Deck 20: The Measurement of National Income

Question 1

Which of the following is excluded from GDP?

A)the labour supplied by a lawyer to defend a suspect charged with a criminal offense
B)the purchase of new computers by a police department
C)the labour services provided by a police officer in the narcotics squad
D)the purchase price of illegal drugs sold by a drug dealer
E)the repairs to a police car after damage as a result of a high speed chase

Answer 1

D

Question 2

Transfer payments are excluded from the government component in the calculation of GDP because

A)they do not represent the purchase of a good or a service.
B)they are small enough to ignore when computing the national accounts.
C)they are not counted as income by any economic agent.
D)it is difficult to assess the market value of a transfer payment.
E)they do not generate additional income in the economy.

Answer 2

A

Question 3

When calculating GDP from the expenditure side, "actual consumption expenditures" includes

A)the construction of an apartment building.
B)American tourists travelling to and spending in Canada.
C)increases in automobile inventories.
D)the monthly rental of an apartment.
E)the purchase of a new house.

Answer 3

D

Question 4

Which of the following is the most appropriate measure for evaluating the average material living standards of Canadian residents?

A)per capita Gross National Product
B)per capita Gross Domestic Product
C)per capita Net National Product
D)disposable income
E)Net Domestic Income at Factor Cost

Question 5

Which of the following purchases by households is considered as consumption expenditure for the purposes of national- income accounting?

A)tractors for use on a family farm
B)the purchase of company stock
C)a new house
D)a Government of Canada Treasury bill
E)legal services

Question 6

Disposable personal income is calculated as

A)equal to the gross wages plus salaries received by the household.
B)GNP minus that part of it not actually paid to households, plus personal income taxes paid by households.
C)GNP minus that part of it not actually paid to households, plus transfer payments, minus personal income taxes.
D)GNP minus that part of it not actually paid to households, minus transfer payments to households.
E)equal to the gross wages plus interest received by the household.

Question 7

An example of a transfer payment is

A)government payments of salaries to police officers in the vice squad.
B)payments to senior citizens from Old Age Security (OAS).
C)private firms' payments of dividends.
D)government spending on military equipment.
E)government payments of salaries to Members of Parliament.

Question 8

When adding up the value of all goods produced in the economy, double counting can be avoided if only the is included.

A)revenue of all goods and services.
B)value of final good and services.
C)value of intermediate goods and services.
D)revenue of intermediate goods and services.
E)cost of intermediate goods and services.

Question 9

In macroeconomics, the term "capital goods" refers to

A)the financial resources necessary to start a firm.
B)man- made factors of production, such as tools, machines, and factory buildings.
C)all factors of production.
D)money.
E)stocks and bonds.

Question 10

If nominal GDP in some year is $3800 and the GDP deflator for the same year is 152, then the real GDP for that year is

A)$2280.
B)$5776.
C)$2500.
D)$3500.
E)$3800.

Question 11

Suppose that in 2000, Canada Cars Corporation produced $20 million worth of cars and trucks but was able to sell only $16 million worth. Is the remaining $4 million increase in inventories part of GDP for 2000? 1. Yes, since changes in inventories are part of consumption expenditures.
2. Yes, since they are part of the economy's output in 2000.
3. Yes, since changes in inventories are part of actual investment.

A)1 only
B)2 only
C)3 only
D)both 1 and 2
E)both 2 and 3

Question 12

Jodie's Bakery generates a yearly revenue of $6000. Throughout the year Jodie spends $1500 on flour, $1000 on fruit, $500 on sugar & spices, $1500 on butter, and employs an assistant whom she pays $1000. Calculate the value of the annual output produced by Jodie's Bakery using the value added method.

A)$1000
B)$1500
C)$4500
D)$5000
E)$6000

Question 13

When calculating GDP from the income side, which of the following is included in non- factor payments?

A)income tax
B)wages and salaries
C)GST
D)bond interest
E)business profits

Question 14

Which of the following statements regarding housing expenditures in the national accounts is correct?

A)The provision of new public housing by the government is classified as private investment.
B)The cost of a home purchased from its previous occupant is part of investment.
C)New residential construction is classified as consumption.
D)Owner- occupied housing is counted as investment by imputing the value of the housing services enjoyed by the owner.
E)Rental payments for houses are counted as part of consumption.

Question 15

Suppose a Canadian firm imports $5000 worth of frisbees from China and sells them for $10 000. The effect on GDP would be

A)to increase the value of GDP by $10 000.
B)to decrease the value of GDP by $15 000.
C)to increase the value of GDP by $15 000.
D)to increase the value of GDP by $5000.
E)no effect on GDP since the frisbees were produced outside of Canada.

Question 16

When calculating GDP using the expenditure approach, the investment component includes

A)net investment plus depreciation.
B)gross investment plus depreciation.
C)fixed investment minus depreciation.
D)net investment only.
E)net investment minus depreciation.

Question 17

GDP from the expenditure side is equal to the sum of

A)C_a + I_a + G_a + (X_a - IM_a).
B)C_a + I_a + G_a.
C)C_a + I_a + net exports.
D)C_a + I_a + G_a - net exports.
E)C_a + I_a + G_a + (IM_a - X_a).

Question 18

Why are illegal activities, unreported activities, and non-market activities excluded from GDP?

A)They do not contribute to human welfare.
B)They are morally repugnant.
C)The do not contribute to the true national output of goods and services.
D)They are difficult to measure.
E)They do not have an opportunity cost.

Question 19

the wood used for the base of the skateboards.

A)1 and 2
B)1 and 3
C)2 and 3
D)1 only
E)3 only

Question 20

In national- income accounting, replacement investment is the investment that

A)is equal to all existing capital stock in the country.
B)maintains the existing capital stock at a constant level.
C)is used in the calculation of GDP from the expenditure side.
D)when added to gross investment is equal to total saving.
E)is done by the government.

Question 21

is set to be equal to 100 in its base year.

A)1, 2, and 3
B)1 only
C)2 only
D)2 and 3
E)1 and 3

Question 22

In national- income accounting, "depreciation" refers to

A)a term used in accounting, not economics.
B)the amount by which the capital stock is depleted during the accounting period.
C)the increase in the economy's stock of capital per year.
D)the decrease in the economy's stock of capital per year.
E)net investment.

Question 23

Which one of the following is an example of "government purchases"?

A)$100 000 paid as interest on the national debt
B)$4000 spent for services provided by a private consultant
C)$1000 paid to a poor person for income support
D)$2000 paid to a retiree
E)$600 paid to an unemployed worker for employment insurance

Question 24

In national- income accounting, the value of intermediate products

A)should always be counted as part of GDP in the expenditure approach.
B)should be added to the value of other inputs in determining a firm's contribution to GDP.
C)is counted as factor income in the calculation of GDP from the income side.
D)should be subtracted from the value of final goods in determining a firm's total value added.
E)must equal the value added by the firm.

Question 25

The change in the country's capital stock during a year is equal to

A)gross fixed investment.
B)net change in inventories plus capital consumption allowance.
C)gross investment.
D)capital consumption allowance.
E)net investment.

Question 26

Suppose a Canadian firm imports $1000 worth of bananas and sells them for $2000. The effect on Canadian GDP would be

A)to increase the value of GDP by $2000.
B)to increase the value of GDP by $3000.
C)to increase the value of GDP by $1000.
D)to decrease the value of GDP by $3000.
E)no effect on GDP since the bananas were produced outside Canada.

Question 27

One reason that GDP tends to understate the economic well- being of the country's residents is that it ignores the

A)incomes of police officers whose labour reduces the impact of illegal activity.
B)incomes and value added by employees of used car lots.
C)benefits of increased leisure time.
D)legal expenditures from people who earn their incomes from criminal activity.
E)the incomes earned by Members of Parliament.

Question 28

Statistics Canada excludes from GDP the value of goods and services exchanged "under the counter" because

A)these goods are all intermediate goods.
B)satisfactory methods for their measurement have not been developed.
C)these goods do not contribute to well- being.
D)Statistics Canada is responsible for making an ethical decision about which activities to exclude from national income measures.
E)their production has zero opportunity cost.

Question 29

When calculating GDP from the expenditure side, how do net exports enter the equation?

A)They may or may not be included depending on whether they are for final or intermediate goods.
B)They are included as a separate category.
C)They are included only if it is a positive number.
D)They are included but as part of C, I, or G.
E)They are NOT included because they do not represent an expenditure by Canadians.

Question 30

Which of the following is included in current calculations of GDP?

A)the purchase of an antique table from the previous owner
B)the salary of the Prime Minister
C)the purchase of illegal drugs
D)the number of volunteer hours worked
E)homemaker tasks

Question 31

A government transfer payment to a person is

A)considered a consumption expenditure.
B)evidence that government expenditures are too high.
C)included in disposable income measures but not national income.
D)an important component of national income.
E)considered a component of G in the calculation of GDP.

Question 32

Total value added in an economy is equal to the value of

A)all profits of all firms in the economy.
B)the sum of the value of primary, intermediate and final goods.
C)all final goods produced.
D)all final and intermediate goods produced.
E)all inputs and outputs in the economy.

Question 33

The principle difference between GDP and GNP is that GNP measures , while GDP measures .

A)the value of total output produced by Canada; wages and salaries received by Canadian residents.
B)total income generated by Canadians, both domestic and abroad; total income generated by Canadians, domestic only.
C)the total amount of income received by Canadian residents; the value of total output produced in Canada.
D)wages and salaries, plus world- wide investment income received by Canadian residents; the value of total output produced in Canada.
E)total factor incomes in the economy; total expenditure in the economy.

Question 34

In Shoetown, a rancher takes $0 worth of inputs and produces animal skins, which he sells to the tanner for $400. The tanner then sells leather to the shoemaker for $700, and the shoemaker then sells $1 200 worth of shoes. The value added by the tanner is

A)$400.
B)$1200.
C)$0.
D)$300.
E)$500.

Question 35

In national- income accounting, a fall in G_a (other things being equal)will be recorded if

A)the number of employed civil servants increases, but total government salaries remains unchanged.
B)the total salaries paid to civil servants falls.
C)the true market value of government- produced goods and services decreases.
D)labour productivity in the government sector falls.
E)wages in the government sector rise.

Question 36

Suppose that in 2008, ABC Corporation produced $6 million worth of natural gas pipes but was able to sell only $5 million worth. Is the remaining $1 million of unsold pipes part of GDP for 2008?

A)No, since they are added to existing inventories.
B)Yes, since they are part of the economy's output in 2008.
C)Yes, since changes in inventories are part of consumption expenditures.
D)No, since changes in inventories are part of actual investment.
E)No, since they are part of the economy's output only when sold.

Question 37

Real GDP is equivalent to

A)personal disposable income plus depreciation.
B)the money value of all goods and services produced in an economy per year plus imports.
C)the nominal value of GNP multiplied by the GDP deflator.
D)the value of all goods and services produced in an economy per year adjusted for price changes.
E)the market value of all goods and services produced in an economy per year.

Question 38

Which of the following is included in the current calculations of GDP?

A)volunteer work undertaken by Mary Smith
B)welfare payments
C)the purchase of a 1939 painting from the previous owner
D)the purchase of a second hand automobile from the previous owner
E)pizza purchased by college students for dinner

Question 39

The term "investment" in macroeconomics means

A)the production of goods not for immediate consumption use.
B)the total amount of capital goods in the country.
C)money spent in markets for financial capital.
D)the production of goods for immediate consumption.
E)the same thing as profits.

Question 40

One reason that real GDP tends to overstate the economic well- being of the country's residents is that it ignores

A)transactions such as teenaged- babysitting services.
B)the costs of increased leisure time.
C)the tips that waiters receive.
D)the market- based activity done from the home.
E)the economic "bads" associated with production, such as pollution.

Question 41

Net domestic income is a useful concept primarily because it

A)includes government transfer payments.
B)does not include inventory investment.
C)represents national income plus depreciation.
D)excludes the value of output that is used as replacement investment.
E)includes all goods produced but not exchanged in markets.

Question 42

In national- income accounting, a rise in G_a will be recorded (other things being equal)if

A)wages in the government sector fall.
B)the total salaries paid to civil servants rise.
C)the government's purchases of office furniture falls.
D)output of government- produced goods and services increases.
E)labour productivity in the government sector rises.

Question 43

The best measure of total income received by Canadian citizens is

A)disposable personal income.
B)net domestic income at factor cost.
C)real GDP.
D)GNP.
E)nominal GDP.

Question 44

Which of the following statements regarding investment is correct?

A)Housing construction is classified as investment expenditure rather than consumption expenditure.
B)Rental payments are included as investment expenditures.
C)Depreciation refers to funds used to increase the existing stock of capital.
D)The capital stock includes investment in stocks and bonds.
E)The accumulation of inventories does not count as current investment.

Question 45

Which of the following is included in current calculations of GDP?

A)volunteer work
B)the value of vegetables consumed by the home gardener
C)the value of a vintage automobile purchased from the previous owner
D)computers produced here and exported to Europe
E)welfare payments

Question 46

The term "fixed investment" refers to

A)total gross investment minus depreciation.
B)the existing capital stock.
C)investment in stocks and bonds.
D)capital stock that has been repaired.
E)creating new plant and equipment.

Question 47

When calculating GDP from the expenditure side, which of the following is true of the government purchases component, G_a?

A)it is based on the government's planned spending
B)it excludes transfer payments
C)it only includes federal government expenditures
D)it excludes government investment expenditure
E)it includes employment insurance and employment benefits

Question 48

In the national income and product accounts, a reduction of inventories counts as

A)saving.
B)positive investment.
C)depreciation.
D)consumption.
E)negative investment.

Question 49

As a measure of Canadian economic activity GDP is to GNP. As a measure of the income accruing to Canadian residents, GDP is to GNP.

A)equivalent ; inferior
B)superior ; equivalent
C)inferior ; equivalent
D)inferior ; superior
E)superior ; inferior

Question 50

Which of the following statements about depreciation is true?

A)Depreciation includes net additions to the economy's total stock of capital.
B)Depreciation is equal to net investment.
C)The total amount of capital goods in a country is called depreciation.
D)Net investment is equal to gross investment minus depreciation.
E)Net investment is equal to gross investment plus depreciation.

Question 51

When calculating GDP from the expenditure side, G_a comprises

A)only expenditures made by provincial and local governments.
B)only purchases of goods and not services.
C)only expenditures made by the federal government.
D)government expenditures on goods and services, including transfer payments.
E)government purchases of goods and services, excluding transfer payments.

Question 52

If a firm's depreciation exceeds its gross investment, then its

A)capital stock will be growing.
B)depreciation cannot exceed gross investment.
C)net investment will be positive.
D)gross investment will be negative.
E)capital stock will be shrinking.

Question 53

One major reason that GDP is an inaccurate measure of the "quality of life" is that

A)it includes net exports.
B)it cannot be adjusted for changes in prices.
C)it is statistically very inaccurate.
D)it does not include the value of leisure.
E)people frequently buy things they do not want.

Question 54

Suppose you are hired as a consultant to estimate the increase in consumer demand for automobiles for the coming year. Which measure of aggregate income would be most useful to you for this type of forecasting?

A)Gross National Product
B)Disposable Income
C)GDP Deflator
D)Gross Domestic Product
E)Net National Product

Question 55

To calculate the change in the value of inventories for the investment component of GDP, one should use their

A)current market value.
B)value at the time the goods are sold and removed from inventory.
C)cost of production minus the costs of labour and capital.
D)market value at the time they were produced.
E)cost of production at the time they were produced.

Question 56

The "value added" for an individual firm can be calculated by

A)subtracting the income that goes to the factors of production used by the firm from the firm's revenue.
B)adding up the income received by the factors of production used by the firm.
C)calculating the profit generated by the firm.
D)adding the cost of the intermediate goods used by the firm.
E)calculating the revenue generated by the firm.

Question 57

Suppose a government collects $12 billion in various tax revenues, and pays $2.5 billion in debt interest, $9 billion in social security benefits, and $0.5 billion in government employee wages. What is the direct contribution to GDP coming from this government's fiscal actions?

A)$11.5 billion
B)$3.0 billion
C)$2.5 billion
D)$0.5 billion
E)$12.0 billion

Question 58

If the amount of income generated in Canada that is remitted to foreigners is greater than the amount of income generated abroad that is remitted to Canadian residents, then

A)GNP is less than disposable personal income.
B)GDP is equal to GNP.
C)GNP is negative.
D)GDP is lower than GNP.
E)GNP is lower than GDP.

Question 59

Of the following possibilities, the best measure of the average material living standards of domestic residents is

A)per capita GNP.
B)per capita net exports.
C)GNP.
D)per capita GDP.
E)GDP.

Question 60

Disposable personal income

A)is the part of national income that is available to households to spend or save.
B)equals personal income, minus personal income taxes, plus transfer payments and interest on public debt.
C)is equal to wages.
D)includes capital consumption allowances.
E)includes undistributed corporate profits.

Question 61

An example of an item that would be excluded from a measure of GDP from the expenditure side is

A)a new truck purchased by a furniture- delivery company.
B)government pension payments to a retired person.
C)the purchase of windows by an automobile assembly plant.
D)the purchase of a tattoo for Mary Smith's ankle.
E)fertilizer purchased by Farmer Jones to increase crop yields.

Question 62

In national- income accounting, which of the following transactions by households is considered to be an investment expenditure?

A)the purchase of an imported car
B)the purchase of a DVD player
C)the purchase of a Guaranteed Investment Certificate (GIC)
D)payment for the construction of a custom- built new home
E)the purchase of a government bond

Question 63

In national- income accounting, what does the term I_a represent?

A)actual net investment minus depreciation
B)actual fixed investment minus depreciation
C)actual gross investment (including depreciation)
D)actual net investment plus depreciation
E)actual net investment

Question 64

In Canada, the measurement of national income and national product is conducted by

A)the Treasury Board.
B)the Department of Finance.
C)statisticians in universities.
D)the Bank of Canada.
E)Statistics Canada.

Question 65

To calculate GDP from the expenditure side, one must add together

A)consumption, investment, government purchases, and net exports.
B)consumption, government purchases, and interest.
C)wages, profits, government purchases and net exports.
D)wages, rent, interest, and profits.
E)consumption, investment, government purchases, and exports.

Question 66

Suppose that nominal national income in some country fell from $100 billion to $95 billion during the year. Over the same period, inflation was 5 percent. Therefore the real national income in this country

A)fell by 10 percent.
B)fell by 5 percent.
C)was unaffected.
D)rose by 5 percent.
E)rose by 10 percent.

Question 67

All goods and services produced by one firm but used as inputs into a further stage of production are called

A)final goods.
B)national income goods.
C)intermediate goods.
D)consumption goods.
E)value added.

Question 68

When computing GDP from the expenditure side, which of the following items is excluded from the government component?

A)salaries to Canadian Forces officers
B)costs of Parliamentary Committees
C)operating costs of the Canadian Coast Guard
D)employment- insurance benefits
E)purchases of land by the government

Question 69

When calculating GDP from the expenditure side, which of the following is true of the investment component, I_a?

A)it excludes expansions of existing factories
B)it includes changes in inventories
C)it only includes business fixed investment
D)it includes the transfer of houses between individuals
E)it only includes decumulation of inventories

Question 70

One major reason that GDP is an inaccurate measure of the true level of economic activity is that

A)it is statistically very inaccurate.
B)it cannot be adjusted for changes in prices.
C)it includes net exports.
D)people frequently buy things they do not want.
E)it does not include non- market activities.

Question 71

To calculate GDP from the income side, one must add together wages,

A)interest, rent, depreciation, profits and indirect taxes net of subsidies.
B)government income, interest, and profits.
C)consumption and depreciation.
D)investment, rent, depreciation, profits and indirect taxes net of subsidies.
E)net exports, depreciation, and profits.

Question 72

Historically, nominal GDP has increased faster than real GDP because

A)imports have risen more rapidly than exports.
B)improvements in product quality have not been reflected in prices.
C)the general price level has increased.
D)exports have risen more rapidly than imports.
E)the general price level has fallen.

Question 73

How does net domestic income differ from gross domestic product? Net domestic income is GDP minus

A)that part of it not actually paid to households, plus transfer payments to households.
B)that part of it not actually paid to households, plus transfer payments to households, minus personal taxes paid by households.
C)the sum of corporate, personal and sales taxes paid to the government.
D)replacement investment.
E)that part of it not actually paid to households, minus personal income taxes paid by households.

Question 74

Measures of GDP may understate the economic well- being of people in developing countries if those countries tend to

A)import much more than they export.
B)emphasize agricultural and resource- based production.
C)have a high degree of foreign direct investment.
D)have very high rates of pollution.
E)have a large share of non-market activities.

Question 75

In national- income accounting, government expenditures on the salaries of civil servants are included at

A)their after- tax salaries.
B)opportunity cost.
C)the market value of the goods and services they produce
D)their imputed market value.
E)their pre- tax salaries, or factor incomes.

Question 76

In national- income accounting, "double counting"

A)leads to an underestimation of GDP in any given period.
B)means that consumption will always be less than GDP.
C)means that pre- tax and after- tax GDP will be different.
D)occurs when the value of output is counted more than once in the calculation of national income.
E)occurs when the value of some output is omitted in the calculation of national income.

Question 77

Which of the following would be classified as "investment" in the national income and product accounts?

A)the payment of real- estate fees
B)the holding of money
C)the purchase of Telus stock
D)the purchase of a government bond
E)the construction of a new factory

Question 78

In Lumberville, the lumberjack cuts trees and sells them to the local mill for $500. The local mill processes these trees into wood planks and sells them to the carpenter for $800. Finally, the carpenter uses these wood planks to make tables which he sells for $1400 to Lumberville's residents. If we allowed double counting, the total value of Lumberville's output would be calculated as . But if we correctly compute the total value added, the value of the total output in Lumberville would be .

A)$2700; $1400
B)$2200; $4200
C)$2200; $2700
D)$4200; $2700
E)$1400; $1400

Question 79

Which of the following statements about national- income accounting is correct?

A)The value of the expenditure on a nation's output is equal to the total income claims generated by producing that output.
B)GDP on the expenditure side is calculated by adding up all the income claims generated by the act of production.
C)GDP on the income side is calculated by adding up total expenditure for each of the main components of final output.
D)The total value added in the economy is equal to the sum of all components in the circular flow of expenditure and income.
E)GDP from the expenditure side and GDP from the income side differ by the amount of investment in the economy.

Question 80

In Shoetown, a rancher takes $0 worth of inputs and produces animal skins, which he sells to the tanner for $400. The tanner then sells leather to the shoemaker for $700, and the shoemaker then sells $1200 worth of shoes. The value added from these transactions is

A)$ 800.
B)$2300.
C)$2500.
D)$1200.
E)$1000.