Name: 
 

Chapter 23


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

 1. 
For an economy as a whole, income equals expenditure because the income of the seller must be equal to the expenditure of the buyer.
 

 2. 
The production of an apple contributes more to GDP than the production of a gold
ring because food is necessary for life itself.
 

 3. 
If a timber yard sells €1,000 of timber to a carpenter and the carpenter uses the timber to build a garage which he sells for €5,000, the contribution to GDP is €6,000.
 

 4. 
A country with a larger GDP per person generally has a greater standard of living or quality of life than a country with a smaller GDP per person.
 

 5. 
If nominal GDP in 2012 exceeds nominal GDP in 2011, real output must have risen.
 

 6. 
If UK GDP exceeds UK GNP, then foreigners produce more in the UK than UK citizens produce in the rest of the world.
 

 7. 
Wages are an example of a transfer payment because there is a transfer of payment from the firm to the worker.
 

 8. 
In the UK, investment is the largest component of GDP.
 

 9. 
Nominal GDP employs current prices to value output while real GDP employs constant base-year prices to value output.
 

 10. 
A new car produced in 2011, but first sold in 2012, should be counted in 2012 GDP because that is when it was first sold as a final good.
 

 11. 
When the city council of Southampton purchases a new school building, the investment component of GDP increases.
 

 12. 
A recession occurs when real GDP declines for two successive quarters in a row.
 

 13. 
Depreciation is the value of the wear and tear on the economy's equipment and structures.
 

 14. 
Cigarettes should be valued in GDP at €7.50 per pack even though €5.00 of that price is tax because the buyers paid €7.50 per pack.
 

 15. 
Net National Product (NNP) always exceeds a nation's total income because of depreciation and taxes.
 

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

 16. 
An example of a transfer payment is
a.
profit.
b.
rent.
c.
unemployment benefits.
d.
government purchases.
e.
wages.
 

 17. 
The value of plant and equipment worn out in the process of manufacturing goods and services is measured by
a.
intermediate production.
b.
Net National Product.
c.
investment.
d.
depreciation.
e.
consumption.
 

 18. 
Which of the following would be excluded from UK GDP for 2011? The sale of
a.
a haircut.
b.
the value of a lawyer’s services.
c.
a 2011 Honda made in Swindon.
d.
a loaf of bread
e.
a home built in 2010 and first sold in 2011.
 

 19. 
Gross Domestic Product can be measured as the sum of
a.
final goods and services, intermediate goods, transfer payments, and rent.
b.
consumption, investment, government purchases, and net exports.
c.
consumption, transfer payments, wages, and profits.
d.
Net National Product, Gross National Product, and disposable personal income.
e.
investment, wages, profits, and intermediate production.
 

 20. 
UK Gross Domestic Product (in contrast to Gross National Product) measures the production and income of
a.
British-owned firms no matter where they are located in the world.
b.
none of these answers.
c.
the domestic service sector only.
d.
people and factories located within the borders of the UK.
e.
the domestic manufacturing sector only.
 

 21. 
Gross Domestic Product is the sum of the market value of
a.
intermediate goods.
b.
final goods and services.
c.
manufactured goods.
d.
inferior goods and services.
e.
normal goods and services.
 

 22. 
If nominal GDP in 2012 exceeds nominal GDP in 2011, then the production of output
a.
must have fallen.
b.
must have risen.
c.
must have stayed the same.
d.
may have risen, fallen, or stayed the same because there is not enough information to determine what happened to real output.
 

 23. 
If a cobbler buys leather for €100 and thread for €50 and uses them to produce and sell €500 worth of shoes to consumers, the contribution to GDP is
a.
€50.
b.
€100.
c.
€650.
d.
€500.
e.
€600.
 

 24. 
GDP would include which of the following?
a.
the value of taking a day off from work
b.
consulting services
c.
intermediate sales
d.
illegal drug sales
e.
housework
 

 25. 
Real GDP is measured in ________ prices while nominal GDP is measured in ________ prices.
a.
foreign; domestic
b.
current year; base year
c.
domestic; foreign
d.
base year; current year
e.
intermediate; final
 

 26. 
The following table contains information about an economy that produces only pens and books. The base year is 2009.
Refer to Figure 23-1. What is the value of real GDP for 2010?

Figure 23-1
Year
Price of pens
Quantity of pens
Price of books
Quantity of books
2009
€3
100
€10
50
2010
3
120
12
70
2011
4
120
14
70
a.
€800
b.
€1,060
c.
€1140
d.
€1,200
e.
€1,460
 

 27. 
The following table contains information about an economy that produces only pens and books. The base year is 2009.

Figure 23-1
Year
Price of pens
Quantity of pens
Price of books
Quantity of books
2009
€3
100
€10
50
2010
3
120
12
70
2011
4
120
14
70
    
    
Refer to Figure 23-1. What is the value of the GDP deflator in 2010?
a.
100
b.
113
c.
116
d.
119
e.
138
 

 28. 
The following table contains information about an economy that produces only pens and books. The base year is 2009.

Figure 23-1
Year
Price of pens
Quantity of pens
Price of books
Quantity of books
2009
€3
100
€10
50
2010
3
120
12
70
2011
4
120
14
70
    
    
Refer to Figure 23-1. What is the percentage increase in prices from 2009 to 2010?
a.
0 per cent
b.
13 per cent
c.
16 per cent
d.
22 per cent
e.
38 percent
 

 29. 
The following table contains information about an economy that produces only pens and books. The base year is 2009.

Figure 23-1
Year
Price of pens
Quantity of pens
Price of books
Quantity of books
2009
€3
100
€10
50
2010
3
120
12
70
2011
4
120
14
70
    


Refer to Figure 23-1. What is the approximate percentage increase in prices from 2010 to 2011?
a.
0 per cent
b.
13 per cent
c.
16 per cent
d.
38 per cent
e.
22 per cent
 

 30. 
The following table contains information about an economy that produces only pens and books. The base year is 2009.

Figure 23-1
Year
Price of pens
Quantity of pens
Price of books
Quantity of books
2009
€3
100
€10
50
2010
3
120
12
70
2011
4
120
14
70
    
Refer to Figure 23-1. What is the percentage increase in real GDP from 2009 to 2010?
a.
0 per cent
b.
7 per cent
c.
22 per cent
d.
27 per cent
e.
32 per cent
 

 31. 
If German GDP exceeds German GNP, then
a.
intermediate production exceeds final production.
b.
foreigners are producing more in Germany than Germans are producing in foreign countries.
c.
real GNP exceeds nominal GNP.
d.
real GDP exceeds nominal GDP.
e.
Germans are producing more in foreign countries than foreigners are producing in Germany.
 

 32. 
UK GDP would exclude which of the following?
a.
Lawyer services purchased by a home buyer.
b.
The purchase of a new Nissan produced in Sunderland.
c.
Copper purchased by tap manufacturer Bristan.
d.
A new art gallery purchased by the city of Newcastle.
e.
Lawn care services purchased by a home owner.
 

 33. 
How is your purchase of a €40,000 BMW automobile that was produced entirely in Germany recorded in the UK GDP accounts?
a.
Consumption increases by €40,000 and net exports decreases by €40,000.
b.
Net exports increases by €40,000.
c.
There is no impact because this transaction does not involve domestic production.
d.
Investment increases by €40,000 and net exports increases by €40,000.
e.
Net exports decreases by €40,000.
 

 34. 
If your grandparents buy a newly built retirement home, this transaction would affect
a.
investment.
b.
net exports.
c.
government purchases.
d.
consumption.
e.
disposable income.
 

 35. 
GDP may not be a reliable indicator of the standard of living of a country because it does not include:
a.
spending on investment goods
b.
the value of goods and services produced outside the market system.
c.
discretionary spending of non-resident workers
d.
the estimated value of goods to individuals
e.
the private costs of consumption
 



 
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