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Chapter 15
Practice Quiz
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Gross Domestic Product
©2000 South-Western College Publishing
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1. The dollar value of all final goods and
services produced within the borders of a
nation is the
a. GNP deflator.
b. gross national product.
c. net national product.
d. gross domestic product.
D. GDP is the most widely reported measure
of a nation’s economic performance. GDP
excludes production abroad by U.S. firms.
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2. Based on the circular flow model, money
flows from businesses to households in
a. factor markets.
b. product markets.
c. neither factor nor product markets.
d. both factor and product markets.
A. Money flows from household to
businesses in product markets. The
reverse is true for factor markets.
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3. The circular flow model does not include
which of the following?
a. The quantity of shoes in inventory on
January 1.
b. The total wages paid per month.
c. The percentage of profits paid out as
dividends each year.
d. The total profits earned per year in
the U.S. economy.
A. The quantity of shoes in inventory is a
stock at one point in time rather than a
flow over a period of time.
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4. The expenditure approach measures
GDP by adding all the expenditures for
final goods made by
a. households.
b. businesses.
c. government.
d. foreigners.
e. all of the above.
E. One method national income
accountants use to calculate GDP is to
add all spending for the four sectors of
the economy during a period of time.
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5. GDP is a less-than-perfect measure of the
nation’s economic pulse because it
a. excludes nonmarket transactions.
b. does not measure the quality of goods
and services.
c. does not report illegal transactions.
d. all of the above are true.
D. GDP only measures legal market
transactions and adjustments for quality
changes are very difficult or impossible.
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6. Subtracting an allowance for
depreciation of fixed capital from gross
domestic product yields
a. real GDP.
b. nominal GDP.
c. personal income.
d. national income.
D. Real GDP and nominal GDP include
an estimate of depreciation. National
income is equal to GDP less
depreciation.
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7. Adding all incomes earned by households
from the sale of resources yields
a. intermediate goods.
b. indirect business taxes.
c. national income.
d. personal income.
C. Intermediate goods and indirect
business taxes have nothing to do with
adding household incomes. Personal
income is the total income received by
households. For example, PI includes
transfer payments and NI does not.
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8. Personal income equals disposable
income plus
a. personal savings.
b. transfer payments.
c. dividend payments.
d. personal taxes.
D. Disposable income is the amount of income
that households actually have to spend or
save after payment of personal taxes.
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9. Disposal personal income
a. is the income people spend for
personal items such as homes and
cars.
b. includes transfer payments.
c. excludes transfer payments.
d. includes personal taxes.
B. DPI equals PI minus personal taxes.
Since PI includes transfer payments,
DPI also includes transfer payments.
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10. Which of the following statements is true?
a. National income is total income earned
by households, whereas personal
income is total income received by
households.
b. Disposable personal income equals
personal income minus personal taxes.
c. The expenditures approach and the
income approach yield the same GDP
figure.
d. all of the above are true.
D.
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11. Gross domestic product data that reflect
actual prices as they exist in a given year
are expressed in terms of
a. fixed dollars.
b. current dollars.
c. constant dollars.
d. real dollars.
B. Nominal GDP is also referred to as
current dollar or money GDP and is not
adjusted for inflation.
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12. The GDP chain price index is
a. widely reported in the news.
b. broadly based.
c. adjusted for government spending.
d. a measure of changes in consumer prices.
B. The GDP chain price index not only
measures price changes of consumer goods,
but also price changes of business
investment, government consumption
expenditures, exports and imports.
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13. Which of the following statements is true?
a. The inclusion of intermediate goods and
services in GDP calculations would
underestimate our nation’s production
level.
b. The expenditures approach sums the
compensation of employees, rents, profits,
net interest, and non-income expenses for
depreciation and indirect business taxes.
c. Real GDP has been adjusted for change in
the general level of prices due to inflation
or deflation.
d. Real GDP equals nominal GDP multiplied
by the GDP deflator.
C. The word real in front of any term means
that the value has been adjusted for
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inflation.
END
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