# Shared Flashcard Set

## Details

Principles of Macroeconomics-Chp. 7
Chapter Seven--Quiz
29
Economics
12/05/2011

Term
 True or False?When an individual mows her lawn, the value of those lawn care services is included in GDP.
Definition
 FALSE.GDP does not include household production.
Term
 True or False?Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. Byitself, this change in behavior has increased GDP.
Definition
 TRUE.The value of meals cooked at home is not included in GDP, but the value of mealspurchased at a restaurant is included in GDP.
Term
 True or False?When an individual pays his friend (an accountant) "under the table" for preparing the individual'sincome tax return, the value of those accounting services is included in GDP.
Definition
 FALSE.GDP does not include production in the underground economy.
Term
 True or False?One pound of flour is sold for \$2 to a bakery that uses the flour to bake a cake that it sells for \$15 to aconsumer. A second pound of flour is sold for \$3 to a consumer in a grocery store. These three transactionsincrease GDP by \$20.
Definition
 FALSE.The value of the flour sold to the bakery is not included separately in GDP because itsvalue is already included in the value of the cake, so these transactions increase GDP by \$15 + \$3 =\$18.
Term
 True or False?If we add up the value of every good and service produced in the economy, we get a total that is largerthan GDP.
Definition
 TRUE.The value of every good and service produced in the economy would include the values ofmany intermediate goods that are not counted separately in GDP.
Term
 True or False?When an individual hires a lawyer, the value of the lawyer's services is included in GDP.
Definition
 TRUE.GDP includes the value of newly produced goods AND services.
Term
 True or False?When an individual purchases a house built 30 years ago, the value of that house is included in thecurrent year's GDP.
Definition
 FALSE.GDP does not include the value of used goods that are sold.
Term
 True or False?If the Bureau of Economic Analysis' quarterly report states that GDP was \$4 trillion, then the marketvalue of all final goods and services produced within the United States during that quarter was \$1 trillion.
Definition
 TRUE.The BEA measures total production over three months (one quarter), then multiplies thatvalue by 4, so each quarterly report gives an annual measure of GDP.
Term
 True or False?The U.S. has the world's second-highest GDP.
Definition
 FALSE.The U.S. has the world's highest GDP.
Term
 True or False?As of Quarter 2, 2011, U.S. total income was approximately \$13 trillion.
Definition
 TRUE.As of Quarter 2, 2011, U.S. GDP, which is equal to U.S. total income, was approximately\$13 trillion.
Term
 True or False?Firms pay wages to households for the use of natural resources.
Definition
 FALSE.Firms pay rent to households for the use of natural resources.
Term
 True or False?Expenditures by households on education services are included in the investment component of GDP.
Definition
 FALSE.Expenditures by households on education services are included in the consumptioncomponent of GDP.
Term
 True or False?When an individual purchases a newly built house, the value of that house is included in theconsumption component of GDP.
Definition
 FALSE.When an individual purchases a newly built house, the value of that house is included inthe investment component of GDP.
Term
 True or False?When an individual purchases stocks and bonds, the value of those stocks and bonds is included in theinvestment component of GDP.
Definition
 FALSE.The investment component of GDP includes the purchase of physical capital, not thepurchase of financial capital.
Term
 True or False?Households supply the factors of production to the government in exchange for transfer payments.
Definition
 FALSE.Transfer payments are payments by the government to individuals for which thegovernment does not receive a new good or service in return.
Term
 True or False?The U.S. is the world's third-largest exporter of goods, the world's largest exporter of services, the world'slargest importer of goods, and the world's largest importer of services.
Definition
 TRUE.
Term
 True or False?When a U.S. citizen buys a television made in South Korea by South Korean citizens, U.S. net exportsdecrease, but U.S. GDP is unaffected.
Definition
 TRUE.The purchase increases imports, which decreases net exports, but the purchase is added toconsumption and subtracted from net exports, so GDP does not change.
Term
 True or False?For the U.S., the following list is in order from largest to smallest: consumption, investment,government purchases, net exports.
Definition
 FALSE.For the U.S., the following list is in order from largest to smallest: consumption,government purchases, investment, net exports.
Term
 True or False?The value of GDP is reduced to reflect the impact of pollution generated by production.
Definition
 FALSE.
Term
 True or False?A decrease in nominal U.S. GDP must imply that the United States is producing a smaller output ofgoods and services.
Definition
 FALSE.Nominal GDP may have decreased because prices decreased while quantity of outputstayed the same or even increased.
Term
 True or False?Real GDP will increase only if prices increase.
Definition
 FALSE.Real GDP holds prices constant, so real GDP will increase only if production increases.
Term
 True or False?In an economy with rising prices, nominal GDP is smaller than real GDP in years before the base year.
Definition
 TRUE.
Term
 True or False?The base year is 2002, and the GDP deflator was 125 in 2005. This means that the average price ofgoods and services was 25% higher in 2005 than it was in 2004.
Definition
 FALSE.This means that the average price of goods and services was 25% higher in 2005 than itwas in 2002.
Term
 True or False?The market value of the final goods and services produced by Japanese citizens working in Spain isincluded in Japan's GNP and Spain's GDP, but not in Japan's GDP or Spain's GNP.
Definition
 TRUE.
Term
 Dogylvania has gathered the following data for 2010:spending by households on goods and services = \$7000spending by households on new houses = \$4000spending by households on financial capital = \$1000spending by firms on physical capital = \$3000spending by government on goods and services = \$2000spending by government on employee salaries = \$1000spending by government on transfer payments = \$500imports = \$500exports = \$800What was the value of Dogylvania's consumption in 2010?
Definition
 7000
Term
 Dogylvania has gathered the following data for 2010:spending by households on goods and services = \$7000spending by households on new houses = \$4000spending by households on financial capital = \$1000spending by firms on physical capital = \$3000spending by government on goods and services = \$2000spending by government on employee salaries = \$1000spending by government on transfer payments = \$500imports = \$500exports = \$800What was the value of Dogylvania's investment in 2010?
Definition
 7000
Term
 Dogylvania has gathered the following data for 2010:spending by households on goods and services = \$7000spending by households on new houses = \$4000spending by households on financial capital = \$1000spending by firms on physical capital = \$3000spending by government on goods and services = \$2000spending by government on employee salaries = \$1000spending by government on transfer payments = \$500imports = \$500exports = \$800What was the value of Dogylvania's government purchases in 2010?
Definition
 3000
Term
 Dogylvania has gathered the following data for 2010:spending by households on goods and services = \$7000spending by households on new houses = \$4000spending by households on financial capital = \$1000spending by firms on physical capital = \$3000spending by government on goods and services = \$2000spending by government on employee salaries = \$1000spending by government on transfer payments = \$500imports = \$500exports = \$800What was the value of Dogylvania's net exports in 2010?
Definition
 300
Term
 Wrexington has gathered the following data for 2010:Y = \$36,000I = \$13,000G = \$7,000exports = \$1,000imports = \$3,000What was the value of Wrexington's consumption in 2010?
Definition
 18,000
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