# Econ 2020 Chapter 7

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### National income accountants can avoid multiple counting by:

only counting final goods.

economy C only.

### Consumption of fixed capital (depreciation) can be determined by:

subtracting NDP from GDP.

### (Consider This) When making a capital stock and reservoir analogy, the:

inflow from the river is gross investment.

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

C is growing more rapidly than economy B.

### Suppose a nation's 2010 nominal GDP was \$972 billion and the general price index was 90. To make the 2010 GDP comparable with the base year GDP, the 2010 GDP must be:

inflated to \$1080 billion

### Assume that the size of the underground economy increases both absolutely and relatively over time. As a result:

GDP will tend to increasingly understate the level of output through time.

national income.

300.

### The concept of net domestic investment refers to:

total investment less the amount of investment goods used up in producing the year's output.

### Suppose the total monetary value of all final goods and services produced in a particular country in 2010 is \$500 billion and the total monetary value of final goods and services sold is \$450 billion. We can conclude that:

GDP in 2010 is \$500 billion.

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

increased by \$65 billion.

none of these.

### The ZZZ Corporation issued \$25 million in new common stock in 2008. It used \$18 million of the proceeds to replace obsolete equipment in its factory and \$7 million to repay bank loans. As a result, investment:

of \$18 million has occurred.

False

### Which of the following transactions would be included in GDP?

Peter buys a newly constructed house.

### Real GDP refers to:

GDP data that have been adjusted for changes in the price level.

### If nominal GDP rises:

real GDP may either rise or fall.

### In the treatment of U.S. exports and imports, national income accountants:

add exports, but subtract imports, in calculating GDP.

### In comparing GDP data over a period of years, a difference between nominal and real GDP may arise because:

the price level may change over time.

### In comparing GDP data over a period of years, a difference between nominal and real GDP may arise because:

the price level may change over time.

### If net foreign factor income is zero and there are no statistical discrepancies, the sum of national income and the consumption of fixed capital equals:

gross domestic product.

### The amount of after-tax income received by households is measured by:

disposable income.

### The GDP tends to:

understate economic welfare because it does not take into account increases in leisure.

### Suppose that inventories were \$80 billion in 2007 and \$70 billion in 2008. In 2008, accountants would:

subtract \$10 billion from other elements of investments in calculating total investment.

### Assume that in 2002 the nominal GDP was \$350 billion and in 2003 it was \$375 billion. On the basis of this information we:

cannot make a meaningful comparison of the economy's performance in 2002 relative to 2003.

\$190 billion.

### In a typical year, which of the following measures of aggregate output and income is likely to be the smallest?

disposable income

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

the purchase of a new house

### Suppose a nation's 2010 nominal GDP was \$972 billion and the general price index was 90. To make the 2010 GDP comparable with the base year GDP, the 2010 GDP must be:

inflated to \$1080 billion.

GDP price index.

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

net investment is negative.

### Consumption of fixed capital (depreciation) can be determined by:

subtracting NDP from GDP.

300.

### In 2007, Trailblazer Bicycle Company produced a mountain bike that was delivered to a retail outlet in November of 2007. The bicycle was sold to E.Z. Ryder in March of 2008. This bicycle is counted as:

investment in 2007 and as negative investment in 2008.

### The value added of a firm is the market value of:

a firm's output less the value of the inputs bought from others.

\$200,000.

### In the treatment of U.S. exports and imports, national income accountants:

add exports, but subtract imports, in calculating GDP.

### Suppose the total monetary value of all final goods and services produced in a particular country in 2010 is \$500 billion and the total monetary value of final goods and services sold is \$450 billion. We can conclude that:

GDP in 2010 is \$500 billion.

### The ZZZ Corporation issued \$25 million in new common stock in 2008. It used \$18 million of the proceeds to replace obsolete equipment in its factory and \$7 million to repay bank loans. As a result, investment:

of \$18 million has occurred.

### (Last Word) Which of the following is a source of data for the consumption component of the U.S. GDP?

the Census Bureau's Retail Trade Survey

FALSE

### The GDP tends to:

understate economic welfare because it does not take into account increases in leisure.

PI.

### In national income accounting, government purchases include:

purchases by Federal, state, and local governments.

### If net foreign factor income is zero and there are no statistical discrepancies, the sum of national income and the consumption of fixed capital equals:

gross domestic product.

### In an economy experiencing a persistently falling price level:

changes in nominal GDP understate changes in real GDP.

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

the production of 1933's GDP used up more capital goods than were produced in that year.

### (Consider This) Capital is a:

stock, whereas gross investment and depreciation are flows.

the difference between the value of a firm's output and the value of the inputs it has purchased from others.

### Which of the following is a final good or service?

a haircut purchased by a father for his 12 year-old son

### Gross domestic product (GDP) measures and reports output:

in dollar amounts.

True

### In an economy experiencing a persistently falling price level:

changes in nominal GDP understate changes in real GDP.

### Nominal GDP is:

the sum of all monetary transactions involving final goods and services that occur in the economy in a year.

### The growth of GDP may understate changes in the economy's economic well-being over time if the:

quality of products and services improves.

### The system that measures the economy's overall performance is formally known as:

National income accounting

### Transfer payments are:

excluded when calculating GDP because they do not reflect current production.

### A price index is:

a comparison of the current price of a market basket to a fixed point of reference.

TRUE

FALSE

### The value of U.S. imports is:

subtracted from exports when calculating GDP because imports do not constitute production in the United States.

### Real GDP is:

the nominal value of all goods and services produced in the domestic economy corrected for inflation or deflation.

### the nominal value of all goods and services produced in the domestic economy corrected for inflation or deflation.

gross domestic product.

### In national income accounting, consumption expenditures include purchases of:

automobiles for personal use, but not houses.

consumption.

not counted.

Example: