Chapter 23 Study Guide

Multiple Choice
1. For an economy as a whole,

2. GDP is defined as
 * a. wages must equal profit.
 * b. consumption must equal saving.
 * c. income must equal expenditure.
 * d. the number of buyers must equal the number of sellers.
 * e. investment must equal consumption.
 * a. the market value of all goods and services produced within a country in a given period of time.
 * b. the market value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.


 * c. the market value of all final goods and services produced within a country in a given period of time.


 * d. the market value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.

3. If the price of a DVD player is three times the price of a CD player, then a DVD player contributes
 * e. the quantity of all final goods and services produced within a country in a given period of time.
 * a. more than three times as much to GDP as does a CD player.
 * b. less than three times as much to GDP as does a CD player.
 * c. exactly three times as much to GDP as does a CD player.
 * d. to GDP but a CD player does not contribute to GDP.

4. Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has
 * e. the same amount to GDP as the CD player because their values are adjusted.
 * a. reduced measured GDP.


 * b. not affected measured GDP.


 * c. increased measured GDP only to the extent that the value of the restaurant meals exceeded the value of meals previously cooked at home.


 * d. increased measured GDP by the full value of the restaurant meals.

5. Spots, Inc., produces ink and sells it to Write on Target, which makes pens. The ink produced by Spots, Inc., is
 * e. increased measured real GDP by the full value of the restaurant meals but not nominal GDP.
 * a. an inventory good and increases GDP.


 * b. an inventory good and decreases GDP.


 * c. an intermediate good and decreases GDP.


 * d. an intermediate good and increases GDP.

6. What would be the effect on GDP if a car produced in 2008 is sold in 2009?
 * e. an intermediate good and does not change GDP.
 * a. GDP in 2009 would increase by the price of the car.


 * b. Consumption would increase in 2009, investment would decrease in 2009 by the same amount, and GDP would be unaffected.


 * c. GDP would increase in 2008 and would decrease in 2009 by the same amount.


 * d. GDP would decrease in 2008 and would increase in 2009 by the same amount.

7. U.S. GDP and U.S. GNP are related as follows:
 * e. GDP in 2008 would be unaffected as the car was not sold.


 * a. GNP = GDP + Value of exported goods - Value of imported goods.


 * b. GNP = GDP - Value of exported goods + Value of imported goods.


 * c. GNP = GDP + Income earned by foreigners in the U.S. - Income earned by U.S. citizens abroad.


 * d. GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad.

8. For the purpose of calculating GDP, investment is spending on
 * e. GNP = GDP.
 * a. stocks, bonds, and other financial assets.


 * b. real estate and financial assets such as stocks and bonds.


 * c. capital equipment, inventories, and structures, including household purchases of new housing.


 * d. capital equipment, inventories, and structures, excluding household purchases of new housing.

9. A transfer payment is
 * e. capital equipment, structures, including household purchases of new housing, but not inventory accumulation.
 * a. a payment for moving expenses a worker receives when he or she is transferred by an employer to a new location and therefore included in GDP.


 * b. a payment that is automatically transferred from your bank account to pay a bill or some other obligation and therefore included in GDP.


 * c. a form of government spending that is not made in exchange for a currently produced good or service and therefore not included in GDP.


 * d. a form of government spending that is not made in exchange for a currently produced good or service but is still included in GDP.

10. Net exports equal 11. If nominal GDP doubles and the GDP deflator doubles, then real GDP 12. Suppose the government eliminates all environmental regulations and, as a result, the production of goods and services increases, but there is considerably more pollution. Based on this scenario, which of the following statements is correct?
 * e. the benefit that a person receives from an expenditure by government minus the taxes that were collected by government to fund that expenditure and therefore not included in GDP.
 * a. exports plus imports.
 * b. exports minus imports.
 * c. imports minus exports.
 * d. GDP minus imports.
 * e. GDP minus GNP.
 * a. remains constant.
 * b. doubles.
 * c. triples.
 * d. quadruples.
 * e. is cut in half.


 * a. GDP would definitely increase, despite the fact that GDP includes environmental quality.


 * b. GDP would definitely decrease because GDP includes environmental quality.


 * c. GDP would definitely increase because GDP excludes environmental quality.


 * d. GDP could either increase or decrease because GDP excludes environmental quality.


 * e. Nominal GDP would increase but real GDP would remain unchanged.

Answers

 * C
 * C
 * C
 * D
 * E
 * B
 * D
 * C
 * C
 * B
 * A
 * C

Free Response
1. GDP is defined as the market value of all final goods and services produced within a country in a given period of time. In spite of this definition, some production is left out of GDP. Explain why some final goods and services are not included.

2. Identify the immediate effect of each of the following events on U.S. GDP and its components.
 * a. James receives a Social Security check.
 * b. John buys an Italian sports car.
 * c. Henry buys domestically produced tools for his construction company.