Practice Ch 7 Questions Flashcards
The gross domestic product of a nation:
A) could either be a flow variable or a stock variable depending on the time period considered.
B) is a flow variable.
C) is a stock variable.
D)could either be a flow variable or a stock variable depending on the share of personal consumption.
B) is a flow variable
If an economy produces 3 million oranges that sell for $0.25 each and 100,000 cars that sell for $25,000 each, then when the market value of total output is calculated:
A) oranges receive a greater weight than cars.
B) oranges receive the same weight as cars.
C) oranges receive a smaller weight than cars.
D) the market value of oranges is excluded.
C) oranges receive a smaller weight than cars.
One way to avoid counting the prices of intermediate goods multiple times in computing the value of GDP is to:
A) sum the value added of only producers of final goods and services.
B) sum the value added of only producers of intermediate goods and services.
C) sum the value added of producers of both intermediate and final goods and services.
D) subtract the value added of producers of intermediate goods and services from the value added of producers of final goods and services.
C) sum the value added of producers of both intermediate and final goods and services.
Suppose a gold miner finds a gold nugget and sells the nugget to a mining company for $400. The mining company melts down the gold, purifies it, and sells it to a jewelry maker for $700. The jewelry maker fashions the gold into a necklace that it sells to a department store for $1,100. Finally, the department store sells the necklace to a customer for $1,500.
As a result of these transactions, GDP increases by
$1,500
Only the market value of final goods and services counts in GDP, as including the earlier transactions double-counts the gold multiple times. Thus, GDP has increased by $1,500, the price of the final necklace produced.
Firm T produces 600 tires and sells them to Firm B at a cost of $30 each. Firm F produces 300 bicycle frames and sells them to Firm B for $125 each. Firm B produces 300 bicycles and sells them to consumers for $300 each. The contribution to GDP is $ __________Value added by Firm T is $ _______, value added by Firm F is $ ____________, and value added by Firm B is $ _________
Contribution to GDP: 90,000
300x300= 90,000
Firm T: 18,000
600x30= 18,000
Firm F: 37,500
300x125= 37,500
Firm B: 34,500
90,000 - 18,000 - 37,500= 34,500
Which of the following transactions would be included in the GDP of the United States?
A) Coca Cola produces soft drinks in England.
B) Honda produces cars in Ohio.
C) McDonalds sells hamburgers in Russia.
D) Ford Motor Company produces cars in Mexico.
B) Honda produces cars in Ohio.
One of the most crucial ideas in macroeconomics is understanding that:
A) Zero unemployment is the best way to achieve economic growth.
B) measuring total expenditures or total income both equal total production of an economy.
C) prolonging economic downturns can be prolonged by fiscal policy.
D) GNP is the most commonly used measurement of total production
B) measuring total expenditures or total income both equal total production of an economy.
The largest expenditure component of U.S. GDP is:
A) consumption.
B) investment.
C) government purchases.
D) exports.
A) consumption
Consumption expenditures include spending by households on:
A) exports.
B) inventories.
C) residential housing.
D) services.
D) services.
Educational services provided by public schools are:
A) included in GDP at market prices.
B) included in GDP at cost.
C) excluded from GDP because they are not sold in markets.
D) excluded from GDP because they are intermediate goods.
B) included in GDP at cost.
How would each of the following transactions affect the GDP of the United States?
The U.S. government pays $1 billion in salaries for government workers.
b) The U.S. government pays $1 billion to Social Security recipients.
c) The U.S. government pays a U.S. firm $1 billion for newly produced airplane parts.
d) The U.S. government pays $1 billion in interest to holders of U.S. government bonds.
e) The U.S. government pays $1 billion to Saudi Arabia for crude oil to add to U.S. government-owned oil reserves.
A) Increase
B) will not change
C) Increase
D) will not change
E) will not change
Investment spending includes spending on:
A) consumer durable goods.
B) new capital goods.
C) services.
D) stocks and bonds.
B) new capital goods.
Which of the following expenditures would increase the investment component of U.S. GDP?
A) You purchase a new house.
B) You purchase a new car.
C) You purchase 1,000 shares of stock.
D) You pay a commission to your stock broker for selling some stocks that you owned.
A) You purchase a new house.
At the end of the year, Ford realizes it has overproduced Fiestas, because 2,500 of them are left unsold. How is this accounted for in that year’s GDP? The cars are:
A) considered inventory and their value will increase investment.
B) considered durable goods, and their value will increase consumption.
C) not counted until they are sold in next year’s GDP.
D) considered a bad thing and reduce the value of the investment
A) considered inventory and their value will increase investment.
If business inventories equal $40 billion at the beginning of the year and $55 billion at the end of the year, then, assuming no other changes, GDP must have:
A) decreased by $15 billion.
B) increased by $15 billion.
C) increased by $40 billion.
D) increased by $55 billion.
B
