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20. GDP is defined as a.

the market value of all goods and services produced within a country in a given period of time. b. the market value of all goods and services produced by the citizens of a country, regardless of where they are living in a given period of time. c. the market value of all final goods and services produced within a country in a given period of time. d. the market value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Definitional 21. GDP is defined as the market value of all final goods and services produced a. by the citizens of a country, regardless of where they live, in a given period of time; this definition focuses on GDP as a measure of total income. b. by the citizens of a country, regardless of where they live, in a given period of time; this definition focuses on GDP as a measure of total expenditure. c. within a country in a given period of time; this definition focuses on GDP as a measure of total income. d. within a country in a given period of time; this definition focuses on GDP as a measure of total expenditure. DIF: 3 REF: 10-2 TOP: Gross domestic product MSC: Interpretive 23. To compute GDP, we a. add up the wages paid to all workers. b. add up the costs of producing all final goods and services. c. add up the market values of all final goods and services. d. take the difference between the market value of all final goods and services and the cost of producing those final goods and services. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Definitional 24. In order to include many different goods and services in an aggregate measure, GDP is computed using, primarily, a. values of goods and services based on surveys of consumers. b. market prices. c. consumer and producer surpluses. d. costs of producing goods and services. DIF: 1 REF: 10-2 TOP: Gross domestic product MSC: Interpretive 25. In computing GDP, market prices are used to value final goods and services because a. market prices reflect the values of goods and services. b. market prices do not change much over time, so it is easy to make comparisons between years.

c. if market prices are out of line with how people value goods, the government sets price ceilings and price floors. d. None of the above is correct; market prices are not used in computing GDP. DIF: 2 REF: 10-2 TOP: Gross domestic product | Value MSC: Interpretive 26. Which of the following is not included in GDP of USA? a. unpaid cleaning and maintenance of houses b. services such as those provided by lawyers and hair stylists c. the estimated rental value of owner-occupied housing d. production of foreign citizens living in the United States DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Definitional 28. Which of the following transactions adds to U.S. GDP for 2006? a. In 2006, Marvin Windows manufactures 20 windows that will eventually be installed in an office building in Minneapolis. The windows remain in Marvins inventory at the end of 2006. b. An Irish marketing consultant works in Boston during the summer of 2006 and earns $30,000 during that time. c. When John and Jennifer were both single, they lived in separate apartments and each paid $750 in rent. John and Jennifer got married in 2006 and they bought a house that, according to reliable estimates, could be rented for $1,600 per month. d. All of the above transactions add to GDP for 2006. DIF: 3 REF: 10-2 TOP: Gross domestic product MSC: Applicative 32. Estimates of the values of which of the following non-market goods or services are included in GDP? a. the value of unpaid housework b. the value of vegetables and other foods that people grow in their gardens c. the estimated rental value of owner-occupied homes d. All of the above are included. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Definitional 33. Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has a. reduced measured GDP. b. not affected measured GDP. c. increased measured GDP only to the extent that the value of the restaurant meals exceeded the value of meals previously cooked at home. d. increased measured GDP by the full value of the restaurant meals. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Applicative

34. Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has a. caused GDP to fall. b. not caused any change in GDP. c. caused GDP to rise. d. probably changed GDP, but in an uncertain direction; the direction of the change depends on the difference in the quality of the cleaning that has resulted. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Applicative 35. Ralph pays someone to mow his lawn, while Mike mows his own lawn. Regarding these two practices, which of the following statements is correct? a. Only Ralphs payments are included in GDP. b. Ralphs payments as well as the estimated value of Mikes mowing services are included in GDP. c. Neither Ralphs payments nor the estimated value of Mike's mowing services is included in GDP. d. Ralphs payments are definitely included in GDP, while the estimated value of Mikes mowing services is included in GDP only if Mike voluntarily provides his estimate of that value to the government. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Applicative 36. If Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself, then GDP a. necessarily rises. b. necessarily falls. c. will be unaffected because the same service is produced in either case. d. will be unaffected because car maintenance is not included in GDP. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Applicative 39. Which of the following statements is correct? a. The value of all intermediate goods and final goods is included in GDP. b. The value of intermediate goods is included in GDP only if those goods were produced in the previous year. c. The value of intermediate goods is included in GDP only if those goods are added to firms inventories to be used or sold at a later date. d. The value of intermediate goods is never included in GDP. DIF: 2 REF: 10-2 TOP: Gross domestic product | Intermediate goods MSC: Interpretive 40. A steel company sells some steel to a bicycle company for $100. The bicycle company uses the steel to produce a bicycle, which it sells for $200. Taken together, these two transactions contribute

a. $100 to GDP. b. $200 to GDP. c. between $200 and $300 to GDP, depending on the profit earned by the bicycle company when it sold the bicycle. d. $300 to GDP. DIF: 2 REF: 10-2 TOP: Gross domestic product | Intermediate goods MSC: Interpretive 41. The total sales of all firms in the economy for a year a. equals GDP for the year. b. is larger than GDP for the year. c. is smaller than GDP for the year. d. equals GNP for the year. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Interpretive 42. Grapes are a. always counted as an intermediate good. b. counted as an intermediate good only if they are used to produce another good such as wine. c. counted as an intermediate good only if they are consumed. d. counted as an intermediate good, whether they are used to produce another good or consumed. DIF: 2 REF: 10-2 TOP: Intermediate goods MSC: Interpretive 43. One bag of flour is sold for $1.50 to a bakery, which uses the flour to bake bread that is sold for $4.00 to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP? a. GDP increases by $1.50. b. GDP increases by $3.50. c. GDP increases by $6.00. d. GDP increases by $7.50. DIF: 2 REF: 10-2 TOP: Gross domestic product | Intermediate goods MSC: Interpretive 44. Gasoline is considered a final good if it is sold by a a. gasoline station to a bus company that operates a bus route between San Francisco and Los Angeles. b. pipeline operator to a gasoline station in San Francisco. c. gasoline station to a motorist in Los Angeles. d. All of the above are correct. DIF: 2 REF: 10-2 TOP: Intermediate goods MSC: Interpretive 45. Goods that go into inventory and are not sold during the current period are a. counted as intermediate goods and so are not included in current period GDP. b. counted in current GDP only if the firm that produced them sells them to another firm.

c. included in current period GDP as inventory investment. d. included in current period GDP as consumption. DIF: 2 REF: 10-2 TOP: Investment | Gross domestic product MSC: Interpretive 46. ABC Company produces ink and sells it to XYZ Company, which makes pens. The ink produced by ABC Company is called a. an inventory good. b. a transitory good. c. a preliminary good. d. an intermediate good. DIF: 1 REF: 10-2 TOP: Intermediate goods MSC: Definitional 47. The local Chevrolet dealership has an increase in inventory of 25 cars in 2006. In 2007 it sells all 25 cars. Which of the following statements is correct? a. The full value of the increased inventory will be counted as part of GDP in 2006, and the value of the cars sold in 2007 will not cause 2007 GDP to increase. b. The value of the increased inventory will not affect 2006 GDP; instead, the full value of the inventory will be counted as part of 2007 GDP. c. The value of the increased inventory will be counted as part of 2006 GDP and the value of the cars sold in 2007 will increase 2007 GDP. d. One-half of the value of the increased inventory will be counted as part of 2006 GDP and the other one-half of the value will be counted as part of 2007 GDP. DIF: 2 REF: 10-2 TOP: Investment | Gross domestic product MSC: Applicative 52. Anna, a U.S. citizen, works only in Germany. The value she adds to production in Germany is included a. in U.S. GDP, but it is not included in German GDP. b. in German GDP, but it is not included in U.S. GDP. c. in both German GDP and U.S. GDP. d. in neither German GDP nor U.S. GDP. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Applicative 53. Tyler and Camille both live in Oklahoma. A new-car dealer in Oklahoma bought a new car from the manufacturer for $17,000 and sold it to Tyler for $20,000. Later that year, Tyler sold the car to Camille for $15,000. By how much did these transactions contribute to U.S. GDP for the year? a. $17,000 b. $20,000 c. $35,000 d. $52,000 DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Applicative

54. Suppose there are only two firms in an economy: Cowhide, Inc. produces leather and sells it to Couches, Inc., which produces and sells leather furniture. With each $1,000 of leather that it buys from Cowhide, Inc., Couches, Inc. produces a couch and sells it for $2,000. Neither firm had any inventory at the beginning of 2006. During that year, Cowhide produced enough leather for 20 couches. Couches, Inc. bought 80% of that leather for $16,000 and promised to buy the remaining 20% for $4,000 in 2007. Couches, Inc. produced 16 couches during 2006 and sold each one during that year for $2,000. What was the economy's GDP for the year? a. $32,000 b. $36,000 c. $40,000 d. $52,000 DIF: 3 REF: 10-2 TOP: Gross domestic product | Intermediate goods MSC: Applicative 55. An Italian company operates a pasta restaurant in the U.S. The profits from this pasta restaurant are included in a. U.S. GNP and Italian GNP. b. U.S. GDP and Italian GDP. c. U.S. GDP and Italian GNP. d. U.S. GNP and Italian GDP. DIF: 2 REF: 10-2 TOP: Gross domestic product | Gross national product MSC: Applicative 56. Which of the following examples of production of goods and services would count as part of U.S. GDP? a. Samantha, a Canadian citizen, grows sweet corn in Minnesota and sells it to a grocery store in Canada. b. Ian, an American citizen, grows peaches for his family in the back yard of their Atlanta home. c. Brian, an American citizen, grows marijuana in his Seattle home and sells it to his friends and neighbors. d. None of the above examples of production would count as part of U.S. GDP. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Interpretive 57. An American company operates a fast food restaurant in Romania. Which of the following statements is accurate? a. The value of the goods and services produced by the restaurant is included in both Romanian GDP and U.S. GDP. b. One-half of the value of the goods and services produced by the restaurant is included in Romanian GDP, and the other one-half of the value is included in U.S. GDP. c. The value of the goods and services produced by the restaurant is included in Romanian GDP, but not in U.S. GDP. d. The value of the goods and services produced by the restaurant is included in U.S. GDP, but not in Romanian GDP. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Applicative

58. Which of the following items is included in GDP? a. the sale of stocks and bonds b. the sale of used goods c. the sale of services such as those performed by a doctor d. All of the above are included in GDP. DIF: 1 REF: 10-2 TOP: Gross domestic product MSC: Interpretive 59. Which of the following items is included in GDP? a. the sale of stocks and bonds b. the estimated rental value of owner-occupied housing c. unpaid production of goods and services at home d. All of the above are included in GDP. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Interpretive 60. Which of the following items is included in U.S. GDP? a. goods produced by foreign citizens working in the United States b. the difference in the price of the sale of an existing home and its original purchase price c. known illegal activities d. None of the above is included in GDP. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Interpretive 61. Which of the following items is counted in U.S. GDP? a. final goods and services that are purchased by the U.S. federal government b. intermediate goods that are produced in the U.S. but which are unsold at the end of the GDP accounting period c. goods and services produced by foreign citizens working in the U.S. d. All of the above are included in U.S. GDP. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Applicative 62. Which of the following items is included in U.S. GDP? a. the estimated value of production accomplished at home, such as backyard production of fruits and vegetables b. the value of illegally-produced goods and services c. the value of cars and trucks produced in foreign countries and sold in the U.S. d. None of the above is included in U.S. GDP. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Applicative 63. Which of the following values would be reflected in U.S. GDP for 2006? a. the rent that John, an American citizen, would have paid on his home in New York in 2006 had he not owned that home

b. the rent that Sarah, an American citizen, paid on her apartment in San Francisco in 2006 c. the value of the legal services provided by Carlos, an attorney and a Mexican citizen, who lived in Houston and practiced law there in 2006 d. All of the above are correct. DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Interpretive 64. U.S. GDP and U.S. GNP are related as follows: a. GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad. b. GNP = GDP + Income earned by foreigners in the U.S. - Income earned by U.S. citizens abroad. c. GNP = GDP + Value of exported goods - Value of imported goods. d. GNP = GDP - Value of exported goods + Value of imported goods. DIF: 2 REF: 10-2 TOP: Gross domestic product | Gross national product MSC: Definitional 65. How is Net National Product (NNP) calculated? a. Saving is subtracted from the total income of a nations citizens. b. Saving is subtracted from the total income of a nations permanent residents. c. Depreciation losses are subtracted from the total income of a nations citizens. d. Depreciation losses are subtracted from the total income of a nations permanent residents. DIF: 3 REF: 10-2 TOP: Net national product MSC: Definitional 66. In the national income accounts, depreciation is called a. consumption of fixed capital. b. total tax depreciation. c. consumption of circulating capital. d. loss due to wear. DIF: 2 REF: 10-2 TOP: Depreciation MSC: Definitional 67. Which government entity prepares the U.S. national income accounts? a. the Federal Reserve System b. the Department of Treasury c. the Department of Commerce d. the Council of Economic Advisers DIF: 1 REF: 10-2 TOP: National income | Government MSC: Definitional 68. National income is defined as a. GDP minus losses from depreciation. b. GDP plus personal income. c. GDP minus taxes paid by U.S. residents. d. the total income earned by a nation's residents in the production of goods and services.

DIF: 2 REF: 10-2 TOP: National income MSC: Definitional 69. National income differs from net national product in that it includes business subsidies and excludes a. profits of corporations. b. indirect business taxes. c. retained earnings of corporations. d. depreciation. DIF: 2 REF: 10-2 TOP: National income | Net national product MSC: Definitional 70. The income that households and non-corporate businesses receive is called a. personal income. b. net national product. c. disposable personal income. d. national income. DIF: 2 REF: 10-2 TOP: Personal income MSC: Definitional 71. Unlike national income, personal income a. includes retained earnings, corporate income taxes and social insurance contributions, and excludes interest and transfer payments received by households from government. b. excludes retained earnings, corporate income taxes, social insurance contributions, and interest and transfer payments received by households from government. c. excludes retained earnings, corporate income taxes and social insurance contributions, and includes interest and transfer payments received by households from government. d. includes retained earnings, corporate income taxes, social insurance contributions, and interest and transfer payments received by households from government. DIF: 3 REF: 10-2 TOP: Personal income MSC: Definitional 72. Disposable personal income is the income that a. households have left after paying taxes and non-tax payments to the government. b. businesses have left after paying taxes and non-tax payments to the government. c. households and non-corporate businesses have left after paying taxes and non-tax payments to the government. d. households and businesses have left after paying taxes and non-tax payments to the government. DIF: 2 REF: 10-2 TOP: Disposable personal income MSC: Definitional 73. Retained earnings is the part of income that a. households retain after paying taxes. b. businesses retain after paying taxes. c. corporations have earned but have not used to invest in plant, equipment, and inventories.

d. corporations have earned but have not paid out to their owners. DIF: 2 REF: 10-2 TOP: Personal income MSC: Definitional Use the following table to answer the following questions. Table 10-1. The data pertain to the nation of Simplia for the year 2006. GDP $110 Income Earned by Citizens Abroad $ 5 Income Foreigners Earn here $ 15 Losses from Depreciation $ 4 Indirect Business Taxes $ 6 Business Subsidies $ 2 Statistical Discrepancy $ 0 Retained Earnings $ 5 Corporate Income Taxes $ 6 Social Insurance Contributions $ 10 Interest Paid to Households by Government $ 5 Transfer Payments to Households from Government $ 15 Personal Taxes $ 30 Non-tax payments to Government $ 5 74. Refer to Table 10-1. GNP for Simplia is a. $96. b. $100. c. $105. d. $110. ANS: B PTS: 1 DIF: 2 REF: 10-2 TOP: Gross national product MSC: Applicative 75. Refer to Table 10-1. The market value of all final goods and services produced within Simplia in 2006 is a. $96. b. $100. c. $105. d. $110. ANS: D PTS: 1 DIF: 1 REF: 22-3 TOP: Gross domestic product MSC: Definitional 76. Refer to Table 10-1. NNP for this economy is a. $100. b. $96. c. $90. d. $88. ANS: B PTS: 1 DIF: 2 REF: 10-2 TOP: Net national product MSC: Applicative

77. Refer to Table 10-1. National income for this economy is a. $96. b. $92. c. $90. d. $88. ANS: B PTS: 1 DIF: 2 REF: 10-2 TOP: National income MSC: Applicative 78. Refer to Table 10-1. Personal income for this economy is a. $91. b. $81 c. $80. d. $51. ANS: A PTS: 1 DIF: 3 REF: 10-2 TOP: Personal income MSC: Applicative 79. Refer to Table 10-1. Disposable personal income for this economy is a. $61 b. $56. c. $47. d. $41. ANS: B PTS: 1 DIF: 3 REF: 10-2 TOP: Disposable personal income MSC: Applicative 80. How does U.S. gross domestic product (GDP) differ from U.S. gross national product (GNP)? a. GNP = GDP minus losses from depreciation b. GNP = GDP + income earned by U.S. citizens abroad - income that foreign citizens earned in the U.S. c. GNP = GDP + income earned by corporations d. GNP = GDP - indirect business taxes + business subsidies ANS: B PTS: 1 DIF: 2 REF: 10-2 TOP: Gross domestic product | Gross national product MSC: Definitional 81. In a certain small country, the unit of currency is the huck. That countrys government recently announced that GDP amounted to 400 million hucks in the quarter that just ended. Assuming this country has adopted American GDP accounting conventions, this statement means that GDP, after seasonal adjustment, actually amounted to a. 100 million hucks in the quarter that just ended. b. 100 million hucks over the last four quarters, including the one that just ended. c. 400 million hucks in the quarter that just ended. d. 400 million hucks over the last four quarters, including the one that just ended. ANS: A PTS: 1 DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Interpretive 82. In a certain small country, the unit of currency is the huck. That countrys government recently announced that GDP amounted to 400 million hucks in the quarter that just ended.

Assuming this country has adopted American GDP accounting conventions, this statement means that GDP, a. without seasonal adjustment, amounted to 100 million hucks in the quarter that just ended. b. with seasonal adjustment, amounted to 100 million hucks in the quarter that just ended. c. without seasonal adjustment, amounted to 400 million hucks in the quarter that just ended. d. with seasonal adjustment, amounted to 400 million hucks in the quarter that just ended. ANS: B PTS: 1 DIF: 2 REF: 10-2 TOP: Seasonal adjustment | Gross domestic product MSC: Interpretive 83. Suppose the government reports that U.S. GDP was about $13 trillion dollars in the most recent quarter. What is the correct interpretation of this number? a. This number reflects the actual value of final goods and services produced in that quarter. b. This number was obtained by taking the actual value of final goods and services produced in that quarter, then seasonally adjusting that value. c. This number was obtained by taking the actual value of final goods and services produced in that quarter, then multiplying that value by 4. d. This number was obtained by taking the actual value of final goods and services produced in that quarter, then seasonally adjusting that value and multiplying it by 4. ANS: D PTS: 1 DIF: 2 REF: 10-2 TOP: Seasonal adjustment | Gross domestic product MSC: Interpretive 84. In the nation of Paolaland, quarterly GDP is always higher in the second quarter than in other quarters. In order to account systematically for this predictable second-quarter jump in GDP, Paolaland's government statisticians will a. employ a statistical procedure called seasonal adjustment. b. report a four-quarter moving average of GDP rather than the one-quarter figure. c. report GNP rather than GDP. d. report personal income rather than GDP. ANS: A PTS: 1 DIF: 2 REF: 10-2 TOP: Seasonal adjustment | Gross domestic product MSC: Interpretive 85. The statistical discrepancy that regularly arises in national income accounting refers to the slight difference between a. personal income and personal disposable income. b. total household payments to the government and taxes paid to the government. c. the income and expenditure approaches to the calculation of GDP. d. the quarterly and annual approaches to the calculation of GDP. ANS: C PTS: 1 DIF: 2 REF: 10-2 TOP: Gross domestic product MSC: Interpretive 86. For monitoring fluctuations in the national economy, which measure of income is best? a. GDP b. NNP c. national income d. It does not matter very much which measure we use. ANS: D PTS: 1 DIF: 2 REF: 10-2

TOP: Business cycle | National income MSC: Interpretive

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