Econ 2020 Chapter 7

National income accountants can avoid multiple counting by:

only counting final goods.

Economy A: gross investment equals depreciation
Economy B: depreciation exceeds gross investment
Economy C: gross investment exceeds depreciation

Refer to the above information. Positive net investment is occurring in:

economy C only.

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

subtracting NDP from GDP.

(Consider This) When making a capital stock and reservoir analogy, the:

inflow from the river is gross investment.

Economy A: gross investment equals depreciation
Economy B: depreciation exceeds gross investment
Economy C: gross investment exceeds depreciation

Other things equal, the above information suggests that the production capacity in economy:

C is growing more rapidly than economy B.

Suppose a nation’s 2010 nominal GDP was $972 billion and the general price index was 90. To make the 2010 GDP comparable with the base year GDP, the 2010 GDP must be:

inflated to $1080 billion

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.

The total amount of income earned by U.S. resource suppliers in a year, plus taxes on production and imports, is measured by:

national income.

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

300.

The concept of net domestic investment refers to:

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

Suppose the total monetary value of all final goods and services produced in a particular country in 2010 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that:

GDP in 2010 is $500 billion.

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.

Environmental pollution is accounted for in:

none of these.

The ZZZ Corporation issued $25 million in new common stock in 2008. 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.

The purchase of Wal-Mart stock is a part of gross investment, but not of net investment.

False

Which of the following transactions would be included in GDP?

Peter buys a newly constructed house.

Real GDP refers to:

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

If nominal GDP rises:

real GDP may either rise or fall.

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

add exports, but subtract imports, in calculating GDP.

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.

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 net foreign factor income is zero and there are no statistical discrepancies, the sum of national income and the consumption of fixed capital equals:

gross domestic product.

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

disposable income.

The GDP tends to:

understate economic welfare because it does not take into account increases in leisure.

Suppose that inventories were $80 billion in 2007 and $70 billion in 2008. In 2008, accountants would:

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

Assume that in 2002 the nominal GDP was $350 billion and in 2003 it was $375 billion. On the basis of this information we:

cannot make a meaningful comparison of the economy’s performance in 2002 relative to 2003.

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.

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

disposable income

Which of the following do national income accountants consider to be investment?

the purchase of a new house

Suppose a nation’s 2010 nominal GDP was $972 billion and the general price index was 90. To make the 2010 GDP comparable with the base year GDP, the 2010 GDP must be:

inflated to $1080 billion.

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

GDP price index.

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

net investment is negative.

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

subtracting NDP from GDP.

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

300.

In 2007, Trailblazer Bicycle Company produced a mountain bike that was delivered to a retail outlet in November of 2007. The bicycle was sold to E.Z. Ryder in March of 2008. This bicycle is counted as:

investment in 2007 and as negative investment in 2008.

The value added of a firm is the market value of:

a firm’s output less the value of the inputs bought from others.

Setup Corporation buys $100,000 of sand, rock, and cement to produce ready-mix concrete. It sells 10,000 cubic yards of concrete at $30 a cubic yard. The value added by Setup Corporation is:

$200,000.

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

add exports, but subtract imports, in calculating GDP.

Suppose the total monetary value of all final goods and services produced in a particular country in 2010 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that:

GDP in 2010 is $500 billion.

The ZZZ Corporation issued $25 million in new common stock in 2008. 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.

(Last Word) Which of the following is a source of data for the consumption component of the U.S. GDP?

the Census Bureau’s Retail Trade Survey

Disposable income measures the before-tax income received by resource suppliers.

FALSE

The GDP tends to:

understate economic welfare because it does not take into account increases in leisure.

Transfer payments are included in:

PI.

In national income accounting, government purchases include:

purchases by Federal, state, and local governments.

If net foreign factor income is zero and there are no statistical discrepancies, the sum of national income and the consumption of fixed capital equals:

gross domestic product.

In an economy experiencing a persistently falling price level:

changes in nominal GDP understate changes in real GDP.

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.

(Consider This) Capital is a:

stock, whereas gross investment and depreciation are flows.

Value added refers to:

the difference between the value of a firm’s output and the value of the inputs it has purchased from others.

Which of the following is a final good or service?

a haircut purchased by a father for his 12 year-old son

Gross domestic product (GDP) measures and reports output:

in dollar amounts.

If nominal GDP is 150 and the GDP price index is 200, real GDP is 75.

True

In an economy experiencing a persistently falling price level:

changes in nominal GDP understate changes in real GDP.

Nominal GDP is:

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

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

quality of products and services improves.

The system that measures the economy’s overall performance is formally known as:

National income accounting

Transfer payments are:

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

A price index is:

a comparison of the current price of a market basket to a fixed point of reference.

Personal income usually exceeds disposable income.

TRUE

NDP can be determined by adding taxes on production and imports to GDP.

FALSE

The value of U.S. imports is:

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

National income accountants define investment to include:

any increase in business inventories.

Real GDP is:

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

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

gross domestic product.

In national income accounting, consumption expenditures include purchases of:

automobiles for personal use, but not houses.

The largest component of total expenditures in the United States is:

consumption.

In calculating GDP, governmental transfer payments, such as social security or unemployment compensation, are:

not counted.