GNP/GDP Quiz

Which of the following lists of goods and services would be included in calculating GNP?

• Iron ore used in making steel for automobiles; steel used in making automobiles; sale of a new automobile manufactured in Germany but purchased in the U.S.
• Sale of a new automobile manufactured in the U.S. but purchased in Germany; childcare and housekeeping services for which the worker is compensated; the compensated services of a business consultant who provides advice and education, but no products.
• Sale of a new automobile manufactured in Germany but purchased in the U.S.; childcare and housekeeping services for which the worker is compensated; sale of stocks.
• Welfare payments; sale of a used automobile; remodeling of houses using corn husks as thatched roofs.

George S. reads in today’s paper that the Consumer Price Index (CPI) for October of 1988 was 120, and that for October of 1989 it is 140. Based on this information, George can conclude that the current rate of inflation is:

• exactly 20 percent.
• about 14 percent.
• over 16 percent.
• negative—based on the figures, prices have actually dropped.

One of the real limitations of GNP or NNP, from the perspective of most economists, is that these measures:

• are adjusted for the size of a nation’s population.
• differ according to the value society places on the goods and services produced.
• include the costs of dealing with pollution—which have no direct relation to productivity.
• ignore the value workers place on leisure time—even though leisure may contribute to quality of life.

Prior to 1929, the general state of the economy was determined by:

• measures of GNP and NNP, the same as it is now.
• the measured economic welfare scale of Nordhaus and Tobin.
• government statistics based on census and average net income.
• consumers’ personal sense of well-being.

When Simon Kuznets devised the GNP scale, he made the decision to exclude illegal activities like drug smuggling and gambling from his calculations. Kuznets based this decision MAINLY on the fact that:

• such activities, at that time, netted little national income.
• he wanted to focus on productivity that contributed to social welfare.
• he could not obtain accurate information on income generated through such activities.
• such activities generated income, but few tangible products.

The U.S. contribution to the war effort during World War II had what effect on GNP?

• It boosted GNP dramatically.
• It boosted GNP slightly.
• GNP fell to its lowest level in years as resources were depleted.
• Since resources were only transferred from one kind of production to another, there was virtually no effect.