Deck 2: Measurement

Question 1

GDP is published by Statistics Canada as part of the

A) GDP Statistical Review.
B) Labour Force Statistics.
C) National Income and Expenditure Accounts (NIEA).
D) Survey of Current Business.
E) Current Population Survey.

Answer 1

C

Question 2

The income approach to calculating GDP includes

A) consumer spending.
B) exports of income earned.
C) net interest income.
D) government surpluses.
E) investment.

Answer 2

C

Question 3

Pamela's bakery produces 500 loaves of bread in a given year. Pamela pays $100 for flour and yeast, pays $600 in wages, pays $50 in interest on an existing loan, and pays $100 in taxes to the government. One of Pamela's bread slicing machines, which cost $75 each, wears out over the course of the year and must be scrapped. Pamela's profit for the year equals $75. Pamela's bread, therefore, sells for

A) $0.50 per loaf.
B) $1.00 per loaf.
C) $2.00 per loaf.
D) $1.50 per loaf.
E) cannot tell, insufficient information.

Answer 3

C

Question 4

Intermediate goods are

A) irrelevant in the overall economy.
B) purchased by consumers.
C) goods that are produced and used as inputs into the production process.
D) sold to foreigners.
E) not a consumption good.

Question 5

Value added is equal to the value of a firm's production minus

A) all of its costs of production.
B) labour costs.
C) investment expenditures.
D) intermediate goods used in production.
E) costs of production.

Question 6

The product approach to calculating GDP values government production at

A) market prices.
B) its cost of production.
C) its estimated value to society.
D) the total amount of taxes it collects.
E) its intermediate costs.

Question 7

Suppose that the government collects $3 million in taxes, pays $2 million in Employment Insurance benefits, pays $0.5 million in interest on the national debt, and pays workers $1 million to sit at their desks and work as little as possible. The government's contribution to GDP is

A) $0.
B) $1 million.
C) $1.5 million.
D) $3 million.
E) $3.5 million.

Question 8

The three approaches to measuring GDP are called the

A) accounting approach, the income approach, and the expenditure approach.
B) product approach, the cost approach, and the expenditure approach.
C) product approach, the income approach, and the expenditure approach.
D) accounting approach, the statistical approach, and the income approach.
E) accounting approach, the statistical approach, and the product approach.

Question 9

Approaches to measuring GDP include

A) cost approach.
B) GDP approach.
C) income approach.
D) trade approach.
E) value-subtracted approach.

Question 10

The expenditure approach to calculating GDP includes

A) wage income.
B) investment.
C) all forms of taxation.
D) the sum of government spending on goods and services, transfer payments, and interest on the national debt.
E) corporate profits.

Question 11

Gross domestic product is defined as

A) the value of all goods produced in the economy in a given time period within the borders of Canada.
B) the market value of all goods and services produced in the economy during a given time period within the borders of Canada.
C) the total market value of the final goods and services produced during a given time period within the borders of Canada.
D) the total market value of all the intermediate goods and services produced in the economy for a given time period within the borders of Canada.
E) the market value of all goods and services produced by Canadian residents domestically and abroad.

Question 12

Jim's Nursery produces and sells $1,100 worth of flowers. Jim uses no intermediate inputs. He pays his workers $700 in wages, pays $100 in taxes and pays $200 in interest on a loan. Jim's contribution to GDP is

A) $900.
B) $1,000.
C) $1,100.
D) $1,800.
E) $2,000.

Question 13

Jim's Nursery produces and sells $1,100 worth of flowers. Jim uses no intermediate inputs. He pays his workers $700 in wages, pays $100 in taxes and pays $200 in interest on a loan. Jim's profit is

A) $100.
B) $200.
C) $400.
D) $800.
E) $1,000.

Question 14

Acme Steel Co. produces 1,000 tons of steel. Steel sells for $30 per ton. Acme pays wages of $10,000. Acme buys $15,000 worth of coal, which is needed to produce the steel. Acme pays $2,000 in taxes. Acme's contribution to GDP is

A) $15,000.
B) $20,000.
C) $30,000.
D) $45,000.
E) $60,000.

Question 15

The income approach to calculating GDP is

A) the sum of all business income earned.
B) the sum of all consumer income earned.
C) all the spending on goods and services earned by consumer's income.
D) the sum of all incomes earned from production.
E) net of taxes.

Question 16

Acme Steel Co. produces 1,000 tons of steel. Steel sells for $30 per ton. Acme pays wages of $10,000. Acme buys $15,000 worth of coal, which is needed to produce the steel. Acme pays $2,000 in taxes. Acme's profit is

A) $0.
B) $2,000.
C) $3,000.
D) $15,000.
E) $25,000.

Question 17

The income-expenditure identity is best paraphrased as

A) all spending generates income.
B) all profits are used for investment spending.
C) on average, consumers cannot save.
D) on average, government can spend no more than what it collects in income taxes.
E) all income is spent.

Question 18

The value of a producer's output minus the value of all intermediate goods used in the production of that output is called the producer's

A) net output.
B) accounting profit.
C) value added.
D) profit margin.
E) costs of production.

Question 19

The expenditure approach to calculating GDP includes

A) consumption.
B) intermediate goods.
C) wage income.
D) net factor payments.
E) taxes.

Question 20

The expenditure approach is calculated as

A) C + I + G.
B) C + I + X.
C) C + I + G + NX.
D) C + I + NX.
E) the value approach.

Question 21

Inventory investment consists of

A) construction expenditures, raw materials, and inventories of finished goods.
B) goods in process, raw materials, and purchases of office machinery.
C) raw materials, goods in process, and construction expenditures.
D) inventories of finished goods, goods in process, and raw materials.
E) used finished goods.

Question 22

To calculate value added, we need to subtract

A) only the cost of domestically produced intermediate inputs.
B) only the cost of foreign-produced intermediate inputs.
C) the cost of domestic- and foreign-produced intermediate inputs.
D) total imports.
E) the cost of all goods and services exported.

Question 23

Government expenditures includes

A) federal defense spending.
B) consumer spending.
C) residential spending.
D) financial investment.
E) inventory investment.

Question 24

The components of consumption expenditures include

A) nondurable goods consumption.
B) purchases of used cars and books.
C) government consumption.
D) investment in stocks and bonds.
E) donations.

Question 25

Recently, consumption has comprised approximately

A) 28% of GDP.
B) 58% of GDP.
C) 40% of GDP.
D) 80% of GDP.
E) 15% of GDP.

Question 26

Additions to inventory is

A) not counted as an expenditure in GDP accounting.
B) counted as an intermediate input.
C) counted as a component of investment spending.
D) subtracted from sales revenue in calculating profit income.
E) considered national savings.

Question 27

For the following question(s), suppose an economy produces only pens and pencils, and that the quantity and price data is given by this table:

What is the real GDP in year 1 using base year 2?

A) $418
B) $300
C) $360
D) $338
E) $294

Question 28

For the following question(s), suppose that an economy produces only food and clothing, and that price and quantity data are given in the table below.

Year 1 nominal GDP is

A) $200.
B) $270.
C) $310.
D) $390.
E) $450.

Question 29

Even when measured accurately, GDP may be a misleading measure of economic welfare because it cannot account for

A) the value of government spending and how efficiently we produce goods and services.
B) how efficiently we produce goods and services and the value of non-market production.
C) the value of non-market production and the consequences of an unequal distribution of income.
D) the consequences of an unequal distribution of income and the value of government spending.
E) the cost of intermediate goods and services.

Question 30

For the following question(s), suppose that an economy produces only food and clothing, and that price and quantity data are given in the table below.

Suppose that Year 2 is the base year. Year 1 real GDP is

A) $200.
B) $270.
C) $310.
D) $390.
E) $450.

Question 31

For the following question(s), suppose that an economy produces only food and clothing, and that price and quantity data are given in the table below.

Year 2 nominal GDP is

A) $200.
B) $270.
C) $310.
D) $390.
E) $450.

Question 32

For the following question(s), suppose an economy produces only pens and pencils, and that the quantity and price data is given by this table:

What is the real GDP in year 2 using base year 1?

A) $418
B) $300
C) $360
D) $338
E) $294

Question 33

In recent years, which of the following has comprised less than 5% of GDP?

A) imports
B) exports
C) net exports
D) investment
E) government spending

Question 34

Investment spending is

A) less volatile than consumption spending.
B) much more volatile than consumption spending.
C) equally as volatile as government spending.
D) equally volatile as GDP.
E) a larger fraction of GDP than consumption is.

Question 35

GDP may inaccurately measure the value of aggregate output because it may not properly account for

A) production in the underground economy and the true value of government production.
B) the true value of government production and the proper value of purchases and sales of used goods.
C) the proper value of purchases and sales of used goods and depreciation of consumer durables.
D) the depreciation of consumer durables and production in the underground economy.
E) all services produced.

Question 36

When there is rapid inflation,

A) growth in nominal GDP exceeds growth in real GDP.
B) growth in real GDP exceeds growth in nominal GDP.
C) growth in real GDP and nominal GDP are roughly equal.
D) there can never be any growth in nominal GDP.
E) government tries to increase growth in real GDP.

Question 37

For the following question(s), suppose that an economy produces only food and clothing, and that price and quantity data are given in the table below.

Suppose that Year 1 is the base year. Year 2 real GDP is

A) $200.
B) $270.
C) $310.
D) $390.
E) $450.

Question 38

Government expenditures does not include

A) state and local spending.
B) federal non-defense spending.
C) transfers.
D) federal defense spending.
E) government investment.

Question 39

The components of investment expenditures include

A) investment in stocks and bonds.
B) residential investment.
C) investment in plant and equipment abroad.
D) investment in consumer's education.
E) investment in health care.

Question 40

Investment spending is

A) a smaller share of GDP than consumption.
B) a larger share of GDP than consumption.
C) less volatile than consumption.
D) less volatile than GDP.
E) the share of stock prices to GDP.

Question 41

Construction of chain-weighted real GDP employs the technique of a(n)

A) Herfindahl index.
B) Fisher index.
C) Gini index.
D) body mass index.
E) inflation rate index.

Question 42

For the following question(s), suppose an economy produces only pens and pencils, and that the quantity and price data is given by this table:

What is the real GDP in year 2 using base year 2?

A) $418
B) $300
C) $360
D) $338
E) $414

Question 43

For the following question(s), suppose that an economy produces only bread and computers. Assume that all production is consumed in each year, and that price and quantity data are given in the table below.

Significant problems with measuring real GDP and the price level include

A) changes in the importance of intermediate goods.
B) purchases of used goods.
C) changes in the population size.
D) changes in the quality of goods over time.
E) changes in the size of the government.

Question 44

For the following question(s), suppose that an economy produces only bread and computers. Assume that all production is consumed in each year, and that price and quantity data are given in the table below.

It is difficult to accurately measure real GDP because

A) it does not include taxes.
B) it does not include money transfers.
C) it does not accurately take into account the introduction of new goods.
D) it cannot take into account changes in government policy over time.
E) it does not take into account intermediate goods.

Question 45

To calculate the change in chain-weighted real GDP from one year to the next, we use

A) first-year prices.
B) second-year prices.
C) the percentage change in prices from the first year to the second.
D) average prices over the two years.
E) base-year prices.

Question 46

For the following question(s), suppose that an economy produces only bread and computers. Assume that all production is consumed in each year, and that price and quantity data are given in the table below.

If a particular measure of real GDP consistently underestimates growth in real GDP, then the rate of inflation as measured by the GDP deflator

A) will consistently be overestimated.
B) will consistently be underestimated.
C) will be overestimated and underestimated equally often.
D) cannot be calculated.
E) is not a good predictor of the inflation rate in the CPI.

Question 47

For the following question(s), suppose that an economy produces only bread and computers. Assume that all production is consumed in each year, and that price and quantity data are given in the table below.

An example of a stock would be

A) real GDP.
B) savings.
C) investment.
D) the amount of money in circulation.
E) government spending.

Question 48

The implicit GDP price deflator can be defined as

A) (Nominal GDP + Real GDP) / 2.
B) (Nominal GDP / Real GDP) ? 100.
C) Nominal GDP - Real GDP.
D) (Real GDP / Nominal GDP) ? 100.
E) the consumer price index.

Question 49

For the following question(s), suppose that an economy produces only bread and computers. Assume that all production is consumed in each year, and that price and quantity data are given in the table below.

Changes in the relative prices of goods causes problems measuring real GDP because

A) consumers change their buying habits.
B) consumers buy less of the cheaper good.
C) firms produce more of the cheaper good.
D) price deflators only measure the price level.
E) they tend to be inaccurate.

Question 50

For the following question(s), suppose an economy produces only pens and pencils, and that the quantity and price data is given by this table:

What is the real GDP in year 1 using base year 1?

A) $418
B) $300
C) $360
D) $338
E) $294

Question 51

For the following question(s), suppose that an economy produces only bread and computers. Assume that all production is consumed in each year, and that price and quantity data are given in the table below.

When we try to measure real GDP and the price level, if we underestimate the growth in real GDP, we will

A) always underestimate the rate of inflation.
B) sometimes underestimate the rate of inflation.
C) always overestimate the rate of inflation.
D) sometimes overestimate the rate of inflation.
E) not be able to measure the rate of inflation.

Question 52

Real GDP values current production at

A) current year prices.
B) the best estimate of next year's prices.
C) the average of price levels over the entire sample period.
D) base year prices.
E) the purchase price not the asking prices of goods and services.

Question 53

For the following question(s), suppose that an economy produces only bread and computers. Assume that all production is consumed in each year, and that price and quantity data are given in the table below.

If Year 1 is the base year, the CPI for Year 2 is approximately

A) 100.0.
B) 126.3.
C) 131.3.
D) 181.0.
E) 211.0.

Question 54

For the following question(s), suppose an economy produces only pens and pencils, and that the quantity and price data is given by this table:

What is approximately the growth rate of real GDP using base year 1?

A) 13%
B) 20%
C) 33%
D) 39%
E) 25%

Question 55

In Canada, real GDP is currently calculated using

A) a variable-weighting scheme.
B) a chain-weighting scheme.
C) a fixed-weighting scheme.
D) an autoregressive scheme.
E) constant-inflation scheme.

Question 56

For the following question(s), suppose that an economy produces only bread and computers. Assume that all production is consumed in each year, and that price and quantity data are given in the table below.

Significant problems with measuring real GDP and the price level include

A) changes in the number of consumers.
B) changes in relative price levels.
C) changes in standards of living.
D) purchases of used goods.
E) changes in consumption patterns.

Question 57

For the following question(s), suppose an economy produces only pens and pencils, and that the quantity and price data is given by this table:

What is the inflation rate using base year 1?

A) 10%
B) 15%
C) 20%
D) 25%
E) 13%

Question 58

For the following question(s), suppose that an economy produces only bread and computers. Assume that all production is consumed in each year, and that price and quantity data are given in the table below.

If Year 1 is the base year, the GDP price deflator for Year 2 is approximately

A) 100.0.
B) 126.3.
C) 131.3.
D) 181.0.
E) 211.0.

Question 59

An example of a flow would be the

A) rate at which water goes down the drain.
B) amount of water in a bathtub.
C) percent of pollutants in tap water.
D) pressure of water in a pipe.
E) rate at which the cold water comes out of the tap.

Question 60

Suppose that g? represents the ratio of year 2 GDP to year 1 GDP, both valued at year 1 prices. Suppose that g? represents the ratio of year 2 GDP to year 1 GDP, both valued at year 2 prices. The ratio of chain-weighted year 2 GDP to chain-weighted year 1 GDP equals

A)
B)
C)
D)
E)

Question 61

Private disposable income is equal to

A) Y + TR + INT - T.
B) Y + NFP +TR + INT - T.
C) Y - TR - INT + T.
D) Y + CA - G.
E) Y - NFP - R - INT + T.

Question 62

Additions to the nation's capital stock are brought about through

A) the current account surplus.
B) investment.
C) investment and the current account surplus.
D) investment and the government budget surplus.
E) government deficit.

Question 63

List and discuss two reasons why national income accountants could make errors in measuring GDP.

Question 64

Suppose that in a given country in a given year, GNP equals $2,000, investment expenditures equal $200, government expenditures equal $150, and the current account surplus equals $50. Consumption expenditures therefore equals

A) $1,000.
B) $120.
C) $140.
D) $160.
E) $230.

Question 65

The employment/population ratio equals

A)
B)
C)
D)
E)

Question 66

Problems with interpreting the unemployment rate as a measure of labour market tightness include

A) biases in the CPI and dissatisfied workers.
B) dissatisfied workers and discouraged workers.
C) discouraged workers and variations in how intensively the unemployed search for work.
D) variations in how intensively the unemployed search for work and biases in the CPI.
E) the rental vacancy rate.

Question 67

The participation rate equals

A)
B)
C)
D)
E)

Question 68

Suppose that GDP is equal to 1,000, national saving is equal to 200, the current account deficit is equal to 100, and the government budget deficit is equal to 50. Investment must equal

A) 150.
B) 200.
C) 250.
D) 300.
E) 350.

Question 69

The unemployment rate equals

A)
B)
C)
D)
E)

Question 70

Suppose that GDP is equal to 1,000, national saving is equal to 200, the current account deficit is equal to 100, and the government budget deficit is equal to 50. Private savings must equal

A) 150.
B) 200.
C) 250.
D) 300.
E) 350.

Question 71

National savings must equal

A) I + NX + NFP.
B) I - NX - NFP.
C) Y - NFP + C + G.
D) Yd - C.
E) T - TR - INT - G.

Question 72

When an unemployed worker becomes discouraged and leaves the labour force,

A) the unemployment rate increases.
B) the labour force participation rate increases.
C) the employment/population ratio decreases.
D) the unemployment rate decreases.
E) the employment/population ratio increases.

Question 73

Discouraged workers are

A) those who have given up looking for work, even though they would like to be employed.
B) those who quit working because they are dissatisfied with their jobs.
C) those who unmotivated workers who bring down a country's productivity.
D) those who would like to find a second job to supplement their income, but have not yet found one.
E) those who only work in the summer months.