CLEP Macroeconomics chapter practice4 questions

06 The Circular Flow and Gross Domestic Product

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

Gross domestic product counts newly produced final output. Which of the following transactions is included in this year's measure?

The refrigerator is final output produced inside the period, which is precisely what GDP counts. A was counted in the year the car was built, so counting the resale would double-count it. B and D move claims from one holder to another without creating output, and C creates real value that no market records.
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E. A newly produced refrigerator sold to a household

The refrigerator is final output produced inside the period, which is precisely what GDP counts. A was counted in the year the car was built, so counting the resale would double-count it. B and D move claims from one holder to another without creating output, and C creates real value that no market records.

Question 2

Question 2 of 4

Goods a firm produces this year but does not sell are recorded in gross domestic product as

Unsold current output is recorded as an addition to firms' inventories, which keeps production and expenditure equal within the year. Choices B and C would require a buyer, D reverses the direction of the transaction, and E is not a purchase of output at all.
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A. inventory investment

Unsold current output is recorded as an addition to firms' inventories, which keeps production and expenditure equal within the year. Choices B and C would require a buyer, D reverses the direction of the transaction, and E is not a purchase of output at all.

Question 3

Question 3 of 4

Government purchases and transfer payments are recorded separately. What item belongs in government purchases?

The salary buys a teaching service produced this year, which is what a purchase means in the accounts. A and C hand money to recipients who owe nothing in return, D pays for the use of past borrowing rather than for current output, and E returns money already collected. None of the four buys anything currently produced.
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B. A salary paid to a public-school teacher

The salary buys a teaching service produced this year, which is what a purchase means in the accounts. A and C hand money to recipients who owe nothing in return, D pays for the use of past borrowing rather than for current output, and E returns money already collected. None of the four buys anything currently produced.

Question 4

Question 4 of 4

Consumption is 600, investment is 150, government purchases are 200, exports are 80, and imports are 110. Gross domestic product equals

600+150+200+80-110=920. A subtracts the 110 of imports a second time, B leaves exports out of the sum, D drops the import subtraction and stops at 600+150+200+80, and E adds imports where the identity subtracts them.
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C. 920

600+150+200+80-110=920. A subtracts the 110 of imports a second time, B leaves exports out of the sum, D drops the import subtraction and stops at 600+150+200+80, and E adds imports where the identity subtracts them.

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