Chapter 6 macro question
A) resales of existing capital equipment are not counted
B) investment by foreigners in the U.S. is not counted
C) investment to replace capital that was used up in the production of the year’s output is not counted
D) depreciation must be added to gross investment
Depreciation of capital is subtracted from gross investment to obtain net investment.
A) the nation’s capital stock will expand
B) net investment will be negative
C) net investment will exceed gross investment
D) the nation’s capital stock will shrink
A) Net domestic product
B) Gross domestic product
C) National income
D) Personal income
This is the definition of GDP. Net domestic product subtracts depreciation, while national income and personal income require further adjustments.
A) Gross investment was $50 million
B) Net investment was $45 million
C) Gross investment was $45 million
D) Net investment was $35 million
Gross investment includes all investment in plant and equipment. It does not include spending on advertising.
A) $17 million
B) $22 million
C) $8 million
D) $5 million
Depreciation measures the amount of capital goods used up to produce output and is the difference between gross and net investment—$5 million in this example.
A) net investment was positive last year
B) the price level increased last year
C) the price level decreased last year
D) unemployment increased last year
Nominal and real GDP increase at the same rate if there is no change in the price level. If prices are increasing, then nominal GDP will increase at a faster rate than real GDP, as the former accounts not only for the growth in output but the growth in prices as well. By similar logic, the price level must have decreased if nominal GDP growth is less than real GDP growth.
A) the price index is less than 100
B) real GDP is growing faster than nominal GDP
C) the price level is falling
D) the price index exceeds 100
Since nominal GDP exceeds real GDP after 2000, nominal GDP is being “deflated.” The price level in these years must exceed the price level in the base year.
A) includes the value of both market and nonmarket transactions
B) corrects for improved product quality over time
C) corrects for improved productivity that results in increased leisure time
D) does not include transactions conducted “off-the-books”
GDP does not include transactions from the so-called “underground economy,” nor does it include the value of nonmarket transactions or corrections for improved product quality or increased leisure time.
A) adding depreciation to nominal GDP
B) adjusting nominal GDP by the GDP price index
C) adding up the dollar value of all transactions in the economy in a given year
D) excluding exports and imports from nominal GDP
Real GDP adjusts for changes in the overall price level by dividing nominal GDP by the GDP price index.
A) both exports and imports are added
B) neither exports nor imports are added
C) exports are added and imports are subtracted
D) imports are added and exports are subtracted
GDP measures the market value of all goods and services produced within the country in a year. Goods that are exported certainly meet this criteria; consumption and other expenditures may include the value of goods produced elsewhere, and must be corrected by subtracting imports.
A) $95 billion
B) $100 billion
C) $110 billion
D) $125 billion
Gross investment includes both inventory changes and depreciation. Net investment would not include the $15 billion for worn equipment.
A) included, because exports reflect U.S. production while imports do not
B) included, because exports reflect U.S. production and imports reflect U.S. consumption
C) excluded, because exports reflect a flow of products outside the U.S. and imports reflect a flow of money outside the U.S.
D) excluded, because neither exports nor imports reflect U.S. consumption
GDP must include exports to capture spending on U.S. production by those in other countries. Imports must be subtracted from consumption and other spending that does not reflect U.S. production.
A) increased by $20 billion
B) increased by $96 billion
C) increased by $80 billion
D) did not change
In the base year, real GDP and nominal GDP are equal. To calculate real GDP five years out, divide nominal GDP in that year by the price deflator and multiply the result by 100 to obtain real GDP = $400, a $20 billion increase from the base year.
A) consumption, net exports, gross investment, government purchases
B) government purchases, gross investment, consumption, net exports
C) consumption, government purchases, gross investment, net exports
D) consumption, government purchases, net exports, gross investment
Consumption is by far the largest, net exports by far the smallest. Gross investment and government purchases tend to be close to one another.
A) net investment will be negative
B) this will have no impact on measured GDP
C) the drop in inventory must be subtracted in measuring GDP
D) the drop in inventory must be added back in measuring GDP
Purchases of these goods represents production from a prior year and must be subtracted from total spending to obtain GDP.
A) personal income plus personal taxes
B) net domestic product minus personal taxes
C) GDP corrected for inflation
D) consumption plus saving
Disposable income is personal income less personal taxes. As such, households are free either to spend it or save it.
A) $52 billion
B) – $2 billion
C) $2 billion
D) $26 billion
“Net exports” is defined as exports minus imports.
GDP can be found by adding total expenditures on U.S. production. However, some modifications must be made to incomes received by U.S. citizens to find GDP. In particular, there must be adjustments for net foreign factor income, depreciation, taxes on production and imports, and other forms of income that are earned but not received, such as Social Security taxes and undistributed corporate profits.
To find real GDP, divide nominal GDP by the GDP price index and multiply the result by 100. (600/150) x 100 = 400.
A) all government spending at all levels
B) all government spending at all levels except the local level
C) government purchases at all levels plus federal spending on transfer payments
D) government purchases at all levels, which excludes transfer payments
Transfer payments do not represent current production of goods and services, merely a transfer of financial assets from some individuals to others.
A) additions to inventories
B) new housing
C) government purchases of military equipment
D) corporate stock
Corporate stock is a certificate of ownership of a firm and does not represent production of final goods and services.
A) state government purchases of new computers
B) Social Security checks received by retirees
C) salaries received by members of the military
D) local government expenditures for new school construction
Social Security checks are transfer payments—transfers of income from taxpayers to recipients—that does not represent a contribution to current production.
A) net investment was $35 billion
B) net investment was $5 billion
C) gross investment was $20 billion
D) gross investment was $35 billion
Net investment is measured by the growth in the capital stock. In this example, net investment is $420 billion minus $400 billion, or $20 billion. Gross investment is this amount plus any depreciation.
Net domestic product in this economy is:
Net domestic product is the sum of C + In + G + Xn: $4,500 + ($800 – $150) + $950 + ($65 – $85) = $6,080.
A) net transfer payments and personal taxes
B) net investment and depreciation
C) depreciation, taxes on production and imports, and net factor income earned abroad
D) net transfer payments, depreciation, and net factor income earned in the U.S.
The expenditure approach sums the value of all expenditures on domestically produced output. To match this, the income approach begins with national income—income earned by U.S.-supplied resources. However, it must also include depreciation, taxes on production and imports, and net factor income earned abroad.
The price index for year 4 is:
The price index is the ratio of the value of output in year 4 to the value of that same output in year 3, multiplied by 100. In this example, the price index is [(9 x $6) / (9 x $5)] x 100, or 120.
This economy produces only one product; price and output data are shown for a five-year period. Year 3 is the base year.
Real GDP in year 5 is:
Real GDP measures the value of output using constant prices. In this example, year 5 output is 10 and the base year price is $5, so real GDP is $50. Alternatively, one could calculate the price index for year 5 as 140, then calculate real GDP as year 5 nominal GDP ($70) deflated by the index: real GDP = ($70 /140) x 100 = $50.
A) remained constant
B) rose by approximately 6%
C) rose by approximately 8%
D) rose by approximately 12%
The price level rose by 4%, from 150 to 156. Real GDP increased approximately by the difference in the growth of nominal GDP and the growth in the price index.
A) improvements in product quality are overstated
B) expenditures for personal services are excluded
C) the price level changes over time
D) some production creates pollution
To the extent that increased production degrades the environment, measured changes in output will fail to account for changes in economic well-being.
“Net exports” is defined as exports minus imports. If imports exceed exports, this term will be negative.
a. of changes in trade deficits and surpluses.
b. the length of the workweek has declined historically.
c. the price level may change over time.
d. depreciation may be greater or smaller than gross investment.
Refer to the above information. Nominal GDP in the current year is:
Refer to the above data. Real GDP in year 3 is:
a. the purchase of an automobile for private, nonbusiness use
b. the purchase of a new house
c. the purchase of corporate bonds
d. the purchase of gold coins
government purchases: $15
gross investment: $20
consumption of fixed capital: $5
Refer to the above data. GDP is:
a. $116. Incorrect
a. The price index is greater than 100 for every year shown on the graph.
b. Nominal GDP must be deflated in each year prior to 2000 to determine real GDP.
c. Real GDP has grown in this economy, but nominal GDP has not.
d. Nominal GDP must be deflated in each year since 2000 to determine real GDP.
a. any increase in GDP that has been adjusted for adverse environmental effects.
b. the excess of gross investment over net investment.
c. the difference between the value of a firm’s output and the value of the inputs it has purchased from others.
d. the portion of any increase in GDP that is caused by inflation as opposed to an increase in real output.
15 social security contributions
20 taxes on production and imports
22 transfer payments
24 U.S. exports
35 undistributed corporate profits
90 government purchases
75 gross private domestic investments
22 U.S. imports
250 personal consumption expenditures
25 consumption of fixed capital
10 net foreign factor income
Refer to the above data. GDP is:
a. as an index number.
b. in percentage terms.
c. in dollar amounts.
d. in quantities of physical units (for example, pounds, gallons, and bushels).
Refer to the above data. The nominal GDP for year 3 is:
a. 125 percent higher than the nominal GDP for year 1.
b. 50 percent higher than the nominal GDP for year 1.
a. a nation’s imports exceed its exports. Correct
b. the economy’s stock of capital goods is declining.
c. depreciation exceeds domestic investment.
d. a nation’s exports exceed its imports.
a. the value of the domestic output after adjustments have been made for environmental pollution and changes in the distribution of income.
b. GDP data that embody changes in the price level, but not changes in physical output.
c. GDP data that reflect changes in both physical output and the price level.
d. GDP data that have been adjusted for changes in the price level.
a. transfer payments exceeded the sum of Social Security contributions, corporate income taxes, and taxes on production and imports.
b. the sum of Social Security contributions, corporate income taxes, and undistributed corporate profits exceeded transfer payments.
c. consumption of fixed capital and taxes on production and imports exceeded personal taxes.
d. transfer payments exceeded the sum of Social Security contributions, corporate income taxes, and undistributed corporate profits.
a. can be found by summing C + Ig + G + Xn. Correct
b. is the dollar value of the total output produced by its citizens, regardless of where they are living.
c. can be found by summing C + S + G + Xn.
d. is always some amount less than its NDP.
A. Census Bureau.
B. Bureau of Labor Statistics (BLS).
C. Commerce Department’s Bureau of Economic Analysis (BEA).
D. Government Accounting Office (GAO).
D. nominal GDP must have fallen.
B. net exports is always a positive amount.
C. DI exceeds PI.
D. domestic investment exceeds depreciation.
A. suggests that the base year of the GDP price index has been shifted.
B. tells us nothing about what has happened to the price level.
C. suggests that the general price level has fallen.
D. suggests that the general price level has risen.
A. the amount of machinery and equipment used up in producing the GDP in a specific year.
B. the difference between the market value and book value of outstanding capital stock.
C. gross domestic investment less net exports.
D. total investment less the amount of investment goods used up in producing the year’s output.
A. a haircut
B. fertilizer purchased by a farm supplier
C. diesel fuel bought for a delivery truck
D. Chevrolet windows purchased by a General Motors assembly plant
A. the value of the domestic output after adjustments have been made for environmental pollution and changes in the distribution of income.
B. GDP data that embody changes in the price level, but not changes in physical output.
C. GDP data that reflect changes in both physical output and the price level.
D. GDP data that have been adjusted for changes in the price level.
11. (Advanced analysis) Refer to the above information. If the per unit prices of the three goods each were $1 in a base year used to construct a GDP price index, then real GDP in the current year is:
A. neither intermediate nor final goods.
B. both intermediate and final goods.
C. intermediate, but not final, goods.
D. final, but not intermediate, goods.
A. summing the profits of all enterprises in the economy.
B. subtracting the purchase of intermediate products from the value of the sales of final products.
C. calculating the year-to-year changes in real GDP.
D. deflating nominal GDP.
15. Other things equal, the above information suggests that the production capacity in economy:
A. B is growing more rapidly than either A or C.
B. A is growing more rapidly than either B or C.
C. A is growing less rapidly than economy B.
D. C is growing more rapidly than economy B.
A. includes fewer goods and services than the consumer price index.
B. is identical to the consumer price index.
C. is another term for the producer price index.
D. includes all goods comprising the nation’s domestic output.
A. price indices have not reflected improvements in product quality.
B. the general price level has increased.
C. technological progress has resulted in more efficient production.
D. the general price level has declined.
A. the services of used-car dealers
B. the child-care services provided by stay-at-home parents
C. the construction of new houses
D. government expenditures on military equipment.
A. the monetary value of all goods and services (final, intermediate, and non-market) produced in a given year.
B. total resource income less taxes, saving, and spending on exports.
C. the economic value of all economic resources used in the production of a year’s output.
D. the market value of all final goods and services produced within a nation in a specific year.
A. adjusted downward to $678 billion.
B. deflated to $896 billion.
C. inflated to $1080 billion.
D. deflated to $1080 billion.
A. disposable income.
B. personal income.
C. net domestic product.
D. gross domestic product.
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