Chapter 2
I. True/False
1. National income accounting allows us to assess the performance of the economy and make polices to
improve that performance .
2. Gross domestic product measures at their market value the total output of all goods and services
produced in the economy during a year
3. GDP is a count of the physical quantity of output and is not a monetary measure.
4. Final goods are consumption goods, capital goods, and service that are purchased by their end user
rather than being ones used for further processing or manufacturing
5. GDP includes the sale of intermediate goods and excludes the sales of final goods.
6. The total value added to a product and the value of final product are equal.
7. Social security payments and other public transfer payments are counted as part of GDP
8. The sale of stocks and bonds is excluded from GDP.
9. In computing gross domestic product, private transfer payments are excluded because they do not
represent payment for currently produced goods and services.
10. The two approaches to the measurement of the gross domestic product yield identical result because
one approaches measures the total amount spent on the products produced by business firms during a year
while the second approaches measures the total income of business firms during the year.
11. Personal consumption expenditure only include expenditure for durable and nondurable goods.
12. The expenditure made by a household to have a new home built is a personal consumption
expenditure
13. In national income accounting, any increase in the inventories of business firm is included in gross
private domestic investment
14. Government purchase include spending by all units of government on the finished products of
business, but exclude all direct purchase of resources such as labor
15. The net exports of an economy equal its exports of goods and services less its import of goods and
services
16. The income approach to GDP includes compensation of employees, rents, interest income,
proprietor’s income, corporate profit, and taxes on production and imports.
17. A GDP that has been deflated or inflated to reflect changes in the price level is called real GDP
18. To adjust nominal GDP for a given year to obtain real GDP. It is necessary to multiply nominal GDP
by the price index (expressed in hundredths) for that year.
19. If nominal GDP for an economy is $ 11.000 billion and the price index is 110, then real GDP is
$10.000 billion
20. . GDP is a precise measure of the economic well-being of society
21. The productive services of a homemaker are included in GDP
II. Multiple choice
1. Which is a primary use for national income accounting?
A. It provides a basis for assessing the performance of the economy.
B. It measures economic efficiency in specific industries
C. It estimates expenditure on nonproduction transaction
D. It analyzes the cost of pollution to the economy
2. Gross domestic product (GDP) is defined as
A. Personal consumption expenditure and gross private domestic investment
B. the sum of wage and salary compensation of employees, corporate profits, and interest income
C. The market value of final goods and services produced within a country in 1 year.
D. The market value of all final and intermediate goods and services produced by the economy in 1
year
