Chapter23

MeasuringaNationsIncome
1.

Inthecircularflowmodel,thesourceofthefactorsofproductionusedtocreategoodsandservicesis
a. theproductmarket.
b. theresourcemarket.
c. firms.
d. households.
ANSWER:d households.
SECTION:1
OBJECTIVE:1
2.

Inthecircularflowmodel,foreveryflowofgoods,services,andresourcesthereisacounterflowof
a. moregoods,services,andresources.
b. peoplefromfirmstohouseholds.
c. peoplefromhouseholdstofirms.
d. money.
ANSWER:d money.
SECTION:1
OBJECTIVE:1
3.

Susiegrowscorninherbackyardgardentofeedherfamily.ThecornshegrowsisnotcountedinGDP
because
a. itwasnotproducedforthemarketplace.
b. itisanintermediategoodwhichSusiewillprocessfurther.
c. thecornhasnovalue.
d. itreducestheamountofcornshewillbuyatthestore.
ANSWER:a itisnotproducedforthemarketplace.
SECTION:2
OBJECTIVE:2
4.

Ifprivateinvestmentincreasedby$50billionwhileGDPremainedthesame,whichofthefollowingcould
haveoccurred,allelsebeingthesame?
a. Consumptionspendingdecreasedby$50billion.
b. Exportsincreasedby$50billion.
c. Importsdecreasedby$50billion.
d. Netexportsincreasedby$50billion.
ANSWER:a Consumptionspendingdecreasedby$50billion.
SECTION:3
OBJECTIVE:3
5.

Assumenetexportsare$220,consumptionis$5,000,taxrevenuesare$1,000,governmentpurchasesare
$1,500,and1997GDP,calculatedbytheexpendituresapproach,is$8,000.Wecanconcludethat
a. privateinvestmentwas$1,940.
b. publicinvestmentwas$310.
c. privateinvestmentwas$320.
d. privateinvestmentwas$1,720.
ANSWER:d privateinvestmentwas$1,720.
SECTION:3
OBJECTIVE:3

2 Chapter 23/Measuring a Nations Income

6.

ThefourcategoriesofexpendituresthatmakeupGDPareconsumption,investment,
a. exports,andgovernmentpurchases.
b. imports,andgovernmentpurchases.
c. netexports,andgovernment[query:purchases].
d. netexports,andgovernmenttransferpayments.
ANSWER:c netexports,andgovernment[query:purchases].
SECTION:3
OBJECTIVE:3
7.

RealGDPisnominalGDP
a. plusdepreciation.
b. adjustedforchangesinthepricelevel.
c. minusdepreciation.
d. minustaxes.
ANSWER:b adjustedforchangesinthepricelevel.
SECTION:4
OBJECTIVE:4
Aneconomyproducesonlytwogoods,orangesandVCRs.Thequantitiesandpricesfortheyears1998and1999are
showninthetable.Thebaseyearis1998.
1998
1999
Price

Quantity

Price

Quantity

Oranges
$2
5,000
$3
4,000
VCRs $400
1,000
$300
2,000
8.

NominalGDPin1998is
a. $402.
b. $12,000.
c. $200,200
d. $410,000
ANSWER:d $410,000
SECTION:4
OBJECTIVE:4
9.

NominalGDPin1999is
a. $18,000.
b. $180,000.
c. $612,000.
d. $1,250,000.
ANSWER:c $612,000.
SECTION:4
OBJECTIVE:4
10.

RealGDPin1998is
a. $6,000.
b. $240,000.
c. $410,000.
d. $612,000.
ANSWER:c $410,000.
SECTION:4
OBJECTIVE:4

Chapter 23/Measuring a Nations Income 3

11.

RealGDPin1999is
a. $6,000.
b. $410,000.
c. $612,000.
d. $808,000.
ANSWER:d $808,000
SECTION:4
OBJECTIVE:4
12.

TheGDPdeflatorin1999isabout
a. .76.
b. .67.
c. .51.
d. 1.32.
ANSWER:a .76
SECTION:4
OBJECTIVE:4
13.

ThegrowthrateofnominalGDPin1999wasabout
a. 10percent.
b. 49percent.
c. 78percent.
d. 100percent.
ANSWER:b 49percent.
SECTION:4
OBJECTIVE:4
14.

ThegrowthrateofrealGDPin1999wasabout
a. 24percent.
b. 50percent.
c. 97percent.
d. 125percent.
ANSWER:c 97percent.
SECTION:4
OBJECTIVE:4
15.

Supposeapersonmarrieshisorhergardenerandthereforenolongerpayshimorherforgardeningservices.
GDP
a. staysthesameaslongastheservicesarestillprovided.
b. increasessincetheservicesarenowprovidedforfree.
c. decreasessincethereisnolongeramarketexchange.
d. staysthesame,sinceservicesarenotincludedinGDP.
ANSWER:c decreasessincethereisnolongeramarketexchange.
SECTION:5
OBJECTIVE:5

4 Chapter 23/Measuring a Nations Income

16.

WhichofthefollowingwouldmostlikelycauseGDPtooverstatetheactualoutputproducedinayear?
a. increasedproductionintheundergroundeconomy
b. adeclineinthequalityofgoodsandservicesproduced
c. increasedproductionforhomeuse(nonmarketproduction)
d. adeclineinpopulation
ANSWER:b adeclineinthequalityofgoodsandservicesproduced
SECTION:5
OBJECTIVE:5