grocer for 90 cents. The grocer sells the bread for $1.25. What
is the value added for the grocer?
A) 15 cents B) 30 cents C) 35 cents D) $1.25
60) A good goes through three stages of production. The value added at stage 1 is $3; the value
added at stage 2 is $5; the value added at stage 3 is $2. What is the retail price of the good?
A) $2
B) $10
C) $20
D) Cannot be determined based on the information given.
61) Which of the following transactions would NOT be included in GDP?
A) the purchase of 100 shares of newly issued Microsoft stock
B) the purchase of a newly issued government bond
C) the purchase of previously issued corporate bond
D) all of the above
62) Which of the following transactions is included in GDP?
A) funds given to a college student by her parents
B) funds received by a college student for working in the college dining hall
C) funds given to a family on welfare
D) Social Security check received by an elderly couple
63) Which of the following is included in measuring GDP?
A) The value added at each stage of production of a final product
B) The buying and selling of securities
C) The transfer of secondhand goods
D) Household services rendered by homemakers
64) Which of the following items is included in GDP?
A) The new car that James just bought B) The value of a stay at home mom
C) Proceeds for a garage sale D) Purchase of a government bond
65) Which of the following items is NOT included in GDP?
A) purchase of a hamburger at a fast food restaurant
B) sales at a grocery store
C) sale of Microsoft stock
D) downloads of new music albums charged to a credit card
66) GDP is a measure of all of the following EXCEPT
A) the overall level of economic activity B) the total of production
C) overall welfare D) the total value of expenditures
67) A family sells the house they have lived in for two years to a friend. They received $150,000 and
paid $120,000 two years ago. This transaction
A) increases GDP by $150,000
B) increases GDP by $30,000
C) has no effect on GDP because the house was not made this year
D) has no effect on GDP because the house is an intermediate good
68) Which of the following statements is NOT true of GDP?
A) GDP excludes nonmarket production.
B) There are no significant weaknesses in using GDP as a measure of the nation s economic
performance.
C) GDP is the value of final goods and services produced in the economy.
D) GDP is not a measure of a nation s overall welfare.
69) Which of the following is a significant weakness of GDP as a measure of the nation s economic
performance?
A) GDP excludes the secondhand good market because it is impossible to obtain an estimate
of the amount sold.
B) GDP excludes the value of the buying and selling of securities.
C) GDP considers product and factor markets but not services.
D) GDP excludes nonmarket production, such as black market activities.
70) GDP does NOT measure the well
b
eing of a nation s residents because it
A) excludes the sale of secondhand goods.
B) excludes the value of intermediate goods.
C) includes the value of final goods and services produced in the economy.
D) excludes nonmarket transactions.
71) When considering GDP as a measure of the nation s economic performance, which of the
following statements is NOT true?
A) GDP is a good measure of a nation s overall welfare.
B) GDP is useful to map changes in the economy s domestic economic performance over
time.
C) GDP is underestimated because it does not include illegal activities.
D) GDP would be a better measure of economic performance if it included nonmarket
activities.
72) Which of the following is a main limitation of GDP?
A) GDP figures are grossly inaccurate due to sampling errors.
B) The real definition of what is and is not included in GDP is unclear.
C) GDP is not a good measure of a nation s overall welfare.
D) GDP includes some products, which by their very nature are bad products, such as
military weapons.
73) Which one of the following is NOT included in GDP?
A) You pay a roofer $3,000 to repair your roof after it is damaged in a hailstorm.
B) You pay a roofer $3,000 to repair your roof after you discover leaks have appeared due to
normal wear and tear.
C) You give up a weekend of leisure to repair your roof yourself.
D) You purchase $60 worth of first aid supplies at the local drugstore to treat the cuts and
scrapes you suffered while crawling around on the roof.
74) Which one of the following is NOT included in GDP?
A) You look after your neighbor s plants during her vacation in exchange for her agreement
to feed your fish while you are gone.
B) A homeowner hires a cleaning service to take care of household chores she chooses not to
do because of the demands of her job.
C) A bicycle manufacturer pays an advertising agency to develop a new promotional
campaign.
D) You purchase new tires for your old car.
75) Which of the following is included in GDP?
A) A newly laid off worker receives his $400 unemployment compensation check from the
state government.
B) A college senior receives a $1,000 graduation gift from a grandparent.
C) You buy a $12 snow shovel to have on hand for the next snow storm.
D) You purchase $300 worth of clothes from a thrift shop selling second hand clothing.
76) GDP is a measure of
A) production. B) innovation.
C) inflation. D) the amount of money available.
77) The total market value of the nation s annual final products produced domestically best defines
the
A) GDP. B) GNP. C) CPI. D) PPI.
78) Gross domestic product is a measure of
A) the total value of all transactions in U. S. markets.
B) the added value of production.
C) the dollar value of final goods and services produced in the United States.
D) the dollar value of the aggregate measure of business as measured by the Dow Jones
Industrial Average.
79) Which of the following is NOT included when calculating GDP?
A) the dollar value of a new book
B) the dollar value of a new iPod
C) the dollar value of a newly issued corporate bond
D) the dollar value of tuition expenditures at a community college
80) Which of the following is counted in the GDP in a given year?
A) the sale of Microsoft stock
B) the sale of a used Mustang convertible
C) the dollar value of the housework done by a stay at home mom
D) the sale of a new handmade ukulele
81) Suppose you drive downtown, pay for parking at a private parking garage, and go to see an
investment advisor. He charges you a $100 fee to advise you to purchase 500 shares of stock,
which you do. Which of these transactions is NOT included in GDP?
A) the purchase of gas for the trip
B) paying the parking fee
C) paying the $100 fee to the investment advisor
D) your purchase of the stock
82) Which one of the following is NOT included in GDP?
A) The federal government pays a defense contractor to develop a new weapons system.
B) You volunteer to organize a neighborhood watch group on your block.
C) You pay your monthly apartment rent.
D) A mail order firm constructs a new warehouse in Kansas as a central distribution facility.
83) National income accounting is
A) used by businesses to calculate their profits during a given year.
B) a system utilized to measure macroeconomic activity.
C) a measure of consumer income.
D) used by accountants to calculate the tax obligations of multinational corporations.
84) Gross domestic product is the
A) market value of all intermediate and final goods produced in a year.
B) market value of all final goods produced in a year.
C) total spending in an economy in a year.
D) value of total exports in a year.
85) The value added method of calculating GDP means
A) adding up the market values of all intermediate goods.
B) calculating the percentage changes in the GDP between two years.
C) adding up the incomes of all businesses in a given year.
D) adding up the difference between the sale price and the value of intermediate goods of
each product at every stage of production.
86) Your parents surprise you with a $500 check. As a result, the U.S. GDP
A) increases because this is unexpected income to you.
B) decreases because you will spend it on useless goods.
C) remains unchanged because it was counted when your parents earned it.
D) decreases because you have to pay taxes on this income.
Production Step Sales Value/Textbook
Purchase of timber $2.50
Converting timber to paper $8.40
Shipping paper to printer $10.00
Printing $26.00
Shipping books to bookstores $32.00
Retail sales price of textbook $40.00
87) Using above table, how much is contributed to the GDP from the production of the textbook?
A) $118.90 B) $32.00 C) $78.90 D) $40.00
88) Using above table, the market price of the textbook is
A) $118.90. B) $32.00. C) $78.90. D) $40.00
89) Consider the following:
Farmer Jones bought seed and fertilizer for $100.
He grew wheat that he sold to the Acme Bread Company for $200.
Acme Bread produced and sold bread to the ABC Grocery Store for $250.
Consumers bought the bread from the grocery for $350.
How much was added to the GDP?
A) $700 B) $800 C) $350 D) $600
90) Which of the following transactions would NOT contribute to the GDP?
A) the purchase of 100 shares of General Motors stock
B) the purchase of a new Chevrolet automobile
C) the purchase of a package of chewing gum from the convenience store
D) the purchase of gasoline for your automobile
91) Which of the following would NOT be included in the calculation of the GDP?
A) the value of the service of legally produced gambling services in Las Vegas
B) the value of the services of a homemaker
C) the value of legally produced liquor
D) the value of the production of nuclear weapons
92) The Social Security check received by your grandmother
A) is included in the GDP because it will be spent on goods and services.
B) is excluded from GDP calculations because including it would result in double counting.
C) is included in the GDP because she is entitled to it as a citizen.
D) is included in the GDP because it is part of her income.
93) Which of the following will be included in this year s GDP?
A) a Pablo Picasso (1881 1973) painting purchased this year by the art museum
B) the purchase of a used textbook by your friend
C) the purchase of 100 shares of IBM stock through your broker
D) the purchase of an insurance policy for a used car
94) GDP measures
A) the nation s economic welfare.
B) the nation s economic activity.
C) the changes in the unemployment rate in a given year.
D) the amount of underground activity in a nation.
95) GDP measures
A) the annual total value of all services produced by factors of production located within a
national border.
B) the annual value of final goods and services produced by factors of production located
within a national border.
C) the annual value of goods and services produced by factors of production owned by
companies headquartered in a given country.
D) the value of all goods and services sold in a given country.
96) Goods used up entirely in the production of final goods are
A) intermediate goods. B) production goods.
C) process goods. D) inventory goods.
97) In calculating GDP, the value of intermediate goods is eliminated by using the
A) distributive method. B) value association method.
C) value added method. D) Federal Reserve method.
98) The sum of the value added at all stages of production for a product is
A) the product s final price.
B) the product s price plus the value of intermediate goods.
C) the product s price minus the value of intermediate goods.
D) the sum of all the transactions in the production of the product.
99) Which of the following transactions is included in GDP?
A) sales of used goods
B)
b
uying and selling of stocks and bonds
C) the sales of houses produced in that given year
D) government transfer payments
100) Consumption expenditures do NOT include purchases of
A) durable goods. B) nondurable goods.
C) intermediate goods. D) services.
101) Many economists argue that real GDP is
A) not a good measure of economic well
b
eing because it overvalues increases in leisure
time.
B) not a good measure of economic well
b
eing because it excludes increases in leisure time.
C) a good measure of economic well
b
eing because it includes increases in leisure time.
D) a good measure of economic well
b
eing because it includes changes in personal safety.
102) Many economists argue that real GDP is not a good measure of economic well
b
eing because
A) it overvalues the increases in nonmarket transactions.
B) it excludes Social Security payments made to retirees.
C) it includes the taxes we pay to the federal government.
D) it excludes the environmental quality of life.
103) Which of the following transactions is included in the GDP?
A) paying a lawyer to create a family trust B) giving your friend $20
C) selling your 2004 Toyota Camry D) cleaning your house
104) Suppose you buy a new Honda Civic. The tires that come with the car are
A) final goods. B) intermediate goods.
C) transfer goods. D) financial goods.
105) What is value added and how is it related to Gross Domestic Product (GDP)?
106) Suppose Gross Domestic Product (GDP) figures were changed to reflect household production.
How would the size of household production relative to Gross Domestic Product (GDP) have
changed over the last fifty years?