Deck 12: GDP: Measuring Total Production and Income

Question 1

Gross national income (GNI)is defined as the value of final goods and services produced

A) within Australia.
B) outside of Australia.
C) by residents of Australia even if the production takes place outside of Australia.
D) within Australia, by Australian residents.

Answer 1

by residents of Australia even if the production takes place outside of Australia.

Question 2

A car that is produced in 2013 is not sold until 2014.According to the definition of GDP,in which year's GDP should it be counted?

A) 2013.
B) 2014.
C) Both years.
D) 2013 real GDP; 2014 nominal GDP.

Answer 2

2013.

Question 3

Which of the following transactions would be included in GDP?

A) The purchase of a used car.
B) The purchase of a Monet painting.
C) The purchase of Telstra shares.
D) The purchase of paper clips.

Answer 3

The purchase of paper clips.

Question 4

Macroeconomics involves the economic issues of

A) how the economy should organise resources within a particular industry.
B) how to generate full employment, price stability and maintain long-term economic growth.
C) how firms choose the prices they should charge for their products.
D) profit maximisation by firms.

Question 5

An example of an intermediate good would be

A) a new car.
B) a used car.
C) the tyres on a new car.
D) new tyres to replace old tyres on a used car.

Question 6

A company named Home Depot sells new and used doors to contractors who build new homes.Home Depot also sells new and used doors to homeowners.Which of the following would be counted in GDP?

A) The sale of a used door to a homeowner.
B) The sale of a new door to a homeowner.
C) The sale of a used door for installation into a new home.
D) The sale of a new door for installation into a new home.

Question 7

Gross domestic product is the total market value of all

A) intermediate and final goods and services produced in a time period within a country.
B) final goods and services produced in a time period within a country.
C) goods but not services produced in a time period within a country.
D) final goods and services produced in a time period by citizens of a country, both within the country and by citizens working overseas.

Question 8

Net domestic product (NDP)is calculated by measuring GDP and subtracting

A) depreciation.
B) transfer payments.
C) indirect sales taxes.
D) good and services produced overseas.

Question 9

GDP is

A) the value of all final goods and services produced in a country during a given time period.
B) the sum of consumption, investment, government spending and net exports during a given time period.
C) the sum of the market value of final production, rather than the quantity of production, during a given time period.
D) All of these options are correct.

Question 10

An example of an 'intermediate good' would be

A) the bread that goes into a sandwich sold by a lunch bar.
B) a can of cool drink sold by a supermarket.
C) a microwave oven used at home.
D) the petrol purchased by consumers for their cars.

Question 11

Gross domestic product in the economy is measured by the

A) total number of goods and services produced in the economy.
B) market value of all final goods and services produced in the economy.
C) total number of goods produced in the economy.
D) total number of services produced in the economy.

Question 12

An example of a final good would be

A) the soy milk sold to Starbucks.
B) the whipped cream sold to Starbucks.
C) a soy latte drink sold by Starbucks to a student.
D) the coffee beans sold to Starbucks.

Question 13

How are intermediate goods treated in the calculation of GDP?

A) Their value is not counted separately, but included as part of the value of the final good of which they are an input.
B) Their value is counted separately, and their value is also included as part of the value of the final good of which they are an input.
C) They are included in the year that they are produced.
D) They are included only if they are imported.

Question 14

A 'final good' is one that is

A) used in the production of another good.
B) a natural resource used to produce a good.
C) purchased as an input in the production process.
D) not used as an input in the production process.

Question 15

Which of the following issues would be considered part of the study of macroeconomics?

A) The price of clothing.
B) Profit levels in the retail sector.
C) The unemployment rate.
D) The wages of economists.

Question 16

Which of the following transactions would be included in the official calculation of GDP?

A) A student buys a used textbook at the bookstore.
B) Bridgestone sells $2 million worth of tyres to General Motors Holden.
C) You buy a new iPod.
D) You illegally download music off the internet to put on your new iPod.

Question 17

Which of the following is included in the gross domestic product for an economy in a given year?

A) The value of intermediate goods produced in that year.
B) The value of used goods sold in that year.
C) The value of final goods produced in that year.
D) All of the above would be included in the gross domestic product for an economy in a given year.

Question 18

Total production in the economy is measured as the

A) total number of goods and services produced in the economy.
B) market value of all final goods and services produced in the economy.
C) total number of goods produced in the economy.
D) total number of services produced in the economy.

Question 19

To calculate GDP using the value-added method,we add up

A) the market value of final goods and services produced during a particular period.
B) only the value added by the underground economy.
C) the value added by each firm involved in the production of final goods and services.
D) the market value of intermediate goods and services produced during a particular period.

Question 20

Which of the following is not one of the four main policy concerns of Australian macroeconomic policy?

A) The rate of economic growth.
B) The circular-flow of income.
C) The unemployment rate.
D) The rate of inflation.

Question 21

The circular-flow diagram shows that

A) the value of total income is equal to the total value of expenditures on final goods and services.
B) firms pay households wages, and households receive transfer payments from firms.
C) households spend all their income on goods and services.
D) GDP will be less than the total value of expenditures on final goods and services in the economy.

Question 22

Government spending ________ is included in gross domestic product.

A) at federal, state and local levels of government
B) at the federal level of government only
C) at state and local levels of government only
D) on defence goods only

Question 23

In the equation GDP = C + I + G + NX,the G component refers to

A) federal government expenditures plus all transfer payments.
B) the taxes and expenditure of all levels of government.
C) federal government expenditures on transfer payments, such as pensions and unemployment benefits.
D) the purchases of final goods and services by all levels of government, excluding transfer payments.

Question 24

Which of the following would not be included in the expenditure category called 'investment expenditures'?

A) Spending on new houses.
B) The purchase of shares in a company.
C) The purchase of a photocopy machine by the Commonwealth Bank.
D) Cars held in inventory by a local Ford car dealer.

Question 25

If you buy shares,the dollar value is

A) included in GDP under investment.
B) not included in GDP.
C) included in GDP under consumer expenditure.
D) included in GDP as a business expense.

Question 26

Investment spending includes spending on

A) taxes.
B) non-durable goods.
C) changes in business inventories.
D) transfer payments.

Question 27

Which of the following would increase gross private domestic investment in an economy?

A) An increase in the shares of Apple stock owned by households.
B) An increase in the number of workers Apple hires.
C) An increase in the level of Apple's inventory.
D) An increase in the number of highway construction projects the government is funding.

Question 28

If an Australian firm produces televisions in Taiwan,that production should count toward

A) Australia's GNI.
B) Taiwan's GNI.
C) Australia's GDP.
D) It will not affect either Australia's GNI or Australia's GDP.

Question 29

The components of the expenditure method of measuring GDP include all of the following except

A) net exports.
B) changes in stocks of inventories.
C) government purchases.
D) unpaid household work.

Question 30

Gross domestic product is generally ________ net domestic product.

A) greater than
B) less than
C) equal to
D) unrelated to

Question 31

Which of the following is not considered part of government purchases?

A) Transfer payments paid by the government.
B) Teacher salaries paid by the government.
C) Military equipment purchased by the government.
D) A bridge purchased by the government.

Question 32

Consumption expenditures do not include household purchases of

A) medical care.
B) education.
C) the family home.
D) durable goods.

Question 33

________ is/are the payment for the factor of production ________.

A) Wages; capital
B) Interest; labour
C) Profit; entrepreneurship
D) Rent; capital

Question 34

In the circular flow,________ supply the factors of production,and ________ goods and services.

A) households; sell
B) households; buy
C) firms; sell
D) firms; buy

Question 35

The three main methods of measuring GDP are the

A) multiplier method, the production method, and the expenditure method.
B) goods and services method, the production method, and the expenditure method.
C) income method, the production method, and the expenditure method.
D) consumption method, the savings method, and the investment method.

Question 36

A 'transfer payment' is a payment by the government to an individual for

A) a service, such as a payment to hospital nurses and school teachers.
B) an investment good.
C) a consumption good.
D) which the government does not receive a good or service in return.

Question 37

An example of a transfer payment is

A) a teacher's pay being transferred electronically from the government to the teacher.
B) interest repayments on a loan.
C) an unemployment benefit.
D) the purchase of a new government office block.

Question 38

If a German firm produces cars in the United States of America (USA),that production should count toward

A) the USA's GNI.
B) Germany's GDP.
C) the USA's GDP.
D) It will not affect either the USA's GNI or the USA's GDP.

Question 39

Transfer payments are not included in GDP because

A) they are not purchases of goods or services.
B) their value is included in government expenditure.
C) they do not generate income.
D) their market value is difficult to measure.

Question 40

Which of the following is considered a durable good?

A) Medical care
B) Clothing
C) Food
D) A washing machine

Question 41

Debbie makes porcelain plates in her home and sells them to a gallery.She spent $400 last month on supplies and made 50 plates.She sold the plates to the gallery at $25 per plate.The gallery sells all the plates for $40 each.For all of the 50 plates,what is Debbie's total value added? For all the 50 plates,what is the gallery's total value added?

Question 42

Fees that Australian universities receive from overseas students studying in Australia are not included as part of GDP but are included as part of Gross National Income (GNI),as GNI includes flows of funds from overseas.

Question 43

Assuming that Australia is the domestic economy,________ are goods and services produced by ________ and purchased by ________.

A) exports; foreign countries; Australia
B) exports; Australia; Australia
C) imports; foreign countries; foreign countries
D) imports; foreign countries; Australia

Question 44

Government spending on transfer payments is included in government purchases when calculating GDP,because it results in the production of new goods and services.

Question 45

If Anton sells his 1996 Honda Civic for $3500 in 2013,the sale of his car contributes $3500 to GDP in 2013.

Question 46

The circular-flow model demonstrates that the value of total production is equal to the value of total income in an economy.

Question 47

The purchase of shares in a company is not included in the investment component of GDP.

Question 48

Explain the difference between gross domestic product and gross national income.

Question 49

Which component of investment spending was the largest in Australia in 2012/13?

A) Buildings and structures
B) Dwellings
C) Machinery and equipment
D) Change in inventories

Question 50

Which of the following is not included in the measurement of the net exports component of GDP?

A) The purchase of a Mercedes-Benz from Germany by an Australian citizen.
B) The sale of financial services by an Australian bank to an overseas company.
C) The sale of sheep to Egypt.
D) The sale of Australian shares to an overseas firm.

Question 51

Suppose that the following table represents the goods and services produced in a very simple closed economy in 2013.Assume that steel is used as an input in the production of cars.Using that information,calculate the GDP for the year 2013.

Question 52

In a small economy,gross investment in 2012 is $1500,consumption spending is $6000,net investment is $200,government spending is $1500,exports are $2000 and imports are $1000.What is GDP for this economy in 2012?

A) $10 700
B) $10 300
C) $10 200
D) $10 000

Question 53

What is the gross domestic product of a country?

Question 54

Macroeconomics is the study of how households maximise their satisfaction and firms allocate resources to maximise profits.

Question 55

A weakness of the measurement of GDP is that it includes the value of intermediate goods,therefore some double counting occurs.

Question 56

The largest component of GDP in Australia,as measured by the expenditure method,is

A) net exports.
B) consumption expenditure.
C) government expenditure.
D) investment expenditure.

Question 57

What is meant by 'intermediate goods' and are they included in the measure of GDP?

Question 58

In a small economy,consumption spending in 2012 is $6000,government spending is $1200,gross investment is $1500,exports are $2000,and imports are $1000.What is gross domestic product in 2012?

A) $9 700
B) $9 800
C) $10 800
D) $11 700

Question 59

The smallest component of spending in GDP in Australia is usually

A) consumption spending.
B) investment spending.
C) government spending.
D) net export spending.

Question 60

The following describes the value added in the production of a litre of petrol by each stage of production.(The values are hypothetical,and there are no excise taxes or sales taxes.)
a. What is the value added by each stage of production?
b. What is the total value added?
For simplicity,you can ignore the cost of the inputs for oil drilling.

Question 61

In an 'underground economy',the production of goods and services is

A) not measured nor included in GDP.
B) not measured but included in GDP.
C) measured and included in GDP.
D) usually too insignificant to be included in GDP.

Question 62

The 'underground economy' can be described as

A) production of intermediate goods and services.
B) economic production that includes mining.
C) economic activity that is hidden from the government to avoid taxes or because the activity is illegal.
D) production of infrastructure that spurs growth in the rest of the economy.

Question 63

Which of the following transactions would take place in the 'underground economy'?

A) Elizabeth tells her mother she's going to work but really goes to see a movie.
B) Paul buys 15 litres of petrol for $1.45 per litre, not realising that 40 cents per litre of that price goes to the government as tax revenue.
C) John makes chain-link belts and necklaces and sells them at a local market for cash to avoid paying taxes.
D) Matt bought an iPhone for $400 but decided to sell it on eBay instead of keeping it.

Question 64

The size of the underground economy as a percentage of GDP is larger in Australia than in poorer countries such as Zimbabwe.

Question 65

Give reasons why measured GDP does not reflect total production in an economy.

Question 66

Scott is a woodworker and charges $125 an hour for his time manufacturing custom-made wood products.For his wife's birthday,he designs and creates an intricate birds-eye maple jewellery box that takes him 15 hours to complete.By how much and in what direction does GDP change as a result of his efforts?

A) GDP rises by $1875.
B) GDP is not affected by Scott's production of the jewellery box.
C) GDP rises by $125.
D) GDP falls by $1875.

Question 67

If a country passes a labour law limiting the number of hours of work per week,ceteris paribus,GDP would ________ and leisure would ________.

A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease

Question 68

'Household production' refers to

A) the manufacturing of durable household products.
B) the home building sector of the economy.
C) home-based craft businesses.
D) goods and services people produce for themselves.

Question 69

The 'underground economy' refers to the

A) buying and selling of goods that is concealed from the government.
B) production of goods and services used by the government for covert spy operations.
C) sector of the economy that earns profits that are higher than average.
D) formal sector of the economy in developing countries.

Question 70

Why do we subtract import spending from total expenditures?

Question 71

The 'underground economy' is also referred to as the

A) informal sector.
B) formal sector.
C) halfway economy.
D) net domestic product economy.

Question 72

What are the three methods of calculating GDP used by the Australian Bureau of Statistics,and define each method.

Question 73

Describe how the final value of an iPhone must be equal to the sum of income generated by the production of the iPhone.

Question 74

Use the circular-flow diagram to explain why the value of total expenditure in an economy is equal to the value of total income.

Question 75

Which of the following is counted in GDP?

A) The value of goods and services produced in the underground economy.
B) The cost of a speed boat purchased at Bob's Boats used by drug smugglers.
C) The value of do-it-yourself work.
D) The value of leisure.

Question 76

The Australian Bureau of Statistics divides its statistics on GDP into four major categories.List the categories of expenditures and describe each.

Question 77

Marla is an architect who is designing a home for Charles.Charles is paying Marla $150 per hour to design his new home.When Charles and Marla get married,Marla continues to work on designing the home,but she no longer charges Charles for her work.As a result,GDP ________ because ________.

A) falls; Marla's work takes place in the underground economy once she's married
B) falls; Marla's work becomes less valuable once she's married
C) falls; Marla's architectural design services are no longer bought by Charles once they're married
D) rises; Marla becomes more productive once she's married

Question 78

Why do individuals and firms sometimes conceal the buying and selling of goods and services from the official measurement of GDP,and what proportion of GDP is this estimated to comprise in Australia?

Question 79

GDP is not a perfect measure of wellbeing because

A) the value of leisure is included in GDP.
B) GDP is not adjusted for the effects of pollution.
C) GDP is adjusted for changes in crime.
D) GDP is adjusted for increases in drug addiction.

Question 80

If an increase in crime causes people to spend money on police and security systems,GDP will rise.