Question

1.  Which of the following is NOT counted when calculating the U.S. GDP using the income approach

A. after-tax profits (dividends) paid to the Japanese owners resulting from the activity of the Toyota Motor Manufacturing plant that operates in Kentucky, US.

B. the wage compensation paid to a Japanese plant manager who has been helping run (on-site) the Kentucky factory for this past year.

C. interest paid to domestic lenders by the state of Kentucky for a loan made to cover a temporary shortfall in the unemployment benefit payments system due to a large number of workers that had been laid off by Toyota Motor Manufacturing, Kentucky

D. business taxes paid to the local government by Toyota Motor Manufacturing plant that operates in Kentucky.

E. wages and salaries paid to domestic workers at Toyota Motor Manufacturing (a Japanese owned brand) in Kentucky, US.

2. Which of the following statements is TRUE?

A. Depreciation is not included in current GDP.

B. GNP is calculated by subtracting from GDP the balance of trade (i.e. the difference between imports and exports).

C. Since personal taxes are not included in GDP when calculating GNP they must be added back.

D. GNP is, by definition, a larger dollar value than GDP.

E. Current GDP does not include the market value of final goods and services produced domestically in a different time period.

Answer 1

1 - Option B

A wage compensation paid to the Japanese plant manager who has been helping running the kentaky factory this year.

This is the income which will be added in GDP of Japan as foreign income from abroad and not in US GDP. All the other transactions will be the part of US GDP.

2 - Option D

GNP is by definition , a larger dollar value than GDP.

This is because GNP includes the foreign income from abroad where GDP does not. The other options are false.