ECON 2301 Test 3 - Questions, Answers and Rationales

ECON 2301 Test 3 - Questions, Answers and Rationales GDP is: A. the total value of all consumer expenditures within a given period. B. national income after taxes. C. the total value of all final goods and services plu ...

ECON 2301 Test 3 - Questions, Answers and Rationales GDP is: A. the total value of all consumer expenditures within a given period. B. national income after taxes. C. the total value of all final goods and services plus intermediate goods and services produced domestically within a given period. D. the value of all final goods and services produced domestically within a given period. E. the total value of all final goods and services minus the value of intermediate goods and services produced domestically within a given period. GDP is the current dollar value of all final goods and services produced within a country (domestically) during a given period of time. Final goods or services used to compute GDP refer to: A. the sum of all wages paid to laborers. B. the factors of production used to produce output. C. goods and services purchased by the ultimate users. D. the value of outstanding shares of stock of manufacturing firms. E. the sum of all exports plus imports. Final goods or services used to compute GDP refer to goods and services purchased by the ultimate users. The key point is that final goods and services purchased by the ultimate users are the ones taken into account to measure GDP. So, the sugar that goes into a gallon of ice cream is not counted, since it is an intermediate good, however the sugar bought by a typical family is counted since is a final good bought by the ultimate user. Intermediate products: A. produced domestically are not directly reflected in a nation's GDP. B. produced domestically are reflected directly in a nation's GDP. C. are imported retail products. D. are goods that are purchased by the ultimate user. Intermediate products produced domestically are not directly reflected in a nation's GDP. The reason for that is that the value of intermediate goods is already part of the value of a final good. Adding the value of the intermediate good would be double counting. Consumption is the purchase of goods and services by: A. households. B. government. C. business firms. D. foreign buyers. E. all of the above. Consumption (C) is the one GDP component referring to expenditures on goods and services by households. It comprises spending in durable goods (i.e. automobiles, appliances, furniture), nondurable goods (i.e. food, clothing) and services (i.e. recreation, medical services, education). Consumption is the largest single component of GDP. In recent years it represents approximately ____ percent of GDP. A. 54 B. 60 C. 70 D. 80 Consumption is the largest single component of GDP. In recent years it represents approximately 70 percent of GDP, as per 2010 data. The expenditure method of measuring GDP is calculated by adding up: A. the final goods and services produced domestically during a given period. B. Consumption + Investment + Government Spending + (Exports-Imports). C. domestic production of final goods and services for consumers, firms, government, and the international sector (through net exports). D. all of the above. Gross Domestic Product is the total market value of all final goods and services produced within an economy in a given year. GDP is divided into four broad types, depending on the purchase: Consumption: expenditures by households Investment: expenditures in capital goods by business firms Government purchases: expenditures by federal, state and local governments Net Exports: Net purchases by the international sector. Net exports are defined as: A. exports plus imports. B. exports minus imports. C. imports minus exports. D. exports plus imports minus tariffs. E. exports minus tariffs. Net exports is defined as Exports minus Imports. Net exports is a component of GDP, under the expenditure approach. Exports are the goods and services produced domestically and purchased by foreigners, while imports are goods and services bought from other countries. Imports are subtracted since consumption, investment and government purchases include all purchases by households, business firms and the government of goods and services, whether or not produced domestically. Transfer payments are included in which category under the expenditure approach to GDP accounting? A. consumption B. government purchases C. investment D. net exports E. Transfer payments are not directly included in GDP calculations. Transfer payments are not part of the GDP since they are payments to individuals that are not associated with the purchase of goods and services. GDP is the total market value of final goods and services produced within an economy in a given year. When parts of transfer payments are used to buy final goods and services (for example, if grandma uses part of her social security payment to by aspirin) then they affect the GDP. What is the measure of the income received by owners of resources used in making final goods and services? A. factor payments B. product payments C. indirect earnings D. direct earnings Factor payments are the measure of the income received by owners of resources used in making final goods and services. The factor payment entries in the National Income and Product Accounts, maintained by the Bureau of Economic Analysis, are compensation of employees, proprietors' income, rental income, corporate profits and net interest. Which of the following is NOT part of U.S. GDP? A. the value of a Toyota manufactured in Japan and sold in the United States B. the value of a Ford Mustang produced in the United States and sold in Canada C. the salary of the governor of Minnesota D. the value of a Rhode Island attorney's services E. the value of a Chevrolet produced in the United States last year but not sold until this year Given a constant rate of growth of real GDP, what would cause a fall in real GDP per capita? A. a rate of population growth that is less than the rate of growth of real GDP B. a rate of population growth that is greater than the rate of growth of real GDP C. an increase in the size of the labor force D. a decrease in the capital stock E. none of the above The prosperity of a nation today is typically measured by its: A. total output or gross national product B. output per capita C. gold reserves. D. proportionate share of international trade. The prosperity of a nation today is typically measured by its output per capita. The output of a country or the gross national product is a close measure of total income. Output per capita, then, is a measure of income per person, and isolating the population effect, it becomes an indication of the prosperity of a nation. A country will roughly double its GDP in twenty years if its annual growth rate is: A. 2.5 percent. B. 3.5 percent C. 7.5 percent. D. 12 percent. E. 20 percent. A country will roughly double its GDP in twenty years if its annual growth rate is 3.5%. By the rule of 70, the variable GDP, or for that matter any variable (a stock's price, a manager's salary, or a country's population, for example), would nearly double in 70 / x% years, where x is the growth rate in percentage terms. This is just an algebraic result that provides a rule of thumb. In this case, 70/3.5 = 20 years. As more capital per worker is added, a per worker production function generally becomes: A. flatter because capital is subject to diminishing marginal returns. B. flatter because labor is subject to diminishing marginal returns. C. flatter because capital is subject to increasing marginal returns. D. steeper because capital is subject to diminishing marginal returns. E. steeper because labor is subject to increasing marginal returns. The faster the rate of technological progress: A. the greater the rate of economic growth. B. the slower the rate of economic growth. C. the greater the rate of population growth. D. the slower the rate of growth of the money supply In a fully employed economy, invention and discovery: A. are automatic. B. are achieved through sacrifices in current consumption. C. have negative opportunity costs. D. All of the above are correct. Which of the following best describes the relationship between economic growth and literacy? A. As the economy grows, literacy declines because it becomes less and less useful in a developed economy. B. Increased literacy initially stimulates economic growth by raising labor productivity, but as the economy grows and the opportunity cost of education rises, literacy declines. C. Increased literacy stimulates economic growth by raising labor productivity, and as the economy grows, people consume more education. D. There is no correlation between economic growth and literacy. Sergei has developed a new fat substitute that has no calories and produces no side effects. In order for him to be encouraged to bring this innovation to the marketplace he is likely to want which of the following the most? A. time to be able to thoroughly test the fat substitute B. an ample supply of capital to start the manufacturing process C. a trademark D. a patent Sergei has developed a new fat substitute that has no calories and produces no side effects. In order for him to be encouraged to bring this innovation to the marketplace he is likely to want to have a patent for his invention, as a way to have the sole right to make, use and sell the invention. A patent is a set of exclusive rights granted by a public entity to an inventor for a set period of time. GDP is: A. the value of all final goods and services produced domestically within a given period of time. B. the value of all final good and services produced anywhere in the world by a nation's firms within a given period of time. C. the value of all final goods and services produced by a government within a given period of time. D. the sum of all currency and coins in circulation. GDP is the value of all final goods and services produced domestically within a given period of time. The goods and services that are used in the production of other goods and services are called: A. gross domestic goods. B. intermediate goods. C. final goods. D. ultimate goods. E. preliminary goods. The goods and services that are used in the production of other goods and services are called: A. gross domestic goods. B. intermediate goods. C. a sheet of glass produced this year and ending up in the inventory of a retail hardware store D. All of the above are counted. E. Neither b. nor c. are counted. A sheet of glass purchased by General Motors for the side window of a new car would not be counted as a final good for inclusion in GDP. It is an intermediate good. Intermediate products produced domestically are not directly reflected in a nation's GDP. The reason for that is that the value of intermediate goods is already part of the value of the final good. Adding the value of the intermediate good would be double counting. GDP is the current dollar value of all final goods and services produced within a country (domestically) during a given period of time. Which of the following products are not included in current U.S. GDP? A. a Washington apple B. a Ford Mustang produced last year and sold this year C. a physical examination at a California health clinic D. All of the above are included in current U.S. GDP. A Ford Mustang produced last year and sold this year is not included in current U.S. GDP, since it was already included in last year's GDP. The key point is when it was produced, not when it was sold. GDP is the current dollar value of all final goods and services produced within a country (domestically) during a given period of time. GDP does not directly include: A. the value of final goods and services produced, but not sold, during a period. B. the value of services rendered during a period. C. the value of intermediate goods sold during a period. D. any of the above. E. either a. or c. The total dollar value of purchases in the economy is far larger than GDP primarily because: A. GDP ignores taxes. B. GDP excludes the value of intermediate goods exchanged. C. GDP excludes the output from foreigners working in America. D. GDP ignores production in the home The largest single expenditure component of GDP is: A. consumption. B. investment. C. government purchases. D. net exports. Consumption is the largest single component of GDP. In recent years it represents approximately 70 percent of GDP, as per 2010 data. The most volatile GDP category under the expenditure approach is: A. wages and salaries. B. investment. C. consumption. D. government purchases. E. net exports. Investment is the most volatile GDP category under the expenditure approach. The determinants of investments are interest rates, business confidence, economic conditions, taxes and capacity utilization. Since some of those factors are based on perceptions, which at times differ widely, investment also fluctuates widely. When the economy is booming, investment tends to increase sharply, when falling, the reverse occurs. Investment refers to the purchases by firms of capital goods - machinery, buildings, housing construction-, which are used to produce goods and services. Notice that buying stocks is NOT investment, as understood here. GDP is divided into four broad types, depending on the purchase: Consumption: expenditures by households Investment: expenditures in capital goods by business firms Government purchases: expenditures by federal, state and local governments Net Exports: Net purchases (exports - Imports) by the international sector. The investment component of GDP includes: A. funds in individual retirement accounts. B. construction of a new steel mill. C. the sale of shares of Coca-Cola stock. D. the purchase of a refrigerator by a household. If a nation's imports exceed its exports: A. net exports will be positive. B. GDP will be less than the sum of consumption, investment, and government purchases. C. GDP will be greater than the sum of consumption, investment, and government purchases. D. none of the above apply. Taking the expenditure approach, GDP = Consumption + Investment + Government Purchases + Net Exports If a nation's imports exceed its exports, then net exports would be negative (they are subtracted from C+I+G in the GDP equation), and thus, GDP will be less than the sum of consumption, investment, and government purchases. The services rendered by a special agent with the Federal Bureau of Investigation is included in which expenditure category of GDP? A. consumption B. investment C. government purchases D. net exports E. none of the above In 2008, U.S. Nominal GDP totaled approximately: A. $2.1 trillion B. $2.8 trillion C. $10.1 trillion D. $14.3 trillion E. none of the above If the price index is now 120, it means: A. prices are 120 percent higher than in the base year. B. prices are 20 percent higher than in the base year. C. prices are 1.2 percent higher than in the base year D. nominal GDP will be less than real GDP. E. that both b. and d. are true. Which of the following is a problem with using real GDP as a measure of economic well-being? A. does not account for inflation B. does not account for production within the household C. does not account for production by foreign firms producing inside the U.S. D. all of the above EITHER B OR C Estimates of the size of the underground economy range from: A. 4 to 20 percent. B. 2 to 5 percent. C. 7 to 10 percent. D. 45 to 60 percent. Which of the following factors that affect our well-being does GDP fail to adequately account for? A. changes in the quality of goods B. externalities C. leisure D. nonmarket transactions E. all of the above Measures of well-being include: A. life expectancy. B. infant mortality rates. C. literacy rates. D. pollution levels. E. all of the above. The largest single source of revenue for the federal government is the: A. federal excise tax. B. personal income tax.