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Chapter 5 GDP: A Measure of Total Production and Income
5.1 GDP, Income, and Expenditure
1) A measure of a country's production is its
A) gross daily production.
B) general daily product.
C) general domestic production.
D) gross domestic product.
E) gross total output.
Answer: D
Topic: GDP
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
2) The total production within an economy is measured as
A) Gross Home Product.
B) Total Domestic Output.
C) Annual Production Value.
D) Gross Domestic Product.
E) Total Annual Output.
Answer: D
Topic: GDP
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
3) Gross Domestic Product is equal to the market value of all the final goods and services ______in a given period of time.
A) produced within a country
B) consumed within a country
C) consumed by the citizens of a country
D) produced by the citizens of a country
E) produced and consumed within a country
Answer: A
Topic: GDP
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
4) Gross Domestic Product measures the
A) quantity of the goods and services produced in a given year, listed item by item, within a country.
B) income of the business sector within a country.
C) market value of the final goods and services produced in a given year within a country.
D) measures the market value of the domestic labor in a given year within a country.
E) market value of the final goods and services consumed by households in a given year within a country.
Answer: C
Topic: GDP
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
5) Gross Domestic Product is the market value of all ______produced within a country in a given period of time.
A) final goods
B) intermediate goods
C) final services
D) intermediate services
E) final goods and services
Answer: E
Topic: GDP
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: New
AACSB: Reflective thinking
6) To calculate GDP it is necessary to
A) add the total amounts of all the goods produced.
B) use the market price to place a dollar value on each good produced.
C) use production cost to place a dollar value on all goods produced.
D) use the average market price over the last five years to place a dollar value on all goods produced.
E) average the cost of producing a good with the price of the good to place a dollar value on all goods produced.
Answer: B
Topic: GDP
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
7) How are final goods and services valued when measuring nominal GDP?
A) at current market prices
B) at base year prices
C) at foreign exchange parity
D) at factor market prices
E) at producer cost
Answer: A
Topic: GDP
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
8) Measuring total production by valuing items at their market value allows us to
A) separate the value of different goods with identical prices.
B) separate the value of different goods with different prices.
C) add together the value of different goods that have different prices.
D) add together the value of identical goods that have identical prices.
E) ignore the problem that goods and services differ in how long they last.
Answer: C
Topic: GDP
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
9) Wobet is a small country that produces only steak and potatoes. Steaks have a price of $10 each and potatoes have a price of $1 each. Suppose that Wobet produces 10 steaks and 20 potatoes in 2010. Using ______, Wobet has GDP equal to ______.
A) market value; 30 units
B) a market basket; 30 units
C) market value; $120
D) real value; $120
E) a price index; $120
Answer: C
Topic: GDP
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
10) To calculate GDP it is necessary to add up the market value of all the ______produced within a country during a year.
A) goods but not services produced
B) goods and services produced
C) intermediate goods and services produced
D) final goods and services produced
E) intermediate goods and services produced and all the final goods and services produced
Answer: D
Topic: GDP
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
11) GDP is best defined as the ______in a given time period.
A) number of goods and services produced within a country
B) number of final goods and services produced within a country
C) market value of the final goods and services produced within a country
D) market value of the final goods and services consumed by a nation's citizens
E) market value of all the goods and services produced within a country
Answer: C
Topic: GDP
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
12) If you make dinner for yourself,
A) the market value of your dinner is added to GDP.
B) your service in preparing the meal is valued at a cook's wage and added to GDP.
C) none of what you bought to prepare for dinner is included in GDP.
D) only the market value of ingredients that you purchased this year is added to GDP.
E) the difference between the cost of the ingredients that you purchased this year and the market value of the dinner is added to GDP.
Answer: D
Topic: GDP
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
13) Gross Domestic Product is defined to be the market value of all the final goods and services produced during a given time period
A) within a country.
B) within and outside a country by that country's citizens.
C) by citizens of the country, regardless of their place of residence.
D) by only legal residents of the country.
E) within a county minus the market value of all the final goods and services produced by that country's citizens outside the country.
Answer: A
Topic: GDP
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
14) Where are the final goods and services produced that are included in Germany's GDP?
A) within Germany
B) anywhere, as long as they are produced using German resources
C) outside of Germany
D) anywhere, as long as they are produced using German labor
E) within Germany but only if they are produced using only German resources
Answer: A
Topic: GDP
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
15) GDP includes the goods and services produced
A) within a country's borders by citizens and by non-citizens.
B) by a country's legal citizens regardless of where in the world they are located.
C) by a country's citizens but not by non-citizens within the country's borders.
D) within a country's borders by citizens and non-citizens plus goods produced abroad by the country's citizens.
E) within a country's borders by citizens and by non-citizens minus the production abroad by the country's citizens.
Answer: A
Topic: GDP
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
16) Which of the following is included in Germany's GDP?
i.BMWs produced in a German-owned factory in South Carolina
ii.the value of the stocks sold on the German stock exchange, the Frankfurt Stock Exchange
iii.china produced by the English-owned Wedgewood Company at a factory in Berlin, Germany
A) i and iii
B) ii only
C) iii only
D) i and ii
E) None of the above answers is correct.
Answer: C
Topic: GDP
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
17) Which of the following is included in U.S. GDP?
i.the rental value of homes owned by U.S. citizens
ii.the production of Suburban SUVs by GM in its plant in Mexico
iii.tickets sold by U2 for concerts held in the United States
A) ii only
B) ii and iii
C) i, ii and iii
D) i and iii
E) i only
Answer: D
Topic: GDP
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
18) Which of the following is NOT directly included in Canadian GDP?
A) the purchase of tickets to a Kanye West concert in Montreal
B) the sale of tickets to the Vancouver Olympics to U.S. citizens
C) gasoline purchased by a tour bus operator in Quebec
D) bus tickets sold to tourists for a tour bus ride in Montreal
E) All of the items would be included in Canadian GDP.
Answer: C
Topic: GDP, final goods and services
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
19) Which of the following is NOT directly included in U.S. GDP?
A) sales to tourists of beach umbrellas in Hilton Head, South Carolina
B) sales of sandwiches at a Subway store in Bangor, Maine
C) ticket sales to Ripley's Aquarium in Gatlinburg, Tennessee
D) popcorn purchased by a movie theater chain in Georgia
E) movie tickets purchased by consumers in Georgia
Answer: D
Topic: GDP, final goods and services
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: New
AACSB: Reflective thinking
20) Which of the following is classified as a final good or service?
i.tires bought by GM to put on new Tahoes
ii.mustard bought by Subway to put on its sub sandwiches
iii.your purchase of online access to the Wall Street Journal
A) i and ii
B) i, ii and iii
C) iii only
D) ii and iii
E) ii only
Answer: C
Topic: GDP, final goods and services
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
21) Which of the following correctly describes a final good?
i.A final good is bought by its final consumer.
ii.A final good can be used by a firm as a component of another good or service.
iii.Investment goods cannot be a final good.
A) i only
B) i and ii
C) i, ii and iii
D) i and iii
E) ii and iii
Answer: A
Topic: GDP, final goods and services
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
22) Which of the following is a final good or service?
A) the grilled chicken purchased by Taco Bell for use in their burritos
B) a new replacement muffler installed by Midas Mufflers
C) the fertilizer purchased by Royal Lawn and Landscape
D) the computers purchased by Office Depot for sale to its customers
E) the CPUs purchased by Dell to be used in their computers
Answer: B
Topic: GDP, final goods and services
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
23) Which of the following is a final good or service?
A) tires purchased by Ford for use on one of their SUVs
B) the new economics textbook you are using
C) the hair gels used by a hair stylist at the local hair salon
D) the butter used by a chef to make butter cream frosting
E) the taco shells purchased by Taco Bell for use in their tacos
Answer: B
Topic: Intermediate goods and services
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
24) A restaurant buys fish to offer as a daily menu special. The purchase of the fish by the restaurant is
A) a consumption expenditure.
B) an investment.
C) an intermediate good.
D) an example of government expenditures on goods and services.
E) part of net exports if the fish was caught beyond the U.S. border.
Answer: C
Topic: Intermediate goods and services
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
25) Which of the following is classified as an intermediate good?
i.the purchase of a Big Mac by a college student
ii.McDonald's purchase of pickles
iii.a McDonald's restaurant owner's interest payment for the loan on her building
A) ii only
B) ii and iii
C) i only
D) i and iii
E) i, ii and iii
Answer: A
Topic: Intermediate goods and services
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
26) Which of the following is an example of an intermediate good or service?
A) gasoline purchased by Sam for her commute to work
B) flour purchased by Jake to bake a cake for his spouse
C) training seminars for employees of an accounting firm
D) golf balls sold to Tiger Woods
E) None of the above are examples of intermediate goods or services.
Answer: C
Topic: Intermediate goods and services
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: New
AACSB: Reflective thinking
27) Which of the following would NOT be directly included in the U.S. GDP in 2010?
A) the market value of restaurant meals sold in 2010
B) the market value of the jet fuel bought by Delta to use for its flights in 2010
C) the value of the automobiles produced in 2010 at the Toyota plant located in Georgetown, Kentucky
D) legal services provided to first time home buyers during 2010
E) the purchase of a new home in Atlanta, Georgia in 2010
Answer: B
Topic: Intermediate goods and services
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
28) One bag of coffee beans is sold for $7 to a cafe that uses it to brew coffee which it sells to customers for a total of $15. A second bag of coffee is sold directly to Joan for $7, who uses it to brew coffee for her family every morning. What is the contribution to GDP from the purchases of coffee beans and coffee?
A) $7
B) $14
C) $15
D) $22
E) $29
Answer: D
Topic: Intermediate goods and services
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: New
AACSB: Reflective thinking
29) Consumption expenditure includes spending
A) on intermediate goods and services by firms.
B) on office supplies by firms.
C) by households.
D) by households and spending on office supplies by firms.
E) by governments when they are buying goods and services that consumers also buy.
Answer: C
Topic: Consumption expenditure
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
30) Consumption goods and services include
A) washing machines and tickets to football games.
B) new homes and existing homes (as long as improvements have been made to the existing home).
C) tickets to concerts and medical care provided to veterans by the government.
D) new and used textbooks as long as they are sold via stores or online.
E) vacation time accumulated by workers.
Answer: A
Topic: Consumption expenditure
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
31) Expenditures on U.S. produced steaks, shoes, and doctor visits are most likely classified as
A) consumption expenditure.
B) investment.
C) government expenditure on goods and services.
D) net exports of goods and services.
E) net imports of goods and services.
Answer: A
Topic: Consumption expenditure
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
32) Investment is the expenditure done by
A) savers.
B) firms.
C) governments.
D) the rest of the world.
E) Both answers A and B are correct.
Answer: B
Topic: Investment
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
33) Investment is defined as the purchase of
A) any financial asset only.
B) additions to inventories only.
C) financial assets and inventories only.
D) new capital goods and additions to inventories.
E) new capital goods but not additions to inventories.
Answer: D
Topic: Investment
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
34) Which of the following is included as investment in GDP?
i.cars produced during the year but unsold at the end of the year
ii.new capital equipment produced and purchased during the year
iii.purchases of a company's stocks and bonds
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii
Answer: D
Topic: Investment
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
35) Economists define investment to include purchases of
A) capital goods and inventories.
B) capital goods, household durable goods, and inventories.
C) capital goods, such as tools, instruments, and buildings.
D) capital goods, equity stocks, and bonds.
E) capital goods, equity stocks, and inventories.
Answer: A
Topic: Investment
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
36) Investment includes
A) GM's purchase of robotic machinery.
B) student purchases of laptops.
C) Wal-Mart's purchase of health insurance for its workers.
D) the New York City Library's purchase of new books.
E) wages paid to military personnel.
Answer: A
Topic: Investment
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
37) In measuring GDP, which of the following is included?
A) the value of preparing meals at home
B) the value of stocks and bonds bought and sold
C) the value of used goods when they are sold
D) the value of increases in business inventories
E) the value of durable consumption goods but not the value of nondurable consumption goods.
Answer: D
Topic: Investment, inventory
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
38) If a firm does not sell all of the goods that it produces in a given time period, then the goods
A) do not count in GDP ever.
B) do not count in GDP for that time period but always count next period.
C) count positively in GDP as inventory investment.
D) count negatively in GDP as inventory investment.
E) count in GDP the period they are sold to the final user.
Answer: C
Topic: Investment, inventory
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
39) This year a firm produces $100 million worth of cars this year and sells $102 million worth of cars. Which of the following is true?
A) GDP for this year will increase by $100 million.
B) GDP for this year will increase by $102 million.
C) Inventory investment will increase by $2 million.
D) GDP for this year will increase by $202 million.
E) The premise of the question is wrong because it is impossible for a firm to sell more than it produces in a given time period.
Answer: A
Topic: Investment, inventory
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
40) Bob's Funky T-shirts began the year with 1,000 shirts in inventory, produced 10,000 shirts during the year and ended the year with 1,100 shirts in inventory. The 100 shirts added to his inventory will be classified as
A) consumption expenditure.
B) investment.
C) net exports of goods and services.