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Problem Set 3
Econ 201 (03,04) Spring 2002
(Dr. Tin-Chun Lin)
1. Which of the following items is included from the calculation of GDP?
(A) Purchase of 100 shares of General Motors stock.
(B) Purchase of a used car.
(C) The value of a homemaker’s services.
(D) Sale of Gulf War military surplus.
(E) None of the above would be included.
(Answer: (E))
2. Personal consumption expenditures include:
(A) All commodities that business firms buy.
(B) The purchase prices paid for stocks and bonds by individual households.
(C) The construction of residential housing.
(D) All goods and services bought by households.
(E) The corrected value of housewives’ services.
(Answer: (D))
3. The market value of all final goods and services in an economy produced by a
nation’s residents, no matter where they are located, is:
(A) Personal income.
(B) National income.
(C) Capital income.
(D) Gross national product.
(E) Gross domestic product.
(Answer: (D))
4. The expenditure approach for the calculation of GDP includes spending on:
(A) Consumption, investment, durable goods and exports.
(B) Consumption, gross private domestic investment, government spending for goods
and services, and exports.
(C) Consumption, gross private domestic investment, government spending for goods
and services, and net exports.
(D) Consumption, net private domestic investment, government spending for goods
and services, and net exports.
(E) Consumption, gross private domestic investment, all government spending
including transfer payments, and net exports.
(Answer: ( C ))
5. (True or False) Real GDP, as opposed to money (nominal) GDP, has been adjusted
for changes in the general level of prices. (Answer: True)
6. (True of False) Net domestic product (NDP) is equal to gross domestic product
(GDP) plus indirect business taxes. (Answer: False)
7. The following transactions tool place in Ecoland last year:
Item
Wages paid to labor
Consumption expenditure
Taxes paid on wages
Government transfer payments
Firm’s profits
Investment
Taxes paid on profits
Government purchases of goods and services
Export earnings
Saving
Import payments
Value of transaction (billions of dollars)
$800,000
600,000
200,000
50,000
200,000
250,000
50,000
200,000
300,000
250,000
250,000
a. Use the expenditure approach to calculate Econland’s GDP. (Answer: GDP is
$1,100,000 billion dollars)
b. What extra information do you need in order to calculate net domestic product?
(Answer: the amount of depreciation is required)
8. (True or False) In the measurement of GDP, purchase of stocks and bonds is counted
as investment. (Answer: False)
9. (True or False) Disposable income is equal to consumption expenditure plus saving.
(Answer: True)
10. (True or False) Goods that are produced this year but are not sold this year do not add
to this year’s GDP. (Answer: False)
11. Which of the following is not a reason for the downward slop of the aggregate
demand curve?
(A) The intertemporal substitution effect.
(B) The international substitution effect.
(C) The expected inflation effect.
(D) The real money balance effect.
(Answer: ( C ))