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Unformatted text preview: Mock Multiple Choice, Warm-Up
Kyle F. Herkenhoﬀ∗
Department of Economics
April 18, 2011 1 GDP Which of the following are true?
(a) An intermediate, such as Wheat, used in the production of a ﬁnal good, Bread, is counted
once in the current GDP when the Bread is sold.
(b) Corn, used up in the production of high fructose corn syrup (intended as an ingredient
in other foods that have not yet been made) is in current GDP.
(c) Government spending on missiles not used this year that are sitting on an aircraft carrier
is in current GDP.
(d) Commission on a house that was sold in the current year, but built in 1964 is in current
(e) Spending on candy that has been sitting in the candy store for over 1 year is in current
GDP. ∗ Correspondence: firstname.lastname@example.org 1 Notes: GDP is the market value of all newly produced FINAL goods and services (within
a country during some time period). Intermediate goods are not ﬁnals goods! But, of course,
once the ﬁnal good is sold, go ahead and add the value of all intermediates used in producing
that ﬁnal good and this goes into GDP
Answer: Under the assumptions of the class notes, the ﬁrst statement is true, the second
statement is not (intermediate, not ﬁnal good– the high fructose corn syrup is an intermediate
good. If it goes into some candy and that candy is sold, then GDP includes the candy
price=value of high fructose corn syrup+value of other itnermediates used to make candy),
the government missiles are counted (our assumed purchase of excess inventory), the third
statement is true, the fourth is ture (you should just include the commission),
and the ﬁfth is not (the candy was considered purchased by the candy store last year– our
assumed purchase of excess inventory). 2 ...
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