1. The American Timber Company harvests trees and processes the timber into fini
ID: 1211963 • Letter: 1
Question
1. The American Timber Company harvests trees and processes the timber into finished wood that is then sold to the American Lumber Yard, which in turn packages and markets the wood to the American Homebuilder Company, who then uses the wood to construct homes that are sold to the public. Which of these companies should be included in GDP in regard to the final goods and services they each produce?
American Homebuilder Company
American Timber Company and American Lumber Yard
All three companies
American Homebuilder Company and American Lumber Yard
2. All of the following statements are true regarding the term X-IM, which is used in the aggregate spending calculation that determines GDP, EXCEPT
It represents net exports
X is sales to foreigners
IM is sending on imports
Income spent on exports is income that has leaked across national borders and was not spent on domestic good and services.
3. The most important uses of gross domestic product (GDP) include all of the following EXCEPT
measuring the size of an economy.
providing a scale against which to measure the economic performance of other years.
comparing the economic performance of different countries.
measuring the quality of life
4. To measure actual changes in aggregate output, a modified version of gross domestic product (GDP), known as real GDP, is needed to adjust for what variable?
Price changes
Currency fluctuations
Exchange rate differences
Productivity variances
5. All of the following are established methods to calculate gross domestic product (GDP) EXCEPT
surveying firms and adding up the total value of their production of final good and services
adding up aggregate spending on domestically produced final goods and services in the economy.
summing the total factor income earned by household from firms in the economy
increasing the previous fiscal year's GDP by the rate of inflation for the current year to arrive at real GDP for the current year
6. one method to calculate gross domestic product (GDP) is to add up aggregate spending on domestically produced final goods and services. Based on this method, which of the following expenditures by Apple, Inc. should be counted in GDP:
the purchase of microprocessors to be used in its new laptop
factory space bought for producing a new product line
wages paid to R&D staff members to develop new software technology
components purchased from an outside supplier to be used in the iPhone
7. Suppose a small economy produces three items: wheat, flour, and bread. Farmer Ted produces wheat and sells it to the American Wheat Company. The American Wheat Company produces flour and sells it to the Big Bread Corporation. Use this information and the table to answer the following question
Farmer Ted
American Wheat Company
Big Bread Corporation
Intermediate goods
$0
$40
$110
Wags
30
50
60
Profits
10
20
40
Value of output
40
110
210
American Wheat Company's value added is _____________ and Big Bread's value added is__________
20; 40
50; 60
70; 100
40; 120
8. Which of the following are included in the calculation of gross domestic product (GDP)
changes in inventory and net exports
changes in inventory only
changes in net exports only
neither changes in inventory nor net exports
9. Suppose a small economy produces three items: wheat, flour, and bread. Farmer Ted produces wheat and sells it to the American Wheat Company. The American Wheat Company produces flour and sells it to the Big Bread Corporation. Use this information and the table to answer the question.
Farmer Ted
American Wheat Company
Big Bread Corporation
Intermediate goods
$0
$40
$110
Wags
30
50
60
Profits
10
20
40
Value of output
40
110
210
Total value of gross domestic product (GDP) for this small economy is
$370.
$210.
$160.
10. All of the following represent components of aggregate spending EXCEPT:
imports minus exports.
consumer spending.
government purchases of goods and services.
investment spending.
11. Which transaction does NOT represent an addition to U.S. gross domestic product (GDP)?
A U.S. firm manufactures a bicycle sold to a U.S. consumer.
A U.S. firm manufactures a bicycle sold to a Canadian consumer.
A U.S. firm hires construction workers to expand its manufacturing facility.
A German citizen buys stock in a U.S. company.
12. Which statement is TRUE?
Gross domestic product GDP overstates the true level of production because goods that are sold to other firms as inputs are counted twice.
Inventories of finished goods are not counted as investment because they do not allow for future consumption.
Changes in GDP tell us about economic growth, but they do not reveal anything about the pattern of the business cycle.
Since GDP is equal to the total value of final goods and services produced in the economy in a given time period, it must also equal the flow of money received by firms from their sales in the product market during the same time period.
13. Gross domestic product (GDP) can be calculated in all of the following ways EXCEPT by adding up:
the value added by all firms.
all spending on domestically produced final goods and services.
all factor income paid by firms.
the cost of each intermediate good and service.
14. Aggregate spending is equal to:
consumer spending + investment spending + government purchases of goods and services + exports.
consumer spending + inventory spending + government purchases of goods and services + exports.
consumer spending + investment spending + government purchases of goods and services + exports – imports.
consumer spending + inventory spending + government purchases of goods and services + exports – imports.
15. Consider the following goods at a coffee shop. Which would be considered a final good?
the labor of the barista
the milk that goes into a latte
the cup that the latte was made in
a large latte
16. Which item would be included in the calculation of gross domestic product (GDP)?
the construction of a new Honda factory in Ohio
a dashboard manufactured in China and used in the production of new Honda Civics in Ohio
the sale of a used 2008 Honda Civic manufactured in Ohio and sold in California
the steel manufactured in Pennsylvania that is used in the production of new Honda Civics in Ohio
17. Which item(s) would be considered a final good or service that would be included in gross domestic product (GDP)?
the milk that goes into the latte you purchase at the coffee shop
the tires on your new Ford Escape
the microprocessor in your new Dell laptop
the hamburger you eat at McDonald's
18. Economists are careful when using gross domestic product (GDP) numbers, especially when making comparisons over time, for which reason(s)?
Part of the increase in the value of GDP over time represents increases in the prices of goods and services rather than an increase in output.
The collection and compilation of information required in the calculation of GDP is not reliable and represents a best guess.
Most countries, especially developing countries, do not report GDP.
All answers are valid reasons why economists are cautious when using GDP numbers.
19. Given the table, what is the value of real GDP in year 1 if year 2 is considered the base year?
$72,000
$65,000
$46,000
$72,000
$65,000
$46,000
20. Consider an economy that only produces two goods: eTexts and eText readers. In 2010, 10 eTexts were sold for $20 each and 5 eText readers were sold for $100 each. In 2011, 15 eTexts are sold at a price of $10 each and 10 eText readers were sold at a price of $50 each. Nominal GDP in 2011 is:
$100.
$700.
$500.
21. Real gross domestic product (GDP) per capita:
is an excellent measure of a country's standard of living.
is always equal to nominal GDP per capita.
is not a sufficient measure of human welfare in a country.
is all that economists care about.
22. Real gross domestic product (GDP) is nominal GDP adjusted for:
double counting.
changes in prices.
changes in population.
23. We know with certainty that real gross domestic product (GDP) rises if:
nominal GDP rises.
the output of goods and services rises.
prices rise in the economy.
prices fall in the economy.
24. The calculation of the rate of growth of real gross domestic product (GDP):
depends on which year is used as the base year.
depends how quickly prices are rising.
is always equal to the rate of growth of nominal GDP.
is always more than the rate of growth of nominal GDP.
25. Given the table, what is the value of nominal GDP in year 1 if year 2 is considered the base year?
$72,000
$65,000
$46,000
26. In a study that looks at how rich a country is (as measured by gross domestic product [GDP] per capita) and how its citizens assess their well-being, the findings suggest all of the following EXCEPT:
Richer countries on average a have higher well-being than poor countries.
Money matters less as you become wealthier.
Even if countries achieve a high GDP, they are not all equally successful.
The gain in well-being accelerates as GDP per capita grows, so more satisfaction is realized from a gain in GDP per capita of $30,000 to $35,000 than a gain from $10,000 to $15,000.
27. If an economist wants to compare gross domestic product (GDP) across a number of countries but wants to eliminate the effect of differences in population, the correct GDP measurement to use would be:
real GDP.
nominal GDP.
GDP per capita.
inflation-adjusted GDP.
28. Chain-linking is best described as?
money that banks are required to keep in their vaults to guarantee deposits.
a method for calculating changes in real GDP using an early base year and a late base year.
a measure for the value of intermediate goods.
a method used to convert real to nominal GDP.
29. The best measure of a nation's standard of living is:
real GDP per capita.
nominal GDP.
aggregate GDP.
nominal GDP per capita.
Farmer Ted
American Wheat Company
Big Bread Corporation
Intermediate goods
$0
$40
$110
Wags
30
50
60
Profits
10
20
40
Value of output
40
110
210
Explanation / Answer
1. American Homebuilder Company will be added to the value of GDP. The wood is used in construction of home which means that all the intermediate values have already been included in the value of homes, that is including the value of wood. So American Homebuilder Company is the correct option.
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