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Measuring Economy's Performance: GDP, National Income, and More

Learn about the principles behind measuring the economy's performance, including GDP, national income accounting, and the circular flow of income. Discover the relationship between nominal and real GDP, and the challenges of using foreign exchange rates.

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Measuring Economy's Performance: GDP, National Income, and More

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  1. Chapter 8: Measuring the Economy's Performance

  2. The observation that goods and services flow in one direction and money payments flow in another direction is the principle behind • the double coincidence of wants. • a barter economy. • a pure command economy. • the circular flow of income.

  3. Which of the following statements is FALSE? • One definition of total income is that it is the annual cost of producing the entire output of final goods and services. • Transactions in which households buy final goods and services occur in the factor market. • The value of total output is identical to total income. • Saving is the difference between consumer income and expenditures.

  4. The approach used in the United States to measure the economy's aggregate performance is • national income accounting. • to add up the value of intermediate goods. • the total value of securities. • to add up the total value of financial transactions, transfer payments, and secondhand goods. • all of the above

  5. Gross Domestic Product measures • the total value of labor used in the economy. • the total market value of final goods and services produced within a nation's borders. • the total income received by residents of a nation. • the total worth of all goods consumed within the borders of a nation.

  6. Which of the following is included in gross private domestic investment?I. The purchase of new capital goodsII. An increase in business inventories • I only • II only • both I and II • neither I nor II

  7. Depreciation is • added to Gross Domestic Product (GDP) to reach Net Domestic Product (NDP). • the reduction in the value of capital goods due to physical wear and tear. • not included in Gross Domestic Product (GDP) from the income side. • always higher than the capital consumption allowance.

  8. Because of improved productivity, wages increase 10 percent. As a result, gross domestic income increases. What happens to Gross Domestic Product? • Gross Domestic Product also increases since consumption expenditures would increase. • Gross Domestic Product decreases as people pay more taxes on their higher incomes. • Gross Domestic Product would not change since consumption expenditures would rise but investment spending would fall. • Gross Domestic Product would decrease because businesses are spending more on wages.

  9. If Net Domestic Product (NDP) is $50 less than Gross Domestic Product (GDP), we know that • inventories increased over the year. • inventories decreased over the year. • net investment equals $50. • depreciation equals $50.

  10. If consumption expenditures are $500, spending on fixed investment is $100, imports are $40, exports are $75, the capital consumption allowance is $25, government spending is $50, and inventories have fallen by $5, then Gross Domestic Product (GDP) is • $25 greater than NDP. • $20 greater than NDP. • $50 greater than NDP. • the same as NDP.

  11. National income is equal to • Gross Domestic Product (GDP) plus depreciation and indirect business taxes. • the sum of all factor payments to resource owners. • Gross Domestic Product (GDP) minus indirect business taxes. • Gross Domestic Product (GDP) minus NDP.

  12. Personal income is equal to • NDP minus national income. • disposable personal income plus personal income taxes. • disposable personal income plus personal and corporate income taxes. • national income minus (corporate income taxes and Social Security).

  13. Income received by the factors of production is called • gross domestic income. • disposable personal income. • personal income. • national income.

  14. When economists discuss the nominal value of an economic variable, the variable is • expressed in current dollars. • expressed as an index figure. • adjusted for a changing price level. • expressed as a percentage.

  15. If nominal Gross Domestic Product (GDP) in 2011 was $3,000 billion, and the price level index was 330 (2005 = 100), then real Gross Domestic Product (GDP) in terms of the price level in 2011 was about • $105 billion. • $4,220 billion. • $909 billion. • $537 billion.

  16. If Gross Domestic Product (GDP) and other national income accounts are expressed in nominal values, then they are • measured in real values. • measured in market prices at which goods actually sold. • measured in constant prices instead of actual market prices. • readily comparable to Gross Domestic Product (GDP) figures for other years.

  17. If deflation is occurring and nominal Gross Domestic Product (GDP) is increasing over time, then real Gross Domestic Product (GDP) is • decreasing. • increasing at the same rate as nominal Gross Domestic Product (GDP). • increasing more slowly than nominal Gross Domestic Product (GDP). • increasing faster than nominal Gross Domestic Product (GDP).

  18. The problem with using foreign exchange rates to convert one country's GDP into dollars is that • the values of currencies are not comparable. • exchange rates do not reflect differences in inflation rates. • not all goods and services are sold on world markets. • the dollar has been losing value over the last twenty years.

  19. How many U.S. dollars does a U.S. importer need to pay for an invoice of 1 million yen when the price of 1 yen is $0.006? • $1,666 million • $1.66 million • $166.7 • $6,000

  20. Suppose you know that a certain country with a growing population has experienced steady growth in real per capita GDP. What do you then also know to be true? • The distribution of income in this country has become relatively more equal. • The growth in goods and services produced and exchanged in the marketplace has outpaced the growth in population. • This country exports more than it imports. • This country imports more than it exports.

  21. The most meaningful way to compare per capita Gross Domestic Product (GDP) across countries is to • use foreign exchange rates to convert each country's per capita Gross Domestic Product (GDP) into dollars and then compare. • first adjust each country's per capita Gross Domestic Product (GDP) to exclude all the goods and services that are not exchanged with other countries. • assume that the cost of living in each country is the same as the U.S. cost of living. • first use purchasing power parity to factor in each country's true cost of living.

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