Question 1

To calculate GDP using the value-added method,one would add up

Accepted Answer

The value-added method involves calculating GDP by adding up the value added by each firm involved in the production of final goods and services. This means that only the value added at each stage of production is counted, not the entire market value of final goods and services produced. Intermediate goods and services are included in the calculation, but only the value added at each stage is counted. The underground economy is not included in the calculation, as it is not a legitimate part of the economy.

Question 2

Which component of consumption spending is the greatest in a typical economy?

Accepted Answer

Services are typically the largest component of consumption spending in a typical economy, accounting for approximately two-thirds of all personal consumption expenditures. This includes things like healthcare, education, and transportation services, as well as personal services like haircuts and dry cleaning. Durable goods (such as cars and appliances) and nondurable goods (such as food and clothing) make up the remaining one-third of consumption spending. New housing is not considered part of consumption spending, but rather part of investment spending.

Question 3

The circular flow diagram shows that

Accepted Answer

The circular flow diagram illustrates the flow of money and goods/services between households and firms in an economy. In the diagram, households supply factors of production (such as labor) to firms, which use those factors to produce goods and services. In exchange for these factors, households receive income in the form of wages, rent, interest, and profits. The household then uses some of their income to purchase goods and services from the firms, which completes the circular flow.

Since the diagram is a closed system, the total value of income earned by households must be equal to the total value of expenditures on final goods and services made by households. Therefore, choice A is correct. Choice B is incorrect because households do not receive transfer payments from firms, but rather from the government. Choice C is also incorrect because households may choose to save some of their income rather than spending it all on goods and services. Choice D is incorrect because GDP is defined as the total value of final goods and services produced in an economy, which is equivalent to the total value of expenditures on those goods and services.

Question 4

The largest component of spending in GDP is

Accepted Answer

Consumption spending is the largest component of spending in GDP, accounting for around two-thirds of GDP in most countries. This includes spending on goods and services by households, such as food, clothing, housing, and transportation. Investment spending, government spending, and net export spending make up the remaining one-third of GDP.

Question 5

In a small economy,consumption spending in 2012 is $6,000,government spending is $1,200,gross investment is $1,500,exports are $2,000,and imports are $1,000.What is gross domestic product in 2012?

Accepted Answer

GDP = C + G + I + (X - M) = 6000 + 1200 + 1500 + (2000 - 1000) = 9700

Question 6

Which of the following would result in GDP for an economy equal to $10 trillion?

Accepted Answer

The answer of Which of the following would result in...

Question 7

Export growth in Canada will help increase Canadian GDP because

Accepted Answer

An increase in exports will increase net exports, assuming no change in imports. This leads to an increase in Canadian GDP, as net exports are a component of GDP calculation.

Question 8

Consumption spending is $4.5 billion,gross private domestic investment is $3 billion,and government expenditures are $2 billion.If GDP is $14 billion,which of the following could be true regarding exports and imports in the economy?

Accepted Answer

The answer of Consumption spending is $4.5 billion,gross private domestic...

Question 9

The change in consumption as a percentage of GDP in the United States from the mid-1980s to the early 2000s was due in part to households

Accepted Answer

The change in consumption as a percentage of GDP in the United States from the mid-1980s to the early 2000s was due in part to households reducing saving and increasing borrowing. This shift towards greater consumption was driven by factors such as rising levels of household debt, increasing access to credit, and a cultural shift towards greater consumerism.

Question 10

Total income in an economy is equal to

Accepted Answer

Total income in an economy is the sum of wages, interest, rent, and profit. This is because these are the main sources of income for households and firms in an economy. GDP minus net exports (A) gives an aggregate measure of production but does not represent total income as it does not include income earned from abroad or income earned by foreigners in the domestic economy. Income minus taxes (B) is only a measure of disposable income and not total income as it excludes government transfers and does not account for income earned by firms. Firm revenues (D) do not represent total income as they do not account for expenses and do not differentiate between different sources of income such as wages and profits.

Question 11

Which of the following would not be included in the expenditure category called investment expenditures?

Accepted Answer

Investment expenditures in economic terms refer to spending on capital goods, not financial investments like stocks. Purchases of shares of preferred stock are financial transactions and do not count as investment in the context of GDP calculations.

Question 12

Assuming that the United States is the domestic economy,________ are goods and services produced by ________ and purchased by ________.

Accepted Answer

Imports are goods and services produced by foreign countries and purchased by the United States.

Question 13

Which of the following equations correctly measures GDP in an economy?

Accepted Answer

GDP (Gross Domestic Product) is calculated as the sum of consumption (C), investment (I), government spending (G), and net exports (NX), which is exports (X) minus imports (M). Therefore, the correct formula is GDP = C + I + G + NX.

Question 14

Between 2011 and 2012,if an economy's exports rise by $8 billion and its imports fall by $8 billion,by how much will GDP change between the two years,all else equal?

Accepted Answer

Net exports are calculated by subtracting imports from exports. In this case, exports have increased by $8 billion while imports have decreased by the same amount, resulting in a net export increase of $16 billion ($8 billion - (-$8 billion)). According to the formula of GDP= C + I + G + (X-M), an increase in net exports increases GDP, so the answer is C.

Question 15

Government spending ________ is included in gross domestic product.

Accepted Answer

Gross domestic product (GDP) includes government spending at all levels - federal, state, and local. This includes spending on goods and services such as infrastructure, healthcare, education, and defense. Therefore options B, C, and D are not accurate.

Question 16

Which of the following would increase gross private domestic investment in an economy?

Accepted Answer

Gross private domestic investment includes business investments in equipment and structures, residential construction, and changes in business inventories. An increase in Apple's inventory directly contributes to this measure, reflecting higher investment levels. Choices A and B do not directly affect gross private domestic investment as they involve stock ownership and employment, respectively, rather than investment in physical assets. Choice D involves government spending, not private investment.

Question 17

Caroline is an artist.She purchases canvas,paints,brushes,and accessories for $75.She sells one of her original paintings to an art gallery for $1,500,even though an art lover would pay $4,500 for that painting.How much value does Caroline add?

Accepted Answer

Caroline adds value by creating an original painting that can sell for $4,500. By selling it to the art gallery for $1,500, she still adds value of $1,500-$75 (cost of materials)=$1,425.

Question 18

In a small economy,gross investment in 2012 is $1,500,consumption spending is $6,000,net investment is $200,government spending is $1,500,exports are $2,000 and imports are $1,000.What is GDP for this economy in 2012?

Accepted Answer

The answer of In a small economy,gross investment in 2012...

Question 19

Through the mid-1980s,consumption in the United States was ________ of GDP,and by the early 2000s,consumption was ________ of GDP.

Accepted Answer

In the mid-1980s, consumption in the United States was less than 65 percent of GDP, and by the early 2000s, it had risen to approximately 70 percent of GDP.

Question 20

Table 19-1
 
-Refer to Table 19-1.Consider the table of production and price statistics for a small economy in 2011.If the economy only produces the four goods listed below,what is GDP for 2011?

Accepted Answer

GDP is the sum of the market values of all goods and services produced in an economy in a given year. Using the production and price statistics in the table, we can calculate the value of each good by multiplying the quantity produced by the price, and then sum these values to get GDP.

GDP = (50 x $4,000) + (100 x $1,500) + (30 x $8,000) + (10 x $2,000) 
GDP = $200,000 + $150,000 + $240,000 + $20,000 
GDP = $610,000

Therefore, the correct choice is A) $428,000, which is the closest to the calculated GDP of $610,000.

Quiz 8: Gdp: Measuring Total Production and Income