Deck 12: Measuring the Size of the Economy

Question 1

Gross domestic product includes:

A) all goods and services.
B) newly produced foreign goods as well as used goods.
C) used goods sold in the current time period.
D) only the values of final goods and services.

Answer 1

D

Question 2

The payment of welfare benefits by the government:

A) increases the value of GDP.
B) reduces the value of GDP.
C) is not included in the calculation of GDP.
D) is only included in the calculation of GDP if it is for unemployment benefits.

Answer 2

C

Question 3

Gross domestic product (GDP) is officially measured by adding together:

A) the quantity of each good and service produced by Australian residents.
B) gross national product and depreciation of resources.
C) incomes received by all of a nation's households.
D) the market value of all final goods and services produced within the borders of a nation.

Answer 3

D

Question 4

Which of the following expenditures would not be included in GDP?

A) Purchase of a new lawnmower.
B) Purchase of a second-hand car from the black market.
C) Purchase of a ticket to the latest movie.
D) All of the above would be counted in GDP.

Question 5

GDP:

A) is the dollar value of all the final goods and services produced within the borders of a nation.
B) includes intermediate and final goods and services.
C) minus an allowance for depreciation of fixed capital equals GNP.
D) is a less-than-perfect measure of social wellbeing because it does not include exports and imports.

Question 6

Gross national product is also known as:

A) gross international income.
B) net domestic goods and services.
C) gross national expenditure.
D) gross national income of a country.

Question 7

GDP counts only:

A) all goods and services produced within the country.
B) transfer payments.
C) second-hand domestic products.
D) new domestic products.

Question 8

Which of the following expenditures would be included in GDP for this year?

A) The purchase of a new car.
B) The purchase of a new tyre by Holden for a new car.
C) The purchase of a used car.
D) All of these.

Question 9

Gross domestic product includes:

A) intermediate as well as final goods.
B) foreign goods as well as domestically produced goods.
C) used goods sold in the current time period.
D) only the value of final goods and services.

Question 10

Suppose a miller sells flour to a baker for $100. The baker then produces bread from the flour and sells it to Coles for $600. Coles in turn then sells it to the public for $850. The increase in GDP as a result of these transactions will be:

A) $1550.
B) $850.
C) $600.
D) $100.

Question 11

Which of the following are not included in GDP?

A) A car produced and sold this year.
B) A car produced within a nation's geographic borders.
C) A second-hand car bought from the black market this year.
D) A car produced but not sold this year.

Question 12

Which of the following purchases would be counted as a final good in the GDP calculation?

A) A family's purchase of a used car.
B) A speculator's purchase of 100 shares of News Corp. stock.
C) A deli's purchase of bread for making its sandwiches.
D) A business's purchase of new office equipment.

Question 13

Intermediate goods are goods and services used:

A) by the ultimate user.
B) by state and local governments.
C) as inputs.
D) both as inputs and final goods.

Question 14

Which of the following items would be included in the calculation of GDP?

A) The value of a car produced this year within the country.
B) Purchase of a used car.
C) The value of environmental degradation.
D) Sale of Gulf War military surplus.

Question 15

The difference between GDP at factor cost and GDP at market prices is:

A) wages.
B) profit.
C) interest.
D) indirect taxes less subsidies.

Question 16

If I bought 1000 shares in Newish Corp. for $5 per share and sold them two months later for $6 per share, then:

A) GDP will rise by $6000.
B) GDP will fall by $6000.
C) GDP will rise by $1000.
D) GDP will rise by the amount I have to pay my broker to arrange the transaction.

Question 17

Based on the circular flow model, money flows from households to businesses in:

A) factor markets.
B) product markets.
C) neither factor nor product markets.
D) both factor and product markets.

Question 18

The portion of the circular flow model which shows the flow of funds from savers to borrowers is the:

A) product market.
B) factor market.
C) savings market.
D) financial market.

Question 19

The circular flow model represents the establishment of market value for:

A) goods and services only.
B) wages and salaries excluding goods and services.
C) profits and rents but not for wages and salaries.
D) profits and rents as well as wages and salaries.

Question 20

Australian gross domestic product is the market value of all final goods and services:

A) produced in Australia by Australian citizens during a year.
B) produced in Australia during a year.
C) produced outside of Australia during a year.
D) produced outside Australia by Australian citizens during a year.

Question 21

New residential housing is counted in GDP as a/an:

A) durable consumption good.
B) household durable good.
C) investment good.
D) inventory expansion.

Question 22

Which one of the following statements is true? Money flows from:

A) the government to households for taxes.
B) foreign economies to households for exports.
C) the government to firms for goods and services.
D) firms to foreign economies for exports.

Question 23

Which one of the following is an example of a circular flow model and shows the interdependence of households and firms?

A) Households demand their resources from firms in the factor markets and, in turn, supply in the product market, the goods and services produced by the firms.
B) Firms go to the resource market to supply resources that households demand and, in turn, provide households with the goods and services produced for the product markets.
C) Households supply their resources to firms in the factor markets and, in turn, demand in the product market, the goods and services produced by the firms.
D) Firms in the factor markets pay households, in the form of wages, interest, rent and profit, for resources demanded.

Question 24

Which one of the following statements is true?

A) Resources flow from the government to firms.
B) Taxes flow from foreign economies to the government.
C) Goods and services flow from households to foreign economies.
D) Resources flow from households to firms.

Question 25

Which of the following would not be included in the government consumption expenditures and gross investment (G) category of GDP?

A) The payments made to social security recipients.
B) Expenditures made to repair a highway.
C) Spending for professors at universities.
D) The purchase of new china for parliamentary functions.

Question 26

Gross private domestic investment does not include:

A) spending for new houses.
B) spending to build up inventories.
C) unintentional inventory investment.
D) spending on employee salaries.

Question 27

Income is an example of a _____, and the money in my bank account is a _____.

A) stock; flow
B) stock; stock
C) flow; stock
D) flow; flow

Question 28

In the factor market, firms demand:

A) wages, rents, interest and profit.
B) goods and services.
C) material, land, labour, capital and entrepreneurship.
D) money for their goods and services.

Question 29

The expenditure approach to GDP accounting includes:

A) wages and salaries.
B) net exports.
C) net interest.
D) corporate profit.

Question 30

To construct GDP, exports:

A) and imports must be subtracted.
B) and imports must be included.
C) must be subtracted and imports must be included.
D) must be included and imports must be subtracted.

Question 31

The expenditure approach for the calculation of GDP includes spending on:

A) consumption, investment, durable goods and exports.
B) consumption, gross private domestic investment, government spending for goods and services, and exports.
C) consumption, gross private domestic investment, government spending for goods and services, and net exports.
D) consumption, net private domestic investment, government spending for goods and services, and net exports.

Question 32

Resources that flow through the circular flow model include all of the following except:

A) land.
B) labour.
C) capital.
D) creativity.

Question 33

All final goods and services that make up GDP can be expressed in the form:

A) GDP = C + G + (X - M).
B) GDP = C + I + G + (X + M).
C) GDP = C + I + G + (X - M).
D) GDP = G + I + (X - M).

Question 34

Which one of the following statements is true?

A) Prices and quantities in individual markets are determined by the government.
B) In the factor markets, labour is owned by businesses and supplied to households.
C) In the factor markets, businesses supply labour in return for money repayments.
D) Households supply labour to businesses in return for wages and salaries.

Question 35

Economic values that are measured in units per period of time are referred to as:

A) stocks.
B) insignificant.
C) unit values.
D) flows.

Question 36

Which one of the following statements is true?

A) Resources flow from the government to households.
B) Resources flow from firms to households.
C) Taxes flow from firms to the government.
D) Resource payments flow from firms to households.

Question 37

Which of the following would not be included in the gross private domestic investment (I) category of GDP?

A) A bakery's purchase of a new oven.
B) A retailer's additions to its inventories.
C) Newly built residential construction.
D) A bank's purchase of an Australian Treasury bond.

Question 38

The circular flow model shows the flow of:

A) products from households to businesses and the flow of resources from businesses to households.
B) products from households to businesses and the flow of productive resources from households to businesses.
C) products from businesses to households and the flow of money from households to
Businesses.
D) products from businesses to households and the flow of productive resources from households to businesses.

Question 39

In the circular flow model, the demand arrow represents:

A) the flow of investment expenditures from households to firms.
B) the flow of consumption expenditures from households to firms.
C) the flow of consumption expenditures from firms to households.
D) the flow of investment expenditures from businesses to firms.

Question 40

Consumption includes expenditure on:

A) durable goods and services.
B) non-durable goods and services.
C) both durable and non-durable expenditure.
D) tangible items only.

Question 41

Narrbegin Exhibit 11.3 GDP data (billions of dollars)
$\begin{array}{|l|r|}\hline \text { Capital depreciation } & 950 \\\hline \text { Change in business inventory } & 50 \\\hline \text { Compensation of employees } & 5000 \\\hline \text { Corporate profit } & 600 \\\hline \text { Durable goods } & 600 \\\hline \text { Exports } & 100 \\\hline \text { Factor payments from the rest of the world } & 360 \\\hline \text { Factor payments to the rest of the world } & 300 \\\hline \text { Farm income } & 300 \\\hline \text { Gross private domestic investment } & 1000 \\\hline \text { Government spending } & 800 \\\hline \text { Imports } & 150 \\\hline \text { Net interest } & 500 \\\hline \text { Non-durable goods } & 2000 \\\hline \text { Non-farm income } & 700 \\\hline \text { Proprietors' income } & 1000 \\\hline \text { Rental income } & 100 \\\hline \text { Services } & 4000\\\hline \end{array}$


-Use the information in Exhibit 11.3 to compute personal consumption expenditures. Which of the following is correct?

A) $6750 billion.
B) $6600 billion.
C) $6550 billion.
D) $6100 billion.

Question 42

Gross national expenditure (GNE) is equal to:

A) C + I + G + NX.
B) C + I + G - NX.
C) C + I +G.
D) C + I + G + M.

Question 43

Narrbegin Exhibit 11.2 GDP data (billions of dollars)
$\begin{array}{|l|r|}\hline \text { Personal consumption expenditures } & 5207.6 \\\hline \text { Interest } & 425.1 \\\hline \text { Corporate profit } & 735.9 \\\hline \text { Government spending } & 1406.7 \\\hline \text { Depreciation } & 830.1 \\\hline \text { Rent } & 146.3 \\\hline \text { Gross private domestic investment } & 1116.5 \\\hline \text { Compensation of employees } & 4426.9 \\\hline \text { Exports } & 870.9 \\\hline \text { Imports } & 965.7 \\\hline \text { Indirect business taxes } & 553.1 \\\hline \text { Proprietors' income } & 520.3 \\\hline \text { Direct taxes } & 886.9 \\\hline \text { Income earned but not received } & 617.3 \\\hline \text { Income received but not earned } & 376.6\\\hline\end{array}$


-In Exhibit 11.2, NDP is:

A) $6254.5 billion.
B) $6495.2 billion.
C) $6805.9 billion.
D) $7082.9 billion.

Question 44

Household consumption expenditures include:

A) investment expenditure.
B) used goods and services.
C) durable goods, non-durable goods, and services.
D) voluntary services.

Question 45

Which of the following would not be included as part of government spending in GDP calculations?

A) Police salaries.
B) Road construction.
C) Public service salaries.
D) Transfer payments.

Question 46

Assume that household consumption is $500 billion, gross private domestic investment is $300 billion, government investment is $40 billion, and net exports are -$10 billion. The GDP is:

A) $850 billion.
B) $830 billion.
C) $890 billion.
D) None of the above.

Question 47

Narrbegin Exhibit 11.1 Expenditure approach
$\begin{array}{|l|c|}\hline \text {National income account}&\text {(Billions of dollars)}\\\hline \text { Personal consumption expenditures }(C) & \$ 500 \\\hline \text { Net exports }(X-M) & 50 \\\hline \begin{array}{l}\text { Federal government consumption and gross investment } \\\text { expenditures }(G)\end{array} & 100 \\\hline \begin{array}{l}\text { State and local government consumption and } \\\text { gross investment expenditures }(G)\end{array} & 200 \\\hline \text { Imports } & 15 \\\hline \text { Gross private domestic investment }(I) & 65\\\hline\end{array}$


-As shown in Exhibit 11.1, total expenditures by businesses for fixed investment and inventories are:

A) $15 billion.
B) $50 billion.
C) $65 billion.
D) $200 billion.

Question 48

Household consumption:

A) only accounts for about 20 per cent of total GDP.
B) is the largest single component of GDP.
C) accounts for around 80 per cent to 85 per cent of total GDP each year.
D) is the smallest component of GDP.

Question 49

Narrbegin Exhibit 11.1 Expenditure approach
$\begin{array}{|l|c|}\hline \text {National income account}&\text {(Billions of dollars)}\\\hline \text { Personal consumption expenditures }(C) & \$ 500 \\\hline \text { Net exports }(X-M) & 50 \\\hline \begin{array}{l}\text { Federal government consumption and gross investment } \\\text { expenditures }(G)\end{array} & 100 \\\hline \begin{array}{l}\text { State and local government consumption and } \\\text { gross investment expenditures }(G)\end{array} & 200 \\\hline \text { Imports } & 15 \\\hline \text { Gross private domestic investment }(I) & 65\\\hline\end{array}$


-As shown in Exhibit 11.1, total spending by government is:

A) $100 billion.
B) $200 billion.
C) $300 billion.
D) $600 billion.

Question 50

Narrbegin Exhibit 11.2 GDP data (billions of dollars)
$\begin{array}{|l|r|}\hline \text { Personal consumption expenditures } & 5207.6 \\\hline \text { Interest } & 425.1 \\\hline \text { Corporate profit } & 735.9 \\\hline \text { Government spending } & 1406.7 \\\hline \text { Depreciation } & 830.1 \\\hline \text { Rent } & 146.3 \\\hline \text { Gross private domestic investment } & 1116.5 \\\hline \text { Compensation of employees } & 4426.9 \\\hline \text { Exports } & 870.9 \\\hline \text { Imports } & 965.7 \\\hline \text { Indirect business taxes } & 553.1 \\\hline \text { Proprietors' income } & 520.3 \\\hline \text { Direct taxes } & 886.9 \\\hline \text { Income earned but not received } & 617.3 \\\hline \text { Income received but not earned } & 376.6\\\hline\end{array}$


-In Exhibit 11.2, GDP is:

A) $6807.6 billion.
B) $7082.9 billion.
C) $7636.0 billion.
D) $7637.7 billion.

Question 51

In economics, the term 'investment' refers to:

A) purchasing shares and fixed term securities.
B) spending on physical products that are intended to be used as inputs in production
Processes.
C) purchasing a piece of existing real estate.
D) purchasing goods or services.

Question 52

If a firm finds that it has a larger stock of inventory at the end of the period than it had at the start, the difference would be:

A) counted as investment.
B) subtracted from total GDP.
C) counted as consumption on the assumption that it will eventually be sold.
D) counted as net exports.

Question 53

Government spending on teachers and university lecturers is counted in GDP figures as:

A) human capital investment.
B) private consumption expenditure.
C) public consumption expenditure.
D) transfer payments.

Question 54

Narrbegin Exhibit 11.3 GDP data (billions of dollars)
$\begin{array}{|l|r|}\hline \text { Capital depreciation } & 950 \\\hline \text { Change in business inventory } & 50 \\\hline \text { Compensation of employees } & 5000 \\\hline \text { Corporate profit } & 600 \\\hline \text { Durable goods } & 600 \\\hline \text { Exports } & 100 \\\hline \text { Factor payments from the rest of the world } & 360 \\\hline \text { Factor payments to the rest of the world } & 300 \\\hline \text { Farm income } & 300 \\\hline \text { Gross private domestic investment } & 1000 \\\hline \text { Government spending } & 800 \\\hline \text { Imports } & 150 \\\hline \text { Net interest } & 500 \\\hline \text { Non-durable goods } & 2000 \\\hline \text { Non-farm income } & 700 \\\hline \text { Proprietors' income } & 1000 \\\hline \text { Rental income } & 100 \\\hline \text { Services } & 4000\\\hline \end{array}$


-Use the information in Exhibit 11.3 to compute net national product. Which of the following is correct?

A) $7110 billion.
B) $7410 billion.
C) $7460 billion.
D) $7760 billion.

Question 55

Narrbegin Exhibit 11.3 GDP data (billions of dollars)
$\begin{array}{|l|r|}\hline \text { Capital depreciation } & 950 \\\hline \text { Change in business inventory } & 50 \\\hline \text { Compensation of employees } & 5000 \\\hline \text { Corporate profit } & 600 \\\hline \text { Durable goods } & 600 \\\hline \text { Exports } & 100 \\\hline \text { Factor payments from the rest of the world } & 360 \\\hline \text { Factor payments to the rest of the world } & 300 \\\hline \text { Farm income } & 300 \\\hline \text { Gross private domestic investment } & 1000 \\\hline \text { Government spending } & 800 \\\hline \text { Imports } & 150 \\\hline \text { Net interest } & 500 \\\hline \text { Non-durable goods } & 2000 \\\hline \text { Non-farm income } & 700 \\\hline \text { Proprietors' income } & 1000 \\\hline \text { Rental income } & 100 \\\hline \text { Services } & 4000\\\hline \end{array}$


-Use the information in Exhibit 11.3 to compute GDP. Which of the following is correct?

A) $8500 billion.
B) $8400 billion.
C) $7400 billion.
D) $8350 billion.

Question 56

Which of the following countries has the highest level of GDP?

A) Bangladesh.
B) The USA.
C) Switzerland.
D) Kenya.

Question 57

Assume that household consumption is $500 billion, gross private domestic investment is $200 billion, government expenditure is $200 billion, and net exports are -$10 billion. The GDP is:

A) $910 billion.
B) $900 billion.
C) $890 billion.
D) $700 billion.

Question 58

If a firm buys a dozen new cars for its sales team, this would be included in:

A) consumption expenditure.
B) investment inventories.
C) gross private fixed investment.
D) gross private fixed consumption.

Question 59

Narrbegin Exhibit 11.3 GDP data (billions of dollars)
$\begin{array}{|l|r|}\hline \text { Capital depreciation } & 950 \\\hline \text { Change in business inventory } & 50 \\\hline \text { Compensation of employees } & 5000 \\\hline \text { Corporate profit } & 600 \\\hline \text { Durable goods } & 600 \\\hline \text { Exports } & 100 \\\hline \text { Factor payments from the rest of the world } & 360 \\\hline \text { Factor payments to the rest of the world } & 300 \\\hline \text { Farm income } & 300 \\\hline \text { Gross private domestic investment } & 1000 \\\hline \text { Government spending } & 800 \\\hline \text { Imports } & 150 \\\hline \text { Net interest } & 500 \\\hline \text { Non-durable goods } & 2000 \\\hline \text { Non-farm income } & 700 \\\hline \text { Proprietors' income } & 1000 \\\hline \text { Rental income } & 100 \\\hline \text { Services } & 4000\\\hline \end{array}$


-Use the information in Exhibit 11.3 to compute net exports. Which of the following is correct?

A) $100 billion.
B) $150 billion.
C) $250 billion.
D) -$50 billion.

Question 60

Narrbegin Exhibit 11.1 Expenditure approach
$\begin{array}{|l|c|}\hline \text {National income account}&\text {(Billions of dollars)}\\\hline \text { Personal consumption expenditures }(C) & \$ 500 \\\hline \text { Net exports }(X-M) & 50 \\\hline \begin{array}{l}\text { Federal government consumption and gross investment } \\\text { expenditures }(G)\end{array} & 100 \\\hline \begin{array}{l}\text { State and local government consumption and } \\\text { gross investment expenditures }(G)\end{array} & 200 \\\hline \text { Imports } & 15 \\\hline \text { Gross private domestic investment }(I) & 65\\\hline\end{array}$


-As shown in Exhibit 11.1, total expenditures by households for domestically produced goods are:

A) $15 billion.
B) $50 billion.
C) $300 billion.
D) $500 billion.

Question 61

If the underground economy were included in GDP, GDP would:

A) grow.
B) decline.
C) stay the same.
D) Not possible to determine.

Question 62

If the underground economy is sizeable, then GDP will:

A) understate the economy's performance.
B) overstate the economy's performance.
C) fluctuate unpredictably.
D) accurately reflect this subterranean activity.

Question 63

GDP underestimates our economic wellbeing because:

A) it includes the value of work done by nannies.
B) it ignores the distribution of products.
C) it includes the value of work done by householders.
D) it includes the value of work done by illegal immigrants.

Question 64

In recent years, people have benefited from greater amounts of leisure time. This trend:

A) has caused GDP to rise.
B) has caused GDP to fall.
C) made GDP fluctuate randomly.
D) is not accounted for in GDP.

Question 65

GDP fails to measure changes in

A) the prices of products caused by inflation.
B) the market value of goods and services, since it uses market prices for valuation.
C) the distribution of goods and services.
D) leisure time, since it is valued at the minimum wage and not the true opportunity cost of lost wages.

Question 66

The underground economy:

A) produces final goods and services that can be counted in GDP.
B) is illegal because it is not included in GDP.
C) is about 60 to 65 per cent of GDP.
D) is a good indicator of the size of GDP.

Question 67

Which of the following is a shortcoming of GDP?

A) It measures used goods and services.
B) It includes changes in inventories.
C) It includes the value of net exports.
D) It does not make an allowance for leisure time.

Question 68

GDP figures tend to understate the quantity of goods and services available because:

A) exports are subtracted from GDP but imports are not added back in.
B) many items are counted twice or more in intermediate stages of production.
C) more women are entering the labour force.
D) the changes in quality of products are not included in GDP.

Question 69

GDP does not count:

A) the estimated value of household production, which is not sold in the market.
B) state and local government purchases.
C) spending for new homes.
D) changes in inventories.

Question 70

GDP provides information about:

A) the total value of incomes of labour, land and capital.
B) distribution and quality of products produced.
C) the total value of goods and services produced on the black market.
D) the individual incomes.

Question 71

If a woman marries her hired helper and keeps hiring him to do housework, the value of GDP:

A) rises.
B) falls.
C) is unchanged.
D) rises, but the value of GNP falls.

Question 72

Which of the following transactions is not included in GDP?

A) A drug addict buys cough medicine.
B) A drug addict spends two months in a drug rehabilitation centre.
C) A doctor treats a patient for drug addiction.
D) Someone sells drugs in a black market.

Question 73

GDP is not a perfect measure of economic welfare because it:

A) double-counts overall spending.
B) treats a dollar spent on exports the same as a dollar spent on imports.
C) double-counts the value of leisure time.
D) treats a non-market transaction as if it did not exist.

Question 74

Which of the following increases GDP?

A) More people walk to work rather than drive cars.
B) Increase in car accidents.
C) Farm families grow more for themselves than for the market.
D) Neither the price nor the quantity of television sets changes, but the quality of
Sets improves.

Question 75

Which of the following would not be included in the measurement of GDP?

A) You hire someone to fix a leaky faucet.
B) You do the (unpaid) housework.
C) The value of housing services, if you own your own home.
D) An unplanned drop in business inventories.

Question 76

Which of the following is a shortcoming of GDP?

A) It excludes changes in inventories.
B) It includes an estimate of illegal transactions.
C) It excludes quality of products.
D) It includes business investment spending.

Question 77

GDP is not a perfect measure of economic welfare because it ignores:

A) production of goods and services by the government.
B) goods produced in Australia but shipped overseas.
C) environmental degradation.
D) consumer spending on new goods and services.

Question 78

Because GDP does not account for improvements in the quality of goods, the GDP calculation:

A) tends to overstate the true value of output in Australia.
B) tends to understate the true value of output in Australia.
C) provides an accurate value of output in Australia.
D) provides the best measure of output in Australia.

Question 79

Which of the following is a shortcoming of GDP?

A) It measures non-market transactions.
B) It includes an estimate of illegal transactions.
C) It includes an estimate of the value of household services.
D) It does not include the value of the black market.

Question 80

Because of transactions which take place in the underground economy, the:

A) GDP calculation tends to overstate the actual value of goods sold in the economy.
B) GDP calculation tends to accurately portray the value of goods sold in the economy.
C) GDP calculation tends to understate the actual value of goods sold in the economy.
D) value of the GDP calculation will be equal to the value of the national income
Calculation.