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Chapter 2 - National-Income Accounting


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

 1. 
Nominal GDP measures the dollar value of all goods and services that an economy produces in a particular period of time.
 

 2. 
GDP is a complete measure of economic welfare.
 

 3. 
GDP ignores welfare changes due to environmental damage.
 

 4. 
Value added is the difference between costs of production and the price of a product.
 

 5. 
The difference between GDP and NNP is the depreciation of capital.
 

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

 6. 
Nominal GDP measures the:
a.
dollar value of all goods and services produced in an economy at a point in time.
b.
the constant dollar value of all goods and services produced in an economy at a point in time.
c.
dollar value of all goods and services produced in an economy during a specified time period.
d.
the constant dollar value of all goods and services produced in an economy during a specified time period.
 

 7. 
Imputed rental income is:
a.
the money people receive from renting property.
b.
the money businesses pay for renting property.
c.
what an owner occupied house would fetch on the market if the owner rented it.
d.
the money businesses receive from renting property.
 

 8. 
In an economy with two goods, beer and pizza, if pizza costs $10 per pie and beer costs $5 per six pack and if 100 six packs of beer and 200 pizzas are produced in a year, then nominal GDP that year would be:
a.
$2,000.
b.
$2,500.
c.
$1,500.
d.
none of the above.
 

 9. 
In an economy with two goods, burgers and pizza, if pizza costs $15 per pie and burgers costs $5 per burger and if 1000 burger and 200 pizzas are produced in a year, then nominal GDP that year would be:
a.
$24,000.
b.
$8,000.
c.
$16,000.
d.
none of the above.
 

 10. 
Real GDP is GDP:
a.
in constant dollars.
b.
in current dollars.
c.
that considers income distribution.
d.
that includes the value of leisure.
 

 11. 
Real GDP equal:
a.
nominal GDP times the implicit price level.
b.
nominal GDP divided by the implicit price level.
c.
the current dollar value of all goods and services produced in an economy during a particular time period.
d.
real GDP time the implicit price level.
 

 12. 
The implicit price level is:
a.
the ratio of nominal to real GDP.
b.
the product of real and nominal GDP.
c.
the ratio of real to nominal GDP
d.
the difference between real and nominal GDP.
 

 13. 
If real GDP is 120 and nominal GDP is 180, then the implicit price level is:
a.
.56.
b.
1.5.
c.
60.
d.
21600.
 

 14. 
If real GDP is 200 and nominal GDP is 160, then the implicit price level is:
a.
0.8
b.
1.25
c.
40.
d.
32000.
 

 15. 
GDP does not:
a.
consider changes in the distribution of income.
b.
include most nonmarket goods.
c.
assign value to leisure time.
d.
all of the above.
 

 16. 
Personal consumption expenditure includes:
a.
services.
b.
residential structures.
c.
imports.
d.
all of the above.
 

 17. 
Gross private domestic expenditure includes:
a.
fixed investment.
b.
change in business inventory.
c.
residential structures.
d.
all of the above.
 

 18. 
Net exports of goods and services equals:
a.
imports times exports.
b.
exports minus imports.
c.
imports minus exports.
d.
all of the above.
 

 19. 
Personal Consumption expenditure includes:
a.
changes in business inventories.
b.
nondurables.
c.
imports.
d.
all of the above.
 

 20. 
Gross private domestic investment includes
a.
durable goods.
b.
residential structures.
c.
financial assets.
d.
all of the above.
 

 21. 
Government purchases include:
a.
state and local government purchases.
b.
tax receipts.
c.
federal government debt.
d.
all of the above.
 
 
 Table 2.1

Category of Expenditure
Trillions of $
  
Personal Consumption Expenditure
7.5
Gross Private Domestic Investment
2.2
Government Purchase
2.5
Net Exports of Goods and Services
-1.0
Depreciation of capital
0.5
 

 22. 
Based on the data in Table 2.1, Gross Domestic Product is:
a.
$11.7 trillion.
b.
$10.7 trillion.
c.
$11.2 trillion.
d.
none of the above.
 

 23. 
Based on the data in Table 2.1, net domestic private investment is:
a.
$1.7 trillion.
b.
$2.7 trillion.
c.
$11.0 trillion.
d.
none of the above.
 

 24. 
Depreciation is:
a.
when the price level falls.
b.
the economy goes into recession.
c.
the capital used up producing this period’s output.
d.
all of the above.
 
 

 Table 2.2

Category of Expenditure
Trillions of  $

Durable Goods
1.1
Fixed Investment
1.0
Federal Government Purchases
0.9
Exports
1.3
Nondurable Goods
2.6
Nonresidential Structures
1.3
State and Local Government
1.5
Imports
2.0
Services
5.2
Residential Structures
0.8
Changes in Business Inventories
2.0
 

 25. 
Based on the data in Table 2.2, personal consumption expenditure is:
a.
$3.7 trillion.
b.
$9.7 trillion.
c.
$8.9 trillion.
d.
none of the above.
 

 26. 
Based on the data in Table 2.2, gross private investment is:
a.
$1.0 trillion.
b.
$4.3 trillion.
c.
$5.1 trillion.
d.
none of the above.
 

 27. 
Based on the data in Table 2.2, government purchases are:
a.
$0.9 trillion.
b.
$2.4 trillion.
c.
$0.6 trillion.
d.
none of the above.
 

 28. 
Based on the data in Table 2.2, net exports of goods and services are:
a.
$0.7 trillion.
b.
$3.3 trillion.
c.
-$0.7 trillion.
d.
none of the above.
 

 29. 
Based on the data in Table 2.2, gross domestic product is:
a.
$17.7 trillion.
b.
$15.7 trillion.
c.
$19.7 trillion.
d.
none of the above.
 

 30. 
Based on the data in Table 2.2, net domestic product is:
a.
$15.7 trillion.
b.
$17.7 trillion.
c.
$19.7 trillion.
d.
none of the above.
 

 31. 
Economists sometimes use a closed economy model despite the fact of trade with the rest of the world because:
a.
the world as a whole is a closed economy.
b.
at least for large countries like the US exports and imports have been small compared to GDP.
c.
it simplifies the analysis.
d.
all of the above.
 

 32. 
Economists sometimes use a closed economy model because:
a.
few countries actually trade with others.
b.
it simplifies the analysis.
c.
exports and imports have no effect on the economy.
d.
all of the above.
 
 
 Table 2.3

Type of Income
Trillions of  $

Compensation of employees
7.1
Proprietor’s income
0.9
Rental income of persons
0.1
Corporate profits
1.4
Net interest
0.5
Taxes on production
0.9
Subsidies
0.1
Business transfers
0.1
Surplus of government enterprises
-0.1
 

 33. 
Based on the data in Table 2.3, national income is:
a.
$7.1 trillion.
b.
$10.8 trillion.
c.
$11.0 trillion.
d.
none of the above.
 

 34. 
Taxes on production include:
a.
excise taxes.
b.
income taxes.
c.
estate taxes.
d.
all of the above.
 

 35. 
National income includes:
a.
corporate taxes
b.
corporate assets
c.
corporate profits
d.
all of the above
 

 36. 
National income and GDP diverge in practice because of:
a.
receipts and payments involving the rest of the world.
b.
subsidies.
c.
taxes.
d.
all of the above.
 

 37. 
National income includes:
a.
rental income of persons.
b.
net interest.
c.
corporate profits.
d.
all of the above.
 

 38. 
National income and GDP diverge in practice because of:
a.
subsidies.
b.
depreciation of capital.
c.
taxes.
d.
all of the above.
 
 
 Table 2.4

Type of Product or Income
Trillions of  $

Gross domestic product (GDP)
12.5
Income receipts from the rest of the world
0.5
Depreciation of the capital stock
1.6
Corporate profits, taxes on production, contributions for social insurance, net interest, business transfers, surplus of government enterprises
3.6
Personal taxes
1.2
Income payments to the rest of the world
0.4
Personal income receipts on assets and personal transfer payments
3.0
 

 39. 
Base on the data in Table 2.4, gross national product (GNP) is:
a.
$11.4 trillion.
b.
$12.6. trillion.
c.
$12.5 trillion.
d.
none of the above.
 

 40. 
Based on the data in Table 2.4, net national product is:
a.
$11.0 trillion.
b.
$11.4 trillion.
c.
$12.6 trillion.
d.
none of the above.
 

 41. 
Based on the data in Table 2.4, national income is:
a.
$7.4 trillion.
b.
$11.0 trillion.
c.
$8.9 trillion.
d.
none of the above.
 

 42. 
Based on the data in Table 2.4, personal income is:
a.
$10.2 trillion.
b.
$10.4 trillion.
c.
$11.8 trillion.
d.
none of the above.
 

 43. 
Based on the data in Table 2.4, disposable personal income is:
a.
$10 trillion.
b.
$7.4 trillion.
c.
$9.2 trillion.
d.
none of the above.
 

 44. 
Gross national product (GNP) is gross domestic product (GDP):
a.
less income receipts from the rest of the world less income payments to the rest of the world.
b.
less income receipts from the rest of the world plus income payments to the rest of the world.
c.
plus income receipts from the rest of the world less income payments to the rest of the world.
d.
less income receipts from the rest of the world less income payments to the rest of the world.
 

 45. 
Net national product (NNP) is gross national product (GNP):
a.
plus depreciation of capital.
b.
less depreciation of capital.
c.
plus personal taxes.
d.
less personal taxes.
 

 46. 
Personal income is national income:
a.
less corporate profits, taxes on production, contributions for social insurance, net interest, business transfers and surplus of government enterprises plus personal income receipts on assets and personal transfer payments.
b.
less corporate profits, taxes on production, contributions for social insurance, net interest, business transfers, surplus of government enterprises, personal income receipts on assets and personal transfer payments.
c.
plus corporate profits, taxes on production, contributions for social insurance, net interest, business transfers and surplus of government enterprises less personal income receipts on assets and personal transfer payments.
d.
plus corporate profits, taxes on production, contributions for social insurance, net interest, business transfers, surplus of government enterprises, personal income receipts on assets and personal transfer payments.
 

 47. 
Disposable personal income is personal income:
a.
plus personal taxes.
b.
less corporate profits, taxes on production, contributions for social insurance, net interest, business transfers and surplus of government enterprises plus personal income receipts on assets and personal transfer payments.
c.
less personal taxes.
d.
plus corporate profits, taxes on production, contributions for social insurance, net interest, business transfers and surplus of government enterprises less personal income receipts on assets and personal transfer payments.
 

 48. 
Subtracted from national income to get personal income is:
a.
depreciation of capital.
b.
corporate profits.
c.
personal transfer payments.
d.
all of the above.
 

 49. 
Added to national income to get personal income is:
a.
personal income receipts on assets.
b.
net interest.
c.
contributions for social insurance.
d.
all of that above.
 

 50. 
Subtracted from national income to get personal income is:
a.
net interest.
b.
business transfers.
c.
taxes on production.
d.
all of the above.
 

 51. 
Subtracted from personal income to get disposable personal income is:
a.
personal taxes.
b.
contributions for social insurance.
c.
personal income receipts on assets.
d.
all of the above.
 

 52. 
The consumer price index (CPI):
a.
can not be constructed as a chained index.
b.
does not adjust for quality changes in goods.
c.
is updated whenever new goods are introduced.
d.
fully accounts for substitution to cheaper goods.
 

 53. 
The consumer price index is biased because it can not account for:
a.
quality changes in goods.
b.
new goods.
c.
people substituting to cheaper goods.
d.
all of the above.
 

 54. 
The consumer price index does not account for:
a.
the introduction of new goods.
b.
goods whose prices rise.
c.
goods whose prices fall.
d.
all of the above.
 

 55. 
The consumer price index is constructed from:
a.
tax data.
b.
survey data.
c.
data from wholesale producers.
d.
all of the above.
 

Short Answer
 

 56. 
What is nominal gross domestic product (GDP)?
 

 57. 
What is real GDP and what makes it “real?”
 

 58. 
What is the relationship between nominal and real GDP?
 

 59. 
What parts of welfare does real GDP not measure?
 

 60. 
Why might the consumer price index (CPI) overstate inflation?
 



 
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