AP Econ- 6

A nation’s gross domestic product (GDP):

is the dollar value of the total output produced within the borders of the nation.

Suppose the total market value of all final goods and services produced in a particular country in 2004 is
$500 billion and the total market value of final goods and services sold is $450 billion. We can conclude that:

GDP in 2004 is $500 billion.

National income accountants can avoid multiple counting by:

only counting final goods.

By summing the dollar value of all market transactions in the economy we would:

obtain a sum substantially larger than the GDP

Which of the following is an intermediate good?

the purchase of baseball uniforms by a professional baseball team.

In national income accounting, consumption expenditures include purchases of:

automobiles for personal use, but not houses.

In national income accounting, consumption expenditures include:

consumer durable goods, consumer nondurable goods, and services.

Net exports are:

exports less imports.

Gross investment refers to:

net investment plus replacement investment.

Net exports are negative when:

a nation’s imports exceed its exports.

Which of the following is not economic investment?

the purchase of 100 shares of AT&T by a retired business executive

National income accountants define investment to include:

any increase in business inventories.

As defined in national income accounting, investment includes

business expenditures on machinery and equipment.

Suppose that inventories were $40 billion in 2003 and $50 billion in 2004. In 2004, accountants would:

add$10 billion to other elements of investment in calculating total investment.

Suppose that inventories were $80 billion in 2003 and $70 billion in 2004. In 2004, accountants would

subtract $10 billion from other elements of investments in calculating total investment

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the
same in year 2 except that business inventories increased by $10 billion. GDP in year 2 is:

210 billion

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the
same in year 2 except that business inventories fell by $10 billion. GDP in year 2 is:

190 billion

If the economy adds to its inventory of goods during some year:

this amount should be included in calculating that year’s GDP.

The smallest component of aggregate spending in the United States is:

net exports

Government purchases include government spending on:

government consumption goods and public capital goods.

In national income accounting, government purchases include:

purchases by Federal, state, and local governments.

Transfer payments are:

excluded when calculating GDP because they do not reflect current production.

The value of U.S. imports is:

subtracted from exports when calculating GDP because imports do not constitute production in the United States.

In the treatment of U.S. exports and imports, national income accountants:

add exports, but subtract imports,in calculating GDP.

In calculating the GDP national income accountants:

add increases in inventories or subtract decreases in inventories.

The ZZZ Corporation issued $25 million in new common stock in 2004. It used $18 million of the proceeds
to replace obsolete equipment in its factory and $7 million to repay bank loans. As a result, investment:

of $18 million has occurred.

In 2003 Trailblazer Bicycle Company produced a mountain bike that was delivered to a retail outlet in
November of 2003. The bicycle was sold to E.Z. Ryder in March of 2004. This bicycle is counted as:

investment in 2003 and as disinvestment in 2004.

GDP differs from NDP in that:

gross investment isused in calculating GDP and net investment isused in calculating NDP.

If depreciation exceeds gross investment:

the economy’s stock of capital is shrinking.

The concept of net domestic investment refers to:

total investment less the amount of investment goods used up in producing the year’s output.

If depreciation (consumption of fixed capital) exceeds domestic investment, we can conclude that:

net investment is negative.

When an economy’s production capacity is expanding:

domestic investment exceeds depreciation.

In 1933 net private domestic investment was a minus $6.0 billion. This means that:

the production of 1933’s GDP used up more capital goods than were produced in that year.

An economy is enlarging its stock of capital goods:

when gross investment exceeds replacement investment.

A nation’s stock of capital goods will decline when:

depreciation exceeds gross investment.

In an economy experiencing a declining production capacity:

depreciation exceeds gross investment.

If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the
country’s capital stock:

increased by $65 billion.

Consumption of fixed capital (depreciation) can be determined by:

subtracting NDP from GDP.

If net foreign factor income earned in the U.S. is zero, the sum of national income, indirect business taxes,
and the consumption of fixed capital equals:

GDP

NDP is:

NI plus net foreign factor income earned in the U.S. plus indirect business taxes.

Which of the following best defines national income?

all incomes earned by U.S. resource suppliers for their current contributions to production

The total amount of income earned by U.S. resource suppliers in a year is measured by:

national income

The largest component of national income is:

compensation of employees.

National income measures:

the market value or cost of the resources used in the production of the national output.

Personal income is most likely to exceed national income:

during a period of recession or depression.

If personal income exceeds national income in a particular year, we can conclude that:

transferpaymentsexceededthesumofSocialSecuritycontributions,corporateincometaxes,and undistributed corporate profits.

Which of the following best defines disposable income?

income received by households less personal taxes

Which of the following is the largest dollar amount in the United States?

gross domestic product

Which of the following is the smallest dollar amount in the United States?

disposable income

Transfer payments are included in:

PI

The amount of after-tax income received by households is measured by:

disposable income.

In a typical year which of the following measures of aggregate output and income is likely to be the
smallest?

disposable income

Nominal GDP is:

the sum of all monetary transactions involving final goods and services that occur in the economy in a year

Real GDP refers to:

GDP data that have been adjusted for changes in the price level.

Real GDP measures:

current output at base year prices.

Nominal GDP is adjusted for price changes through the use of:

the GDP price index.

In the second quarter (3-month period) of 2001, U.S. nominal GDP increased but U.S. real GDP declined.
We can conclude that:

the price level rose by more than nominal GDP

A price index is:

a comparison of the price of a market basket from a fixed point of reference.

The GDP price index:

includes all goods comprising the nation’s domestic output.

If real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for
that year is:

200

Suppose a nation’s 2003 nominal GDP was $972 billion and the general price index was 90. To make the
2003 GDP comparable with the base year GDP, the 2003 GDP must be:

inflated to $1080 billion.

Suppose nominal GDP in 2002 was $100 billion and in 2003 it was $260 billion. The general price index in
2002 was 100 and in 2003 it was 180. Between 2002 and 2003 the real GDP rose by:

44 %

Historically, real GDP has increased less rapidly than nominal GDP because:

general price level has increased

Suppose nominal GDP was $360 billion in 1990 and $450 billion in 2000. The appropriate price index

increased by $60 billion.

Real GDP and nominal GDP differ because the real GDP:

has been adjusted for changes in the price level.

Nominal GDP was $130 and $150 in years 1 and 2 respectively. Real GDP was $100 and $110 in years 1
and 2 respectively. On the basis of this information we can conclude that:

the price level increased between years 1 and 2.

If nominal GDP rises:

real GDP may either rise or fall.

real GDP is

the nominal value of all goods and services produced in the domestic economy corrected for inflation or deflation.

In comparing GDP data over a period of years, a difference between nominal and real GDP may arise
because:

the price level may change over time.

If nominal GDP in some year is $280 and real GDP is $160. The GDP price index for that year is:

175

In an economy experiencing persistent deflation:

changes in nominal GDP understate changes in real GDP.

If real GDP rises and the GDP price index has increased:

Nominal GDP has increased

In determining real GDP economists adjust the nominal GDP by using the:

GDP price index.

The fact that nominal GDP has risen faster than real GDP:

suggests that the general price level has risen.

The growth of GDP may understate changes in the economy’s economic well-being over time if the:

quality of products and services improves.

Assume that the size of the underground economy increases both absolutely and relatively over time. As a
result:

GDP will tend to increasingly understate the level of output through time.

(Consider This) In terms of a reservoir analogy, the:

level of water in the reservoir is the stock of capital.

(Consider This) In terms of a reservoir analogy, the:

inflow from the river is gross investment.

(Consider This) Gross investment is a:

flow, as in depreciation

(Consider This) Capital is a:

stock,where as gross investment and depreciation are flows.