AP Economics
Ms. Raphaels
GDP Practice
Name: _________________________________
Period: ___
1. Above is a simplified circular-flow diagram for the economy of Micronia.
A. What is the value of GDP in Micronia?
B. What is the value of net exports?
C. What is the value of disposable income?
D. Does the total flow of money out of households – the sum of taxes paid and consumer spending – equal the
total flow of money into households?
E. How does the government of Micronia finance its purchases of goods and services?
2. The small economy of Pizzania produces three goods (bread, cheese, and pizza), each produced by a separate
company. The bread and cheese companies produce all the inputs they need to make bread and cheese,
respectively. The pizza company uses the bread and cheese from the other companies to make its pizzas. All three
companies employ labor to help produce their goods, and the difference between the value of goods sold and the
sum of labor and inputs costs is the firm’s profit. The accompanying table summarizes the activities of the three
companies when all the bread and cheese produced are old to the pizza company as inputs in the production of
pizzas.
Bread
Company
Cheese
Company
Cost of inputs
$0
$0
$50 (bread)
$35 (cheese)
Wages
$15
$20
$75
Value of output
$50
$35
$200
A. Calculate GDP as the value added in production.
B. Calculate GDP as spending on final goods and services.
C. Calculate GDP as factor income.
Pizza Company
3. Indicate whether each of the following is counted in the United States GDP for year 2006. Explain each of your
answers.
A. The value of a used textbook sold through an online auction in 2006
B. Rent paid in 2006 by residents in an apartment building built in 2000
C. Commission earned in 2006 by a stockbroker
D. The value of automobiles in 2006 produced entirely in South Korea by a firm fully owned by U.S. citizens