Reference no: EM133303682
Chapter 12
Questions
1. Factors of production that flow through the circular flow model include all of the following except:
a. capital.
b. labor.
c. final goods.
d. land.
2. GDP overstates the productive capacity of a country when:
a. production results in negative externalities such as pollution.
b. there is a sizable underground economy.
c. working conditions improve, allowing jobs to be completed safer and faster.
d. nonmarket production represents a large portion of the economy.
3. Which of the following market transactions of final goods and services are excluded from the computation of U.S. GDP?
a. Secondhand transactions, such as used car sales.
b. A new purchase that a resident of one state makes in a different state.
c. Purchases of products such as wine, beer, liquor, and cigarettes.
d. Purchases of necessities such as groceries and rent.
4. Based on the circular flow model, money flows from households to businesses in:
a. neither factor nor product markets.
b. both factor and product markets.
c. product markets.
d. factor markets.
5. Personal income is:
a. the amount households have available for consumption, savings, and payment of personal taxes.
b. national income plus corporate profits and Social Security (FICA) plus transfer payments, and other income.
c. total income received by households after taxes.
d. equal to gross domestic product.
6. Your purchase of a Gucci bag made in Italy would be classified as:
a. an investment good.
b. an import.
c. an export.
d. a durable good.
7. Which of the following statements is true?
a. Real GDP has been adjusted for changes in the general level of prices due to inflation.
b. The expenditures approach sums the compensation of employees, rents, profits, net interest, and nonincome expenses for depreciation and indirect business taxes.
c. Real GDP equals nominal GDP multiplied by the GDP deflator.
d. The inclusion of intermediate goods and services into GDP calculations would underestimate our nation's production level.
8. Which approach to calculating GDP is computed using compensation of employees, rental income, profits, net interest, indirect business taxes, and depreciation?
a. The product-market approach.
b. The circular-flow approach.
c. The expenditure approach.
d. The income approach.
9. Depreciation or consumption of fixed capital measures:
a. capital that is wasted in the production process.
b. the loss of productive ability due to capital intensive production.
c. the decline in the value of inventories caused by inflation.
d. the value of existing capital stock used up in the production process.
10. If a homeowner sells a kitchen table and chairs that she no longer wants to use and does not report the income earned from the sale to the Internal Revenue Service, the value of GDP is
a. unaffected by this transaction because the table and chairs were already counted in GDP as final goods when the homeowner bought them new.
b. understated because this transaction took place in the underground economy.
c. understated because this purchase was a nonmarket transaction.
d. overstated because the sale of the furniture is counted twice in GDP calculations.