Spending, Income, and GDP

Chapter 15

Spending, Income, and GDP

1. The most commonly used measure of an economy’s output is:

A. the rate of employment.

B. the rate of inflation.

C. gross domestic product.

D. the Dow Jones stock market index

2. Gross domestic product (GDP) equals the ______ of final _______ produced within a country during a given period of time.

A. market value; goods

B. market value; services

C. market value; goods and services

D. quantity; goods and services

3. When economists use market values to aggregate output, they sum the:

A. number of items produced.

B. quantity of items produced.

C. price times the quantity of each item produced.

D. amount of each item produced.

4. If total output is calculated by adding up the market value of goods and services produced, then more expensive items:

A. receive the same weighting as cheaper items.

B. receive a higher weighting than cheaper items.

C. receive a smaller weighting than cheaper items.

D. are double counted.

5. If an economy produces 3 million oranges that sell for $0.25 each and 100,000 cars that sell for $25,000 each, then when the market value of total output is calculated:

A. oranges receive a greater weighting than cars.

B. oranges receive the same weighting as cars.

C. oranges receive a smaller weighting than cars.

D. the market value of oranges is excluded.

6.  The value of unpaid work by a homemaker ___ included in GDP and value of housekeeping services sold in the market ___ included in GDP.

A. is; is not

B. is; is

C. is not; is not

D. is not; is

7. The value of intermediate goods are excluded from the measurement of GDP in order to:

A. adjust for inflation.

B. avoid double counting.

C. index economic activity.

D. measure GDP in constant prices.

8. Capital goods are treated as _______ goods and, therefore, _______ GDP.

A. final; included in

B. final; excluded from

C. intermediate; included in

D. intermediate; excluded from

9. Which of the following transactions would be included in the GDP of the United States?

A. Coca Cola produces soft drinks in England.

B. Honda produces cars in Ohio.

C. McDonalds sells hamburgers in Russia.

D. Ford Motors produces cars in Mexico

10.  In the year 2006, Pete Rich purchases a painting done by Rembrandt in 1642 for $20 million. He also pays a one percent commission to the auction house that sold the painting. What is the contribution of this transaction to GDP in the year 2006?

A. $0

B. $200,000

C. $2 million

D. $20.2 million

11.  The four categories of final users of GDP are:

A. businesses, firms, governments, and the foreign sector.

B. households, the Federal Reserve, governments, and the foreign sector.

C. businesses, corporations, firms, and farms.

D. households, firms, governments, and the foreign sector.

12. Total spending on final goods and services in an economy must equal total:

A. profits.

B. production.

C. revenues from all transactions.

D. investment.

13. Consumption spending includes spending on:

A. durables, nondurables, and services.

B. stocks, bonds, and other financial instruments.

C. capital goods, residential housing, and changes in inventories.

D. goods and services by federal, state, and local governments.

14.  Spending on new capital goods, new homes, and the addition of unsold goods to company inventories is included in:

A. consumption expenditures.

B. investment.

C. government purchases.

D. service spending.

15. Government purchases include all of the following EXCEPT:

A. social security benefits paid by the federal government.

B. the construction of a new court house built by a county government.

C. the salary paid to an elementary school teacher employed by a local public school district.

D. the purchase of new military hardware by the U.S. Army.