Macroeconomics Worksheet 1

Measuring National Output

Instructions: Please show all working for calculation questions and give a
brief justification for the answers chosen for the worded questions.
1. Gross Domestic Product calculations count only final goods and services
because:
A. One cannot calculate the quantities of intermediate goods produced.
B. It is difficult to measure the prices of intermediate goods produced.
C. These are the only goods and services that are produced in an economy.
D. Counting all goods and services would lead to double –counting of many
activities.
 GDP includes only final goods to avoid double-counting since
intermediate goods are already part of the final product's value.

2. If an economy produced 10 pizzas at $20 each and fifteen gallons of root

beer at $5 each, the total value of these goods and services would be.
A. $200
B. $75
C. $275
D. $2,750
 Pizza: 10*20= $200
Root Beer: 15*$5= $75
$200+$75=$275

3. A company produced 12 motorcycles in 2016.The company sold 8 in 2016

and added 4 to its inventories. The market value of the motorcycles in 2016
was $1000 per unit. What is the value of this company’s output that will be
included in the 2016 GDP?
A. $4,000
B. $8,000
C. $12,000
D. $16,000
 Motorcycles sold: 1000*8= $8 000
Motorcycles added to inventory: 1000*= $4 000
$8 000+$4 000= $12 000

4. A radiologist buys a new x-ray machine from General Electric to use in her
medical practice. This x-ray machine included in GDP as:
A. Part of gross private domestic investment
B. A durable consumption good
C. A service
D. A nondurable consumption good.
  Because it increases the economy's productive capacity, the new x-ray
machine is considered a capital goods investment and counts towards
gross private domestic investment for GDP calculations.

5. When calculating GDP___ are added and ___ are subtracted.

A. Exports; net exports
B. Export-import
C. Imports; export
D. Imports; net exports
 To calculate GDP, the formula is C+I+G+(X-M). Where the X (exports)
are added to a country's production because it transports goods abroad.
While M (imports) are subtracted because they are not produced within
the country and are bought from other countries.

6. If the value of net exports is positive, then:

A. Exports exceed import
B. Imports exceed export
C. Exports equal import
D. Import are zero
 If the net exports are positive, then the exports are greater imports
indicting a trade surplus.

7. Which of the following would NOT be counted in 2013’s GDP?

A) The value of a 2011 car you purchase from a car dealer in 2013.
B) The 2013 salary of a used car salesperson.
C) The commissions earned by a real estate agent in selling houses built
prior to 2013.
D) The value of a computer manufactured in 2013 but not sold in 2013.
 During the calculation of GDP, only new goods or services are
calculated, so seeing as the car value was from previous years back and
not the current year, then it wouldn’t be used.

8. Gross National Product is the total market value of

A) All final and intermediate goods and services produced by resources
owned by a country in a given year.
B) All final and intermediate goods and services produced in a country in
a given year, regardless of who owns the resources.
C) All final goods and services produced in a country in a given year,
regardless of who owns the resources.
D) All final goods and services produced by resources owned by a
country, regardless of where production takes place.
 The overall market value of all finished goods and services produced
using resources held by a nation's citizens, whether production occurs
 domestically or elsewhere, is measured by the Gross National Product
(GNP).

9. If gross investment in 2014 is $550 billion and depreciation in 2014 is $500

billion, net investment in 2014 is
A) $50 billion
B) $100 billion
C) $1050 billion
D) None of the above
Net investment= Gross investment- Depreciation
$550-$500= $50 billion

10.The largest income component of GDP is

A) Proprietors’ income
B) Rental income
C) Compensation of employees
D) Corporate profit
 Compensation for workers makes up the largest portion of GDP since it
includes the salaries and benefits provided to employees and represents
the largest portion of income in the majority of economies.

11.What should be subtracted from GDP to calculate national income?

A) Depreciation
B) Indirect taxes
C) Personal income taxes
D) Net factor payment to the rest of the world
 Since depreciation is the gradual loss of value of capital items because of
wear and tear, obsolescence, or use, GDP is deducted by depreciation to
determine national income.

12. Which of the following is Not a component of gross domestic product?

A. Net exports
B. Government purchases
C. Purchases by consumers of used goods
D. Purchases by consumers of finished goods
 GDP includes the market value of only NEW goods and services
produced within a country.

13.Which prices are used to measure goods and services in calculating GDP?
A. Past year prices
B. Current prices
C. Average prices
D. Projected prices
  To calculate GDP, only the value of goods or services is measured using
the current prices within the year they were produced, as only then it can
reflect the economy at that time.

14.If GNP is $400 billion, receipts of factor income from the rest of the world
are $20 billion, and payments are $10 billion, then GDP is of factor income
from the rest of the world, then GDP is?
A. $385 billion
B. $390 billion
C. $430 billion
D. $210 billion
 GNP= GDP + net factor payments
400= GDP+10
GDP= $390 billion dollars

15. GDP is not a perfect measure of social welfare and the society’s economic
well-being because
A. It does not say anything about the distribution of income
B. GDP accounting rules do not adjust for production that causes negative
externalities
C. It does not include all economic activities in the economy
D. All of the above.
 Because it ignores non-market activities like family work, negative
externalities like pollution, and income distribution, all of which have an
impact on society’s well-being, GDP is not a perfect measure of social
welfare.
Part B: Computational Questions:

Refer to the information provided in Table 1 below to answer the questions

that follow.
Table 1
$Billions
Durable goods 500
Non-resident investment 300
Federal purchase of goods 400
Exports 300
State and local purchases of goods 150
Residential investment 100
Services 700
Imports 200
Change in business inventory -50
Nondurable goods 700
Net factor payment from abroad 250
Depreciation 70

1. What is the personal consumption expenditures in billions of dollars?

Personal consumption expenditures:
Services (700) + Durable goods (500) + non-durable goods (700) =
$1900
2. What is the value for gross private domestic investment in billions of
dollars?
Gross private domestic investment:
Non-residential investment (300) + residential investment (100) –
Change in business inventory (-50) = $350
3. What is the value for net exports in billions of dollars?
Net exports:
Exports (300)-Imports (200) =$100
4. What is the value of government spending in billions of dollars?
Government:
Federal (400) +State and local purchases of goods (150) =$550
5. What is the value of gross domestic product in billions?
GDP:
Personal Consumption (1900) + Investment (350) + Government
purchases (550) + Net exports (100) = $2 900
6. What is the value of gross national product in billions of dollars?
 GNP:
GDP (2900) + Net factor payment from abroad (250) = $3 150
7. What is the value of net national product in billions of dollars?
NNP:
GNP (3 150) – Depreciation (70) = $ 3 080