Question 1

Transfer payments are included under

Accepted Answer

Transfer payments are not included in the calculation of GDP because they do not represent payment for goods or services. They are simply transfers of money such as social security payments, welfare, and unemployment benefits.

Question 2

The four components of GDP are:

Accepted Answer

The four components of GDP are consumption (C), investment (I), government purchases (G) and net exports (NX). Consumption refers to the spending of households on goods and services, investment refers to spending by businesses on capital goods, government purchases refer to spending by the government on goods and services, and net exports refer to the difference between exports (goods and services sold to other countries) and imports (goods and services purchased from other countries). Therefore, choice D is the correct answer.

Question 3

The value of the housing service provided to individuals who live in housing they own themselves is included in GDP by:

Accepted Answer

The value of the housing service provided to individuals who live in housing they own themselves is estimated by using the rental value of the housing, which is included in GDP. Neither the monthly mortgage payment nor the purchase price of the house is an appropriate measure of this value.

Question 4

Real GDP is:

Accepted Answer

Real GDP is the production of goods and services valued at constant prices. This is because real GDP attempts to measure the volume of economic activity in an economy by holding prices constant. By doing so, it allows for a comparison of economic activity from one period to another, without the distortion of price changes. Therefore, option B is the correct answer.

Question 5

Which of the following is not omitted from GDP?

Accepted Answer

Legal services are included in GDP calculations because they are paid services that contribute to the economy's output. GDP measures the total value of all goods and services produced over a specific time period within a country, including legal services. Home production, illegal activities, and leisure activities are not typically included in GDP calculations.

Question 6

Statistics such as GDP, the unemployment rate, the rate of inflation and the trade balance are:

Accepted Answer

These statistics are all macroeconomic because they provide information about the entire economy, rather than individual households or firms. GDP measures the total value of goods and services produced in a country, the unemployment rate measures the percentage of the labor force that is without work, the rate of inflation measures the overall increase in prices over time, and the trade balance measures the difference between a country's exports and imports.

Question 7

David's Microchip Company (DMC) produces microchips for MP₃ players, which it sells for $18 million to John Smith Electronics (JSE).JSE's MP₃ players are sold for a total of $22 million.What is the value added to JSE?

Accepted Answer

The value added to JSE is calculated as the difference between the total revenue earned by JSE from selling the MP₃ players ($22 million) and the cost of purchasing the microchips from DMC ($18 million). Therefore, the value added to JSE is $22 million - $18 million = $4 million. Therefore, the best choice is C.

Question 8

Suppose GDP consists of wheat and rice.In 2011, 200 kg of wheat are sold at $4 per kg, and 100 kg of rice are sold at $2 per kg.If in 2012, the base year, the price of wheat was $1 per kg and the price of rice was $2 per kg, then for year 2011:

Accepted Answer

Nominal GDP for 2011 is calculated using the prices of that year: (200 kg of wheat * $4) + (100 kg of rice * $2) = $800 + $200 = $1000.

Question 9

Gross domestic product measures:

Accepted Answer

Gross domestic product measures both the total income of everyone in the economy and the total expenditure on the economy's output of goods and services.

Question 10

If the GDP deflator is $98 billion and the nominal GDP is $1960 billion, then the real GDP is:

Accepted Answer

The real GDP is calculated by dividing the nominal GDP by the GDP deflator (in its index form, which is the deflator divided by 100). So, $1960 billion / (98/100) = $2000 billion.

Question 11

Which of the following accounts for the largest portion of GDP?

Accepted Answer

Consumption is the largest portion of GDP as it measures the total spending by consumers on goods and services in an economy. This includes spending on durable goods, non-durable goods, and services. Investment, exports, and imports are also important components of GDP, but they contribute smaller portions compared to consumption.

Question 12

The difference between the values of final production and value of the inputs is called:

Accepted Answer

The difference between the value of final production and the value of inputs is called the value added of the final goods and services. This means that the value added represents the amount of value that has been created in the production process. It is calculated by subtracting the cost of inputs from the price of the final product. The value added is an important economic indicator as it measures the contribution of each production process to the overall economy.

Question 13

The goal of macroeconomics is:

Accepted Answer

Macroeconomics focuses on analyzing and understanding the overall economy, including factors such as inflation, unemployment, and economic growth, and how these factors affect multiple households, firms, and markets. It is not solely concerned with the stock market or decision-making within businesses, nor is it designed to eliminate fluctuations in the business cycle (which is generally viewed as a natural and unavoidable aspect of the economy).

Question 14

GDP includes the value of final goods, and not intermediate goods, because:

Accepted Answer

Intermediate goods are used as inputs in the production of final goods. If the value of intermediate goods was included in the calculation of GDP, it would result in double-counting, as the value of intermediate goods is already included in the value of final goods. Therefore, to avoid double-counting, only the value of final goods is included in the calculation of GDP.

Question 15

When calculating GDO, what matters is

Accepted Answer

Gross Domestic Output (GDO) is concerned with the location of production, as it measures the total economic output produced within a country's borders, regardless of who owns the production.

Question 16

Which of the following is not a component of the income approach?

Accepted Answer

Transfer payments are not a component of the income approach, as they do not represent earnings from production. Transfer payments are payments made by the government or other organizations to individuals or households for reasons other than work or production, such as social security benefits or welfare payments. The other choices, labour income, capital and mixed income, and indirect business taxes, are all components of the income approach.

Question 17

Suppose an economy produces two products: meat pies and hamburgers.In 2011, 20 meat pies are sold at $5 each, and eight hamburgers are sold at $50 each.In 2010, the base year, the price of meat pies was $10 each, and the price of kebabs was $75 each.Therefore:

Accepted Answer

The real GDP is the value of goods and services produced in an economy in a given year, valued at the prices of a base year. In this case, the base year is 2010. The real GDP in 2011 is calculated as follows:Real GDP = (Quantity of meat pies in 2011 * Price of meat pies in 2010) + (Quantity of hamburgers in 2011 * Price of hamburgers in 2010)= (20 * $10) + (8 * $75)= $200 + $600= $800The GDP deflator is a measure of the overall price level in an economy. It is calculated as the ratio of nominal GDP to real GDP, multiplied by 100. In this case, the nominal GDP in 2011 is $1,000 (20 * $5 + 8 * $50). The GDP deflator is calculated as follows:GDP deflator = (Nominal GDP / Real GDP) * 100= ($1,000 / $800) * 100= 1.25 * 100= 125Therefore, the correct answer is A) the real 2005 GDP is $800, and the GDP deflator is 62.5.

Question 18

Value added is

Accepted Answer

Value added is the value of a firm's output minus the value of intermediate goods used in production. This is because intermediate goods are not included in the calculation of GDP as they are already included in the value of final goods. Value added is used to measure a firm's contribution to GDP under the value-added approach.

Question 19

Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities and desirable moral attributes of the population, are not measured as part of GDP.

Accepted Answer

Although GDP does not directly measure valuable aspects of society such as good health and education, it can indirectly contribute to these measures by representing a nation's ability to purchase the inputs needed to create and sustain them. Therefore, GDP can still be seen as a measure of a society's welfare.

Question 20

If the GDP deflator is 200 and real GDP is $40 billion, then nominal GDP is:

Accepted Answer

The GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. It is calculated as (Nominal GDP / Real GDP) * 100. Given the GDP deflator is 200, and Real GDP is $40 billion, we can rearrange the formula to solve for Nominal GDP: Nominal GDP = (GDP Deflator * Real GDP) / 100 = (200 * $40 billion) / 100 = $80 billion.

Quiz 24: Measuring a Nations Income