TUTORIAL 1: MEASURING NATIONAL INCOME

True/False
Indicate whether the statement is true or false.
Mic

F
____ 1. Macroeconomic
X statistics tell us about a particular household, firm, or market.

____ 2. The basic tools of supply and demand are as central to macroeconomic analysis as they are to microeconomic
analysis.
and
T
____ 3. U.S. GDP includes the market value of rental housing, but not the market value of owner-occupied housing.

F
____ 4. U.S. GDP includes estimates of the value of items that are produced and consumed at home, such as
housework and car maintenance.
hang a
T
____ 5. At a rummage sale, you buy two old books and an old rocking chair; your spending on these items is not
included in current GDP.

T
____ 6. If the U.S. government reports that GDP in the third quarter was $12 trillion at an annual rate, then the
amount of income and expenditure during quarter three was $3 trillion.
consumption
F
____ 7. In 2007, government purchase was the largest component of U.S. GDP.

F
____ 8. Nominal GDP uses constant base-year prices to place a value on the economy’s production of goods and
services, while real GDP uses current prices to place a value on the economy’s production of goods and
services.

T
____ 9. If the GDP deflator in 2006 was 160 and the GDP deflator in 2007 was 180, then the inflation rate in 2007

-10 10
was 12.5%. 100%
·

say thoui
T 10. Recessions are associated with lower incomes, rising unemployment, and falling profits.
____

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 11. Which of the following is not a question that macroeconomists address?
a. Why is average income high in some countries while it is low in others?
O
b. Why does the price of oil rise when war erupts in the Middle East?
c. Why do production and employment expand in some years and contract in others?
d. Why do prices rise rapidly in some periods of time while they are more stable in other
periods?

____ 12. Because every transaction has a buyer and a seller,

a. GDP is more closely associated with an economy’s income than it is with an economy’s
expenditure.
O
b. every transaction contributes equally to an economy’s income and to its expenditure.
c. the number of firms must be equal to the number of households in a simple circular-flow
diagram.
d. firms’ profits are necessarily zero in a simple circular-flow diagram.

Aincome -

- expenditure Es [income =
Eexpenditure
____ 13. Which of the following is included in GDP?
a. medical marijuana purchased from a government-run pharmacy by a glaucoma patient
b. recreational marijuana purchased from a drug dealer by a college student
c. recreational marijuana produced and consumed by a man in his attic
d. All of the above are included in GDP.

____ 14. Spots, Inc. produces ink and sells it to Write on Target, which makes pens. The ink produced by Spots, Inc.
is called
a. an inventory good.
b. a transitory good.
c. a preliminary good.
d. an intermediate good.

____ 15. 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 $2 of rawhide that it buys
from Rolling Rawhide, Chewy Chomp, Inc. produces a dog chew and sells it for $5. Neither firm had any
inventory at the beginning of 2007. During that year, Rolling Rawhide produced enough rawhide for 1000
dog chews. Chewy Chomp, Inc. bought 75% of that rawhide for $1500 and promised to buy the remaining
25% for $500 in 2008. Chewy Chomp, Inc. produced 750 dog chews during 2007 and sold each one during
that year for $5. What was the economy's GDP for 2007?
a. $3750
b. $4250
c. $5250
d. $5750

____ 16. The total sales of all firms in the economy for a year
a. equals GDP for the year.
b. is larger than GDP for the year.
c. is smaller than GDP for the year.
d. Any of the above is possible.

____ 17. Which of the following domestically produced items is not included in GDP?
a. a bottle of shampoo
b. a hairdryer
c. a haircut
d. All of the above are included in GDP.

____ 18. Which of the following is included in U.S. GDP?

a. the value of production by an American working in Morocco
b. the value of production by a Moroccan working in the U.S.
c. Both (a) and (b) are correct.
d. Neither (a) nor (b) is correct.
 nationality location income
earnedfromresidents
GND=GPD + NFA

____ 19. Gina, a U.S. citizen, works only in Germany. The value of Gina’s production is included in
a. U.S. GDP and German GDP.
-
b. U.S. GDP and German GNP.
c. U.S. GNP and German GDP.
g
&
d. U.S. GNP and German GNP.

↓ sur gia
____ 20. In the national income accounts, depreciation is called khnhao has min taisan crinh
,
Oa. "consumption of fixed capital." von...
b. "negative investment."
c. "capital taxation."
d. "loss due to wear." mat mat do has mon
that have long
items periods by successive purchases
____ 21. Which of the following is not an example of a durable good? cars , home appliances , furniture, . .

a. a refrigerator
b. an automobile
g
c. a business suit
d. a furnace ↳
LyinKim

____ 22. What word do economists use to refer to the purchase of goods that will be used in the future to produce
more goods and services?
a. capital
b. consumption
O
c. investment
d. costs

____ 23. Which of the following items is the one type of household expenditure that is categorized as investment
rather than consumption?
a. spending on education
b. the purchase of stocks and bonds
Oc. the purchase of a new house use infuture to producee...:
renting , office,..
d. the purchase of durable goods such as stoves and washing machines

____ 24. If net exports is a negative number for a particular year, then
a. the value of firms’ inventories declined over the course of the year.
b. consumption exceeded the sum of investment and government purchases during the year.
c. the value of goods sold to foreigners exceeded the value of foreign goods purchased
during the year.
O
d. the value of foreign goods purchased exceeded the value of goods sold to foreigners
during the year. nhap sieh

eX Y
____ 25. In the economy of Wrexington in 2008, exports were $200, GDP was $2000, government purchases were
$300, imports were $130, and investment was $400. What was Wrexington’s consumption in 2008?
G im I
zu

Y
200
= C
+ + NX
(ex-im)
 a. $970
b. $1230
c. $1370
d. $1630

____ 26. Changes in real GDP reflect

a. only changes in prices.
b. only changes in the amounts being produced.
c. both changes in prices and changes in the amounts being produced.
d. neither changes in prices nor changes in the amounts being produced.

____ 27. If real GDP doubles and the GDP deflator doubles, then nominal GDP
a. remains constant.
b. doubles.
c. triples.
d. quadruples.

____ 28. Suppose an economy’s production consists only of corn and soybeans. In 2005, 20 bushels of corn are sold
at $4 per bushel and 10 bushels of soybeans are sold at $2 per bushel. In 2004, the price of corn was $2 per
bushel and the price of soybeans was $1 per bushel. Using 2004 as the base year, it follows that, for 2005,
a. nominal GDP is $50, real GDP is $100, and the GDP deflator is 50.
b. nominal GDP is $50, real GDP is $100, and the GDP deflator is 200.
c. nominal GDP is $100, real GDP is $50, and the GDP deflator is 50.
d. nominal GDP is $100, real GDP is $50, and the GDP deflator is 200.

Table 23-5

The table below contains data for the country of Batterland, which produces only waffles and pancakes. The
base year is 2006.

Year Price Quantity Price Quantity

of of of of
Waffles Waffles Pancakes Pancakes
2005 $2 100 $1 100
2006 $2 120 $2 150
2007 $3 150 $3 200
2008 $4 180 $3 220

____ 29. Refer to Table 23-5. In 2008, Batterland’s real GDP was
a. $540.
b. $800.
c. $930.
d. $1380.
____ 30. Suppose that twenty-five years ago a country had nominal GDP of $1,000, a GDP deflator of 200, and a
population of 100. Today it has nominal GDP of $3,000, a GDP deflator of 400, and population of 150.
What happened to the real GDP per person?
a. It more than doubled.
b. It increased, but it less than doubled.
c. It was unchanged.
d. It decreased.

Short Answer

31. 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.