Question 1

If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the country's capital stock

Accepted Answer

Net investment is the addition to the capital stock, so if gross investment was $120 billion and net investment was $65 billion, the capital stock increased by $65 billion.

Question 2

In 1933, net private domestic investment was a minus $6.0 billion. This means that

Accepted Answer

A negative net private domestic investment means that the amount of capital goods (investment) used up in the production of GDP exceeded the amount produced that year. This can happen in a recession or economic downturn where businesses are not investing in new capital goods. Therefore, option C is the correct answer.

Question 3

Assume that a manufacturer of stereo speakers purchases $40 worth of components for each speaker. The completed speaker sells for $70. The value added by the manufacturer for each
Speaker is

Accepted Answer

Value added by the manufacturer = Selling price - Cost of components
= $70 - $40
= $30

Question 4

If depreciation exceeds gross investment,

Accepted Answer

If depreciation exceeds gross investment, it means that the value of the economy's capital stock is decreasing. This is because the amount of capital that is being removed (through depreciation) is greater than the amount of new capital being added (through investment). Therefore, the economy's stock of capital is shrinking.

Question 5

Value added refers to

Accepted Answer

Value added refers to the difference between the value of a firm's output and the value of the inputs it has purchased. It represents the contribution made by a firm to the final value of the product or service being sold. This value added is used to calculate GDP at the national level.

Question 6

Setup Corporation buys $100,000 of sand, rock, and cement to produce ready-mix concrete. It sells 10,000 cubic yards of concrete at $30 a cubic yard. The value added by Setup Corporation is

Accepted Answer

The value added by Setup Corporation is the difference between the selling price of the 10,000 cubic yards of concrete and the cost of the sand, rock, and cement used to produce it.

10,000 cubic yards x $30/cubic yard = $300,000 in revenue

The cost of the sand, rock, and cement is not given, but it is assumed to be less than the revenue generated from selling the concrete. Therefore, the value added by Setup Corporation is $300,000 in revenue minus the cost of the materials, which is less than $300,000. The only answer choice that reflects this is C.

Question 7

An economy is enlarging its stock of capital goods

Accepted Answer

Enlarging the stock of capital goods requires that the level of gross investment, which is the amount of investment made in a period, exceed the level of depreciation, which is the amount of wear and tear on existing capital goods. Therefore, choice B is the correct answer as it states that an economy is enlarging its stock of capital goods when gross investment exceeds depreciation.

Question 8

GDP can be calculated by summing

Accepted Answer

GDP is calculated by summing up the value of personal consumption, investment, government purchases, and net exports. Net exports are the difference between a country's exports and imports. Therefore, option B is the correct answer.

Question 9

In national income accounting, the personal consumption expenditures category includes purchases of

Accepted Answer

Personal consumption expenditures include spending on goods and services by resident households and nonprofit institutions serving households. This category includes automobiles for personal use but excludes housing purchases, as buying a house is considered an investment rather than consumption. Consumer goods, both durable and nondurable, as well as services, are included in personal consumption expenditures.

Question 10

Which of the following is not economic investment?

Accepted Answer

Economic investment refers to the purchase of goods that are used to produce other goods and services within a certain period. The purchase of 100 shares of AT&T by a retired business executive is a financial investment, not an economic investment, as it does not directly contribute to the production of goods and services.

Question 11

Which of the following do national income accountants consider to be investment?

Accepted Answer

The purchase of a new house is considered an investment in national income accounts because it contributes to the country's overall capital stock. Investments in this context refer to expenditures on goods used to produce other goods and services in the future. Purchases of personal items, financial instruments like bonds, or commodities such as gold coins do not fall under this category.

Question 12

Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment
Economy C: gross investment exceeds depreciation
Based on this information, positive net investment is occurring in

Accepted Answer

Net investment is calculated by subtracting depreciation from gross investment. In economy A, gross investment is equal to depreciation, resulting in zero net investment. In economy B, depreciation exceeds gross investment, resulting in negative net investment. However, in economy C, gross investment exceeds depreciation, resulting in positive net investment. Therefore, the only economy experiencing positive net investment is economy C.

Question 13

Net exports are negative when

Accepted Answer

Net exports are calculated as exports minus imports. Therefore, if a nation's imports exceed its exports, the result is a negative net export value.

Question 14

Value added can be determined by

Accepted Answer

Value added is the increase in the value of a product at each stage of production. To determine value added, we need to subtract the value of intermediate goods from the value of final goods. Option A is incorrect because it only considers profits and not the value added by the production process. Option C is incorrect because it only considers the change in output over time and not the value added. Option D is incorrect because deflating nominal GDP helps to adjust for inflation but does not directly determine the value added.

Question 15

Economy A: gross investment equals depreciation 
Economy B: depreciation exceeds gross investment
Economy C: gross investment exceeds depreciation
Other things equal, the information suggests that the production capacity in economy

Accepted Answer

In Economy C, where gross investment exceeds depreciation, the production capacity is increasing because new investments are not only replacing depreciated assets but also adding to the existing capital stock. In contrast, in Economy B, where depreciation exceeds gross investment, the production capacity is likely decreasing because not all depreciated assets are being replaced, leading to a net reduction in capital stock. Economy A, where gross investment equals depreciation, maintains its production capacity but does not grow. Therefore, Economy C is growing more rapidly than Economy B in terms of production capacity.

Question 16

In national income accounting, the personal consumption expenditures category includes purchases of

Accepted Answer

Personal consumption expenditures category includes purchases of consumer durable goods, consumer nondurable goods, and services. This means that it includes all types of consumer spending regardless of whether it is for new or used goods. It does not include changes in business inventories, which are included in a separate category.

Question 17

When an economy's production capacity is expanding,

Accepted Answer

When an economy's production capacity is expanding, the amount of gross domestic investment is exceeding the amount of depreciation, indicating that the economy is investing more in its capital stock and experiencing positive economic growth. Therefore, D is the correct choice. A, B, and C are incorrect because they do not necessarily indicate economic growth.

Question 18

The concept of net domestic investment refers to

Accepted Answer

Net domestic investment refers to the total amount of investment made in a specific year less the amount of investment goods used up in producing the year's output. It is a measure of the increase in the country's capital stock. Choice A refers to depreciation, choice B refers to the difference between two accounting measures, and choice C includes the impact of trade.

Question 19

If depreciation (consumption of ﬁxed capital) exceeds gross domestic investment, we can conclude that

Accepted Answer

Gross domestic investment refers to the total amount spent on capital goods within an economy in a particular period, while depreciation refers to the decrease in value of those same capital goods due to wear and tear. If depreciation exceeds gross domestic investment, then the economy is not investing enough to replace its worn-out capital stock, resulting in a decrease in the economy's production capacity. This means that net investment is negative.

Question 20

Net exports are

Accepted Answer

Net exports are calculated by subtracting total imports from total exports. Therefore, option C - exports less imports - is the correct answer.

Quiz 7: Measuring Domestic Output and National Income

If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the country's capital stock

In 1933, net private domestic investment was a minus $6.0 billion. This means that

Assume that a manufacturer of stereo speakers purchases $40 worth of components for each speaker. The completed speaker sells for $70. The value added by the manufacturer for each Speaker is

If depreciation exceeds gross investment,

Value added refers to

Setup Corporation buys $100,000 of sand, rock, and cement to produce ready-mix concrete. It sells 10,000 cubic yards of concrete at $30 a cubic yard. The value added by Setup Corporation is

An economy is enlarging its stock of capital goods

GDP can be calculated by summing

In national income accounting, the personal consumption expenditures category includes purchases of

Which of the following is not economic investment?

Which of the following do national income accountants consider to be investment?

Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Based on this information, positive net investment is occurring in

Net exports are negative when

Value added can be determined by

Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Other things equal, the information suggests that the production capacity in economy

In national income accounting, the personal consumption expenditures category includes purchases of

When an economy's production capacity is expanding,

The concept of net domestic investment refers to

If depreciation (consumption of ﬁxed capital) exceeds gross domestic investment, we can conclude that

Net exports are