Mcconnell And Brue Economics Quiz- 15th Edition.

National income accounting is a system that measures the economic activity of a country, including the total value of goods and services produced. By analyzing this data, policymakers can evaluate the performance of the economy and identify areas that need improvement. This information is crucial for making informed decisions and implementing policies that can enhance economic growth and stability. Therefore, the statement that national income accounting allows us to assess the performance of the economy and make policies to improve that performance is true.

The statement is true because net exports are calculated by subtracting imports from exports. If an economy exports more goods and services than it imports, it will have a positive net export value, indicating a trade surplus. Conversely, if an economy imports more goods and services than it exports, it will have a negative net export value, indicating a trade deficit. Therefore, the net exports of an economy are indeed equal to its exports of goods and services minus its imports of goods and services.

Private transfer payments are excluded when computing GDP because they do not represent payments for currently produced goods and services. GDP measures the total value of goods and services produced within a country's borders during a specific period, and private transfer payments do not contribute to this production. Private transfer payments refer to money or assets transferred between individuals or households without any exchange of goods or services. Therefore, including them in GDP calculations would distort the true value of goods and services produced in an economy.

The sale of stocks and bonds is excluded from GDP because GDP measures the value of final goods and services produced within a country's borders in a given time period. Stocks and bonds are financial assets and their sale does not directly contribute to the production of goods and services. Including them in GDP would lead to double-counting, as the value of the stocks and bonds would already be reflected in the financial markets. Therefore, the sale of stocks and bonds is not considered as a part of GDP calculation.

In national income accounting, gross private domestic investment refers to the total investment made by private businesses within a country. This includes not only investments in fixed assets like machinery and buildings but also changes in inventories. An increase in inventories indicates that businesses are producing more than they are selling, which is considered an investment in the form of additional inventory. Therefore, any increase in inventories is included in gross private domestic investment.

The income approach to GDP is a method used to calculate the total value of all incomes earned within an economy during a specific period. It includes various components such as compensation of employees, which refers to wages and salaries paid to workers, rents earned from the use of property, interest incomes from loans and investments, proprietors' income from self-employment, and corporate profits earned by businesses. Therefore, the statement is true as these factors are indeed included in the income approach to GDP.

Net foreign factor income refers to the difference between the income earned by foreign-owned resources (such as capital and labor) within the US and the income earned from US-supplied resources (such as capital and labor) abroad. This includes factors such as wages, interest, rent, and profits. Therefore, the given statement is true as it accurately describes the concept of net foreign factor income.

To adjust nominal GDP for a given year, it is necessary to divide nominal GDP by the price index for that year. This is because the price index measures the average price level of goods and services in the economy, and dividing nominal GDP by the price index allows us to remove the effects of inflation and calculate the real GDP, which reflects changes in the quantity of goods and services produced. By dividing nominal GDP by the price index, we can compare GDP across different years and make meaningful comparisons of economic output. Therefore, the statement is true.

The explanation for the given correct answer is that the total market value of the wine produced in the US can be calculated by multiplying the number of bottles of wine produced in a year by the average price at which the bottles were sold. This is a basic principle of calculating market value, where the quantity of a product is multiplied by its price to determine its total value. Therefore, the statement is true.

GDP measures the total value of all final goods and services produced within a country's borders in a given time period. It includes the sale of final goods, which are goods that are consumed or used for investment purposes, but excludes the sale of intermediate goods, which are goods used in the production process. Therefore, the statement that GDP includes the sale of intermediate goods and excludes the sale of final goods is false.

The given statement is false. GDP (Gross Domestic Product) is indeed a monetary measure that represents the total value of all goods and services produced within a country's borders in a specific time period. It is used as an indicator of a country's economic health and is typically measured in terms of currency, such as dollars or euros. Therefore, GDP is not just a count of the quantity of output, but a monetary measure that reflects the value of that output.

Social security payments and other public transfer payments are not counted as part of GDP because they are not considered as a part of the production of goods and services in the economy. GDP only includes the value of final goods and services produced within a country's borders during a specific time period. Social security payments and other public transfer payments are considered as transfers of income rather than a measure of economic output. Therefore, they are not included in the calculation of GDP.

The productive services of a homemaker are not included in GDP because GDP measures the total value of goods and services produced within a country's borders. While a homemaker's work is valuable and contributes to the well-being of the household, it is not considered a part of the formal economy and is therefore not counted in GDP calculations.

GDP is not a precise measure of the economic well-being of society because it only measures the total value of goods and services produced within a country's borders. It does not take into account factors such as income distribution, quality of life, environmental sustainability, and social well-being. Therefore, it is an incomplete measure of overall economic well-being.

The statement is true because the total value added to a product refers to the sum of all the value added at each stage of production, including the value added by raw materials, labor, and capital. The value of the final product, on the other hand, represents the price at which the product is sold to consumers. In a perfectly competitive market, where prices are determined by supply and demand, the value of the final product should be equal to the total value added. This ensures that all inputs and production stages are accounted for in the final price.

The statement is false because spillover costs from pollution and other activities associated with the production of GDP are not deducted from total output. These costs are often externalized and not accounted for in the calculation of GDP. Therefore, the statement is incorrect.

Personal consumption expenditures include expenditures for both durable and nondurable goods, as well as services. This means that not only physical goods like cars and clothing are included, but also services such as healthcare, education, and entertainment. Therefore, the statement that personal consumption expenditures only include expenditures for durable and nondurable goods is false.

If gross private domestic investment is greater than depreciation during a given year, it indicates that the economy's production capacity has increased rather than declined. Gross private domestic investment represents the total amount of investment made in the economy, which includes spending on capital goods and infrastructure that can enhance production capacity. If this investment exceeds the amount of depreciation, which is the decrease in the value of existing capital goods, it suggests that the economy has expanded its production capacity. Therefore, the statement is false.

Government purchases include spending by all units of government on the finished products of business, including direct purchases of resources such as labor. This means that the statement "Government purchases exclude all direct purchases of resources such as labor" is incorrect. Government purchases encompass all types of spending by the government on goods and services, including the purchase of resources like labor.

The explanation for the correct answer (False) is that the two approaches to measuring GDP, namely the expenditure approach and the income approach, do not always yield identical results. The expenditure approach calculates GDP by summing up the total spending on goods and services in an economy, while the income approach calculates GDP by summing up the total income earned by individuals and businesses. In some cases, these two approaches may produce different results due to factors such as government transfers, international trade, and savings. Therefore, it is not always true that the two approaches yield identical results.

The expenditure made by a household to have a new home built is not considered personal consumption expenditure. Building a new home is a form of investment rather than consumption, as it involves the creation of an asset that will provide future benefits. Personal consumption expenditure refers to the spending on goods and services that are consumed immediately and do not result in long-term assets.

The statement is false because indirect business taxes are not the difference between gross private domestic investment and net private domestic investment. Indirect business taxes refer to taxes that are imposed on the production or sale of goods and services, such as sales taxes or excise taxes. They are not directly related to investment.

The consumer price index (CPI) is not used to adjust nominal GDP to measure real GDP. Instead, the GDP deflator is used for this purpose. The CPI is a measure of the average price level of goods and services consumed by households, while the GDP deflator measures the average price level of all goods and services produced in an economy. Therefore, the given statement is false.

When comparing the gross domestic product (GDP) of two different years, it is necessary to adjust for changes in the price level between those years. This adjustment is called "inflating" the GDP figure in the later year. However, the given statement suggests that it is necessary to inflate the GDP figure in the later year when the price level has risen. This is incorrect. Inflation refers to a general increase in prices, so if the price level has risen, it would already be reflected in the GDP figure of the later year. Therefore, the correct answer is False.

The statement is false because gross domestic product (GDP) measures the total output of all goods and services produced in the economy, but it does not necessarily measure them at their market value. GDP can be measured using different approaches, such as the production approach, income approach, or expenditure approach, which may result in different values for GDP. Additionally, GDP can be measured at constant prices to account for inflation and changes in the value of goods and services over time. Therefore, the statement that GDP measures the total output at their market value is incorrect.