Chapter 21 Measuring GDP and Economic Growth

1) Gross domestic product is the total ________ produced within a country in a given time period.
A) market value of all final and intermediate goods and services
B) market value of all goods and services
C) amount of final and intermediate goods and services
D) market value of all final goods and services

2) Intermediate goods are excluded from GDP because

A) their inclusion would involve double counting.
B) they represent goods that have never been purchased so they cannot be counted.
C) their inclusion would understate GDP
D) the premise of the question is incorrect because intermediate goods are directly included in
calculating GDP.

3) The circular flow model shows that consumer goods and services produced by business firms
are sold in the
A) goods market.
B) factor market.
C) labor market.
D) financial market.

4) The factor market can best be described as where

A) households buy goods and services.
B) firms buy goods and services.
C) firms buy the services of labor, land and capital.
D) governments sell goods and services.

5) GDP equals
A) C + S + G + (X - M)
B) C + I + G + (X + M)
C) C + I + G + (X - M)
D) C + S + G + (X - M)

6) Which of the following relationships is correct?

A) Net Investment = Gross Investment + Depreciation
B) Consumption expenditure = Net Investment - Depreciation
C) Gross Investment = Net Investment + Depreciation
D) Depreciation = Gross Investment - Consumption expenditure

7) Two methods of measuring GDP are

A) the income approach and the expenditure approach.
B) the income approach and the receipts approach.
C) the goods approach and the services approach.
D) the saving approach and the investment approach.

1
 Millions of
Item
dollars
Personal consumption
80
expenditure
Government expenditure on
30
goods and services
Net taxes 35
Gross private domestic
20
investment
Imports of goods and services 10
Exports of goods and services 20

8) Using the information in the table above, calculate the value of GDP.
A) $185 million
B) $145 million
C) $195 million
D) $140 million

9) The relationship between real GDP and potential GDP is that

A) real GDP always equals potential GDP.
B) real GDP never equals potential GDP.
C) real GDP fluctuates about potential GDP.
D) real GDP is always below potential GDP.

10) An expansion occurs when the level of real GDP is

A) increasing.
B) decreasing.
C) at a cyclical peak.
D) at a cyclical trough.

11) When calculating GDP, underground economic activity is

A) the production of goods and services in the home.
B) that portion of the time when we are enjoying leisure activities and not producing marketable
goods.
C) the part of the economy purposely hidden.
D) an aspect of the quality of life, such as health and life expectancy.

12) Which of the following is NOT included in real GDP?

A) production of services, such as the services of hair dressers
B) production of goods that last less than a year, such as production of hot dogs
C) production that takes place in the underground economy
D) production of goods that last more than a year, such as a pair of roller blades

Question A
What is the difference between real and nominal GDP and why do economists make this
distinction?