Question 1

A dairy buys $50,000 worth of milk and spend $5,000 on cartons and utilities.It sells the cartons of milk to a grocery store for $60,000 that then sells all of the cartons to consumers for $65,000.How much do these actions add to GDP?

Accepted Answer

GDP is calculated based on the final sale to consumers, which is $65,000 in this case.

Question 2

Gross domestic product includes all

Accepted Answer

Gross domestic product (GDP) includes only the value of legal final goods and services produced within a country's borders. Illegal goods and services are not included, as they are not part of the formal economy and are not recorded in any official data. Therefore, choice C is the best option as it includes legal final goods and services but excludes illegal final goods and services.

Question 3

Which of the following transactions is not included in GDP?

Accepted Answer

Only the oranges sold by the farmer to the grocery store are not included in GDP as they are part of intermediate goods which refers to goods and services that are used in the production of final goods and services instead of being sold to the final consumer. The other transactions involve the final sale of goods to households or diners and are included in GDP.

Question 4

Transactions involving items produced in the past,such as the sale of a 5-year-old automobile by a used car dealership or the purchase of an antique rocking chair by a person at a yard sale,are

Accepted Answer

GDP only measures the value of goods and services produced in the current year, therefore transactions involving items produced in the past are not included in current GDP.

Question 5

Suppose there are only two firms in an economy: Cowhide,Inc.produces leather and sells it to Couches,Inc. ,which produces and sells leather furniture.With each $1,000 worth of leather that it buys from Cowhide,Inc. ,Couches,Inc.produces a couch and sells it for $2,600.Neither firm had any inventory at the beginning of 2015.During that year,Cowhide produced enough leather for 25 couches.Couches,Inc.bought 80% of that leather for $20,000 and promised to buy the remaining 20% for $5,000 in 2016.Couches,Inc.produced 20 couches during 2015 and sold each one during that year for $2,600.What was the economy's GDP for 2015?

Accepted Answer

To calculate the GDP, we need to add up the total value of goods and services produced in the economy.
Cowhide produced 25 couches worth of leather, which Couches purchased for $20,000. This counts as Cowhide's contribution to the GDP. 
Couches produced 20 couches and sold them for $2,600 each, totaling $52,000. This counts as Couches' contribution to GDP.
Therefore, the total GDP for 2015 is $20,000 + $52,000 = $57,000. Therefore, the correct answer is (C).

Question 6

An automobile factory in Michigan uses $100,000 worth of parts purchased from foreign countries along with U.S.inputs to produce 30 cars worth $20,000 each.Twenty of these cars are sold and 10 are left in inventory.How much did these actions add to GDP?

Accepted Answer

The answer of An automobile factory in Michigan uses $100,000...

Question 7

A newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter.Based on this information GDP likely

Accepted Answer

When businesses reduce production, it typically leads to a decrease in GDP because GDP measures the total value of goods and services produced. Selling from inventories does not contribute to GDP as it involves goods produced in previous periods.

Question 8

Janet bought flour and used it to bake bread she ate.ABC Bakery bought flour which it used to bake bread that customers purchased.In which case will the flour be counted as a final good?

Accepted Answer

Janet's purchase of flour is considered a final good because she used it for personal consumption. ABC Bakery's purchase is not a final good as it is used to produce bread for sale, making it an intermediate good.

Question 9

In 2014,a farmer grows and sells $3 million worth of corn to Big Flakes Cereal Company.Big Flakes Cereal Company produces $8 million worth of cereal in 2014,with sales to households during the year of $7 million.The unsold $1 million worth of cereal remains in Big Flake Cereal Company's inventory at the end of 2014.The transactions just described contribute how much to GDP for 2014?

Accepted Answer

The GDP contribution is the total value of the cereal produced, which is $8 million, including both sold and unsold inventory.

Question 10

A U.S.-owned car factory in Mexico produces $5 million of cars.$2.5 million of these cars are sold in Mexico and the other $2.5 million are sold in the U.S.In both cases $1 million of the value of the cars was due to U.S-owned equipment located in Mexico and U.S.managers working in Mexico.How much did this production contribute to U.S.GDP?

Accepted Answer

The production contributes $0 to U.S. GDP because GDP measures the value of goods and services produced within a country's borders. Since the production occurred in Mexico, it does not count towards U.S. GDP.

Question 11

A painter pays $500 for paint he uses to repaint a house.He then presents a bill for $1200 that covers his time and expenses to the homeowner.How much do these transactions add to GDP?

Accepted Answer

The transactions only add $1200 to GDP as that is the value of the final goods/services produced (the painter's time and expenses to repaint the house). The $500 spent on paint is considered an intermediate good and is not factored into GDP calculations.

Question 12

Wholesome Wheat Bakery buys $10.00 worth of flour from Mikes' Mill and uses the flour to make bread.Wholesome Wheat sells the bread to the public for $22.00.Taking these two transactions into account,what is the effect on GDP?

Accepted Answer

GDP measures the total value of goods and services produced within a country's borders in a given time period. In this scenario, Wholesome Wheat Bakery purchases $10.00 worth of flour from Mike's Mill, which is considered an intermediate good since it is used to produce another good (bread). Therefore, the purchase of flour from Mike's Mill is not directly included in GDP. However, when Wholesome Wheat Bakery sells the bread to the public for $22.00, the total value of the final good (bread) is added to GDP. Thus, the effect on GDP is an increase of $22.00.

Question 13

Which of the following domestically produced items is not included in GDP?

Accepted Answer

All of the items listed, including a bottle of shampoo, a hairdryer, and a haircut, are included in GDP as they are final goods and services produced domestically.

Question 14

A tire manufacturer produces 400 tires valued at $20 each.Three hundred tires are sold to a tire shop,which then sells them to households for $50 each.The remaining tires are unsold and are added to the tire manufacturer's inventory.How much is added to GDP?

Accepted Answer

The tire manufacturer's production of 400 tires, valued at $20 each, contributes $8,000 to GDP (400 x $20 = $8,000).
When 300 tires are sold by the tire shop to households for $50 each, the value added to GDP is $30,000 (300 x $50 = $30,000), as the tire shop has added value to the tires by selling them to households at a higher price than they purchased them for.
The unsold tires that are added to the tire manufacturer's inventory do not contribute to GDP until they are sold to a final user (such as a household or business). Therefore, they do not add to GDP in this scenario.
Total contribution to GDP = $8,000 + $30,000 = $38,000. 
Thus choice C ($17,000) is the correct answer.

Question 15

Fine Edge manufactures lawn mowers.In 2014 it had $2 million worth of lawn mowers in inventory.In 2015 it sold $10 million worth of lawn mowers to consumers and had $1 million worth of lawn mowers in inventory.How much did the lawn mowers produced by Fine Edge add to GDP in 2015?

Accepted Answer

The GDP contribution is calculated by the value of goods sold plus the change in inventory. Fine Edge sold $10 million worth of lawn mowers and reduced its inventory by $1 million (from $2 million to $1 million), indicating $9 million worth of production contributed to GDP in 2015.

Question 16

Tim mows the yard for his neighbors.He spends $1 on gas and charges them $20 for each lawn he mows.What's the total contribution to GDP each time Tim mows a yard?

Accepted Answer

The total contribution to GDP is the total value of goods and services produced in an economy. In this case, Tim's mowing service is a service produced for his neighbors. Therefore, the value of the service is the amount he charges, which is $20. The cost of gas is not included in the contribution to GDP as it is a cost incurred by Tim and not a service produced for his neighbors. Thus, the total contribution to GDP each time Tim mows a yard is $20.

Question 17

Which of the following transactions would be included in GDP for 2015?

Accepted Answer

GDP includes goods and services produced within a given year. Buying a ticket in 2015 for a service (zoo visit) counts in 2015 GDP, even if the service is consumed later.

Question 18

Jennifer lives in a home that was newly constructed in 2011 for which she paid $240,000.In 2014 she sold the house for $260,000.Which of the following statements is correct regarding the sale of the house?

Accepted Answer

The sale of an existing home does not affect GDP because GDP measures the value of new production within a given year. The house was produced in 2011, so its value was included in the GDP of that year. The resale in 2014 does not contribute to GDP.

Question 19

Which of the following is not included in GDP?

Accepted Answer

All the options listed (a can of bug spray, the services of an exterminator, and honey produced and sold by a beekeeper) are included in GDP as they represent goods and services produced and sold in the economy.

Question 20

Suppose there are only two firms in an economy: Rolling Rawhide produces rawhide and sells it to Chewy Chomp,Inc. ,which uses the rawhide to produce and sell dog chews.With each $1 worth of rawhide that it buys from Rolling Rawhide,Chewy Chomp,Inc.produces a dog chew and sells it for $2.50.Neither firm had any inventory at the beginning of 2014.During that year,Rolling Rawhide produced enough rawhide for 2000 dog chews.Chewy Chomp,Inc.bought 90% of that rawhide for $1800 and promised to buy the remaining 10% for $200 in 2015.Chewy Chomp,Inc.produced 1800 dog chews during 2014 and sold each one during that year for $2.50.What was the economy's GDP for 2014?

Accepted Answer

The GDP can be calculated as the total value of final goods and services produced within an economy in a given period of time. In this case, the only final good is the dog chews produced by Chewy Chomp, Inc. Therefore, the GDP is equal to the revenue generated by Chewy Chomp, Inc. in 2014, which is $2.50 per chew multiplied by the 1800 chews produced, or $4500. The fact that Rolling Rawhide produced rawhide does not contribute to the GDP because rawhide is an intermediate good and is not sold directly to consumers. Therefore, the correct answer is C.

Quiz 10: Measuring a Nations Income: The Measurement of GDP