Chapter 10 Measuring a Nation's Income

THE MEASUREMENT OF GROSS DOMESTIC PRODUCT

8. Suppose that an economy produces 30,000 units of good A which sells at $3 a unit and
60,000 units of good B which sells at $2 per unit. Production of good A contributes
a. 1/2 times as much to GDP as the production of good B.
b. 3/2 times as much to GDP as the production of good B.
c. 3/4 times as much to GDP as the production of good B.
d. 4/3 times as much to GDP as production of good B.

12. James owns two houses. He rents one house to the Johnson family for $10,000 per year.
He lives in the other house. If he were to rent the house in which he lives, he could earn
$12,000 per year in rent. How much do the housing services provided by the two
houses contribute to GDP?
a. $0
b. $10,000
c. $12,000
d. $22,000

29.A farmer sells $50,000 of apples to individuals who take them home to eat and $75,000 of
apples to a company that uses them all to produce cider. How much of the farmer’s
sales will be included as apples in GDP?
a. $0
b. $50,000
c. $75,000
d. $125,000

30.Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian
citizen, commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose
value of services preparing meals is included in U.S. GDP?
a. Sam’s and Ellen’s.
b. Sam’s but not Ellen’s.
c. Ellen’s but not Sam’s.
d. Nether Sam’s nor Ellen’s.

34. Al’s Aluminum Company sells $1 million worth of aluminum to Shiny Foil Company,
which uses the aluminum to make aluminum foil. Shiny Foil Company sells $4 million
worth of aluminum foil to households. The transactions just described contribute how
much to GDP?
a. $1 million
b. $3 million
c. $4 million
d. $5 million

35. One bag of flour is sold for $1.00 to a bakery, which uses the flour to bake bread that is
sold for $3.00 to consumers. A second bag of flour is sold for $1 to a grocery store who
sells it to a consumer for $2.00. Taking these four transactions into account, what is the
effect on GDP?
a. GDP increases by $3.00.
b. GDP increases by $5.00.
c. GDP increases by $6.00.
d. GDP increases by $7.00.
36. One bag of oranges is sold for $6.00 to a company that turns them into juice which is
sold to consumers for $12.00. Another bag of oranges is purchased by a grocery store
for $6.00 who then sells it to a consumer for $7. Taking these four transactions into
account, how much is added to GDP?
a. $31
b. $25
c. $19
d. None of the above is correct.
38. Bountiful Harvest Bakery buys $4.00 of flour from Grinkers’ Mill and uses the flour to
make bread sold to the public for $12.00. Taking these two transactions into account,
what is the effect on GDP?
a. GDP increases by $4.00
b. GDP increases by $8.00
c. GDP increases by $12.00
d. GDP increases by $16.00
39. Janet bought flour and used it to bake bread she ate. ABC Bakery bought flour which it
used to bake bread that customers purchased. In which case will the flour be counted as
a final good?
a. Janet’s purchase and ABC Bakery’s purchase.
b. ABC Bakery’s purchase but not Janet’s purchase.
c. Janet’s purchase but not ABC Bakery’s purchase.
d. Neither Janet’s purchase nor ABC Bakery’s purchase.

40. Tim mows the yard for his neighbors. He spends $1 on gas and charges them $20 for
each lawn he mows. What’s the total contribution to GDP each time Tim mows a yard?
a. $1
b. $19
c. $20
d. $21

41. Suppose there are only two firms in an economy: Cowhide, Inc. produces leather and
sells it to Couches, Inc., which produces and sells leather furniture. With each $1,000 of
leather that it buys from Cowhide, Inc., Couches, Inc. produces a couch and sells it for
$3,000. Neither firm had any inventory at the beginning of 2009. During that year,
Cowhide produced enough leather for 20 couches. Couches, Inc. bought 80% of that
leather for $16,000 and promised to buy the remaining 20% for $4,000 in 2010.
Couches, Inc. produced 16 couches during 2009 and sold each one during that year for
$3,000. What was the economy's GDP for 2009?
a. $48,000
b. $52,000
Since couches are the final good, the leather that is bought to produce
couches in 2009 is not included in GDP, because its value is included in the
value of couches. Couches, Inc. produced 16 couches and sold them for
$3,000 each: $48,000. The leather inventory that Cowhide, Inc. has that is
worth $4,000 was produced in 2009 as well, so it is included in the GDP. So
the answer is $52,000.
c. $64,000
d. $68,000

43. In 2009, Corny Company grows and sells $2 million worth of corn to Tasty Cereal
Company, which makes corn flakes. Tasty Cereal Company produces $6 million worth
of corn flakes in 2009, with sales to households during the year of $4.5 million. The
unsold $1.5 million worth of corn flakes remains in Tasty Cereal Company’s inventory
at the end of 2009. The transactions just described contribute how much to GDP for
2009?
a. $4.5 million
b. $6 million
c. $6.5 million
d. $8 million
51.George lived in a home that was newly constructed in 2005 for which he paid $200,000.
In 2008 he sold the house for $225,000. Which of the following statements is correct
regarding the sale of the house?
a. The 2008 sale increased 2008 GDP by $225,000 and had no effect on 2005 GDP.
b. The 2008 sale increased 2008 GDP by $25,000 and had no effect on 2005 GDP.
c. The 2008 sale increased 2008 GDP by $225,000; furthermore, the 2008 sale caused
2005 GDP to be revised upward by $25,000.
d. The 2008 sale affected neither 2008 GDP nor 2005 GDP.

81.How does U.S. gross domestic product (GDP) differ from U.S. gross national product
(GNP)?
a. GNP = GDP - losses from depreciation
b. GNP = GDP + income earned by U.S. citizens abroad - income that foreign citizens
earned in the U.S.
c. GNP = GDP + transfer payments to households + - indirect sales taxes
d. GNP = GDP - depreciation - retained earnings
Table 10-1
The table below contains data for Bahkan for the year 2010.
GDP $110
Income earned by citizens abroad $5
Income foreigners earn here $15
Losses from depreciation $4
Indirect business taxes $6
Statistical discrepancy $0
Retained earnings $5
Corporate income taxes $6
Social insurance contributions $10
Interest paid to households by government $5
Transfer payments to households from government $15
Personal taxes $30
Nontax payments to government $5

102. Refer to Table 10-1. The market value of all final goods and services produced within
Bahkan in 2010 is
a. $95.
b. $100.
c. $110.
d. $120.

103. Refer to Table 10-1. Gross national product for Bahkan in 2010 is
a. $95.
b. $100. GNP = GDP + income earned by U.S. citizens abroad - income that foreign
citizens earned in the U.S.
c. $110.
d. $115.

104. Refer to Table 10-1. Net national product for Bahkan in 2010 is
a. $96 NNP = GNP - Khấu hao (Tài sản cố định)
b. $104
c. $106
d. $116

105. Refer to Table 10-1. Personal income for Bahkan in 2010 is

a. $87.
b. $89.
c. $103.
d. $105.

106. Refer to Table 10-1. Disposable personal income for Bahkan in 2010 is

Disposable personal income - DPI =

Thu nhậ p cá nhân - Thuế thu nhậ p cá nhân

a. $37.
b. $44.
c. $54.
d. $63.
THE COMPONENTS OF GDP

Table 10-1
The table below contains data for country A for the year 2010.
Household purchases of durable goods $1293
Household purchases of nondurable goods $1717
Household purchases of services $301
Household purchases of new housing (investment) $704
Purchases of capital equipment $310
Inventory changes $374
Purchases of new structures $611
Depreciation $117
Salaries of government workers $1422
Government expenditures on public works $553
Transfer payments $777
Foreign purchases of domestically produced goods $88
Domestic purchases of foreign goods $120

92. Refer to Table 10-1. What was country A’s GDP in 2010?
a. $6359
b. $7136
c. $7253 = 1293+1717+3001+704+310+374+611+1422+553+777+(88-120)
GDP = private consumption + gross investment +
government spending  + (exports – imports)
d. $8147

93. Refer to Table 10-1. What was country A’s consumption in 2010?
a. $2018
b. $3010
c. $3311
Country A's consumption = Household purchases of
durable goods + Household purchases of nondurable
goods + Household purchases of services    
d. $4015

94. Refer to Table 10-1. What was country A’s investment in 2010?
a. $1178
b. $1295
c. $1882
d. $1999 = 704+310+374+611
95. Refer to Table 10-1. What were country A’s government purchases in 2010?
a. $553
b. $1198
c. $1975
d. $2752

96. Refer to Table 10-1. What were country A’s exports in 2010?
a. -$32
b. $32
c. $88
d. $120

97. Refer to Table 10-1. What were country A’s imports in 2010?
a. -$32
b. $32
c. $88
d. $120

98. Refer to Table 10-1. What were country A’s net exports in 2010?
a. -$32
b. $32
c. $88
d. $120

REAL VERSUS NOMINAL GDP

22. A country’s real GDP rose from 500 to 550 while its nominal GDP rose from 600 to
770. What was this country’s inflation rate?
a. 16.7%
b. 20%
c. -14.3%
d. -20%
25. If real GDP is 5,100 and nominal GDP is 4,900, then the GDP deflator is
a. 104.1 so prices are higher than in the base year.
b. 104.1 so prices are lower than in the base year.
c. 96.1 so prices are higher than in the base year.
d. 96.1 so prices are lower than in the base year.
32. If nominal GDP is $12 trillion and real GDP is $10 trillion, then the GDP deflator is
a. 83.33, and this indicates that the price level has decreased by 16.67 percent since the
base year.
b. 83.33, and this indicates that the price level has increased by 83.33 percent since the
base year.
c. 120, and this indicates that the price level has increased by 20 percent since the base
year.
d. 120, and this indicates that the price level has increased by 120 percent since the
base year.
36. Suppose an economy’s production consists only of corn and soybeans. In 2010, 20
bushels of corn are sold at $4 per bushel and 10 bushels of soybeans are sold at $2 per
bushel. In 2009, the price of corn was $2 per bushel and the price of soybeans was $1
per bushel. Using 2009 as the base year, it follows that, for 2010,
a. nominal GDP is $50, real GDP is $100, and the GDP deflator is 50.
b. nominal GDP is $50, real GDP is $100, and the GDP deflator is 200.
c. nominal GDP is $100, real GDP is $50, and the GDP deflator is 50.
d. nominal GDP is $100, real GDP is $50, and the GDP deflator is 200.

Table 10-4
The country of Caspir produces only cereal and milk. Quantities and prices of these
goods for the last several years are shown below. The base year is 2008.
Prices and Quantities
Year Price of Cereal Quantity of Price of Milk Quantity of
Cereal Milk
2008 $4.00 90 $1.50 150
2009 $4.00 100 $2.00 180
2010 $5.00 120 $2.50 200
2011 $6.00 150 $3.50 200
 Nominal GDP Real GDP GDP deflator

2008 585 585 100

2009 760 670 113

2010 1100 780 141

2011 1600 900 177

51.Refer to Table 10-4. In 2008, this country’s

a. nominal GDP was greater than real GDP, and the GDP deflator was greater than
100.
b. nominal GDP was equal to real GDP, and the GDP deflator was equal to 1.
c. nominal GDP was less than real GDP, and the GDP deflator was less than 100.
d. nominal GDP was equal to real GDP, and the GDP deflator was equal to 100.

52. Refer to Table 10-4. In 2009, this country’s

a. real GDP was $660, and the GDP deflator was 113.4
b. real GDP was $670, and the GDP deflator was 115.2
c. real GDP was $660, and the GDP deflator was 115.2.
d. real GDP was $670, and the GDP deflator was 113.4.

53. Refer to Table 10-4. In 2010, this country’s

a. real GDP was $780, and the GDP deflator was 141.0.
b. real GDP was $825, and the GDP deflator was 133.3.
c. real GDP was $780, and the GDP deflator was 133.3
d. real GDP was $825, and the GDP deflator was 141.0

54. Refer to Table 10-4. In 2011, this country’s

a. real GDP was $900, and the GDP deflator was 150.2.
b. real GDP was $900, and the GDP deflator was 177.8.
c. real GDP was $1065, and the GDP deflator was 177.8.
d. real GDP was $1065, and the GDP deflator was 150.2.

55. Refer to Table 10-4. This country’s output grew

a. 29.9% from 2008 to 2009.
b. 33.3% from 2009 to 2010.
c. 24.3% from 2009 to 2010.
d. 15.4% from 2010 to 2011.

56. Refer to Table 10-4. This country’s inflation rate from 2009 to 2010 was
a. 16.4%.
b. 24.3%.
c. 41.0%.
d. 44.7%.

57. Refer to Table 10-4. This country’s inflation rate from 2010 to 2011 was
a. 15.4%.
b. 26.1%.
c. 45.5%.
d. 77.8%.