Tackle the Test: Free-Response Questions

1. Question

   Will each of the following transactions be included in GDP for the United States? Explain why or why not.

   
   

   
   

   1. Coca-Cola builds a new bottling plant in the United States.

      
      
   
   

   2. Delta sells one of its existing airplanes to Korean Air.

      
      
   
   

   3. Ms. Moneybags buys an existing share of Disney stock.

      
      
   
   

   4. A California winery produces a bottle of Chardonnay and sells it to a customer in Montreal, Canada.

      
      
   
   

   5. An American buys a bottle of French perfume in Tulsa.

      
      
   
   

   6. A book publisher produces too many copies of a new book; the books don’t sell this year, so the publisher adds the surplus books to inventories.

      
      
   
   

   Rubric for FRQ 1 (6 points)

   1 point: Yes. New structures built in the United States are included in U.S. GDP.

   1 point: No. The airplane is used, and sales of used goods are not included in GDP.

   1 point: No. This is a transfer of ownership—not new production.

   1 point: Yes. This is an export.

   1 point: No. This is an import—it was not produced in the United States.

   1 point: Yes. Additions to inventories are considered investments.

2. Question

   Draw a correctly labeled circular-flow diagram showing the flows of funds between the markets for goods and services and the factor markets. Add the government to your diagram, and show how money leaks out of the economy to the government and how money is injected back into the economy by the government. (5 points)

   Rubric for FRQ 2 (5 points)

   

   1 point: Correctly showing the markets for goods and services, factor markets, households, and firms on the diagram

   1 point: Correctly illustrating the flows of goods and services, factors, and money

   1 point: Showing the government linked to households through taxes flowing from households to the government (Note: Taxes can also flow from firms to the government.)

   1 point: Showing the government linked to households through transfers flowing from the government to households (Note: Transfers can also flow to firms.)

   1 point: Showing the government linked to the market for goods and services through government purchases of goods and services