Deck 24: Measuring a Nations Income

Question 1

All government outlays are part of GDP.

Answer 1

False

Question 2

The government reports that GDP increased at an annual rate of four per cent for the third quarter of 1999.This means that GDP was four per cent higher at the end of the third quarter than at the beginning of the quarter.

Answer 2

False

Question 3

GDP measures an economy's total expenditure on second-hand goods and services produced within a country in a given period of time.

Answer 3

False

Question 4

Macroeconomics is the study of economy-wide phenomena including inflation, unemployment and economic growth.

Question 5

Sales of used cars are not part of GDP.

Question 6

A company produces an intermediate good on the last day of the year.If it is sold, GDP will not increase, but if it is not sold, GDP will increase.

Question 7

Consumption is spending by households on goods and services, including household purchases of new housing.

Question 8

For the year 2005, nominal GDP is $10 billion and real GDP is $11 billion, so the GDP deflator is 110.

Question 9

Sandra decides to hire her neighbour's son to water her lawn and feed her dog this year instead of doing those tasks herself as she did last year.Since the same work is done in either case, GDP is unaffected by the change.

Question 10

International studies show that higher GDP per person is associated with higher levels of literacy and greater life expectancy.

Question 11

GDP can be measured by counting final sales at each level of production.

Question 12

If Canada's GDP is $1000 billion and Poland's GDP is $100 billion, the average Canadian citizen must be ten times as well-off as the average Polish citizen.

Question 13

Capital income (profits, rental payments and interest payments) is the largest component of income.

Question 14

Over time, the three measures of GDP tend to arrive at the same result.

Question 15

Macroeconomics is:

A)the study of economics at the level of the industry
B)the study of the economy as a whole
C)the study of individual households and firms and their interactions in markets
D)the study of money and financial markets

Question 16

Cyclical adjustments are used by statisticians to ensure that the higher production in certain times of the year is kept in perspective.

Question 17

Total transfer payments are included in GDP because the recipients of these payments are providing an exchangeable good or service.

Question 18

Real GDP is the production of goods and services valued at a price compared to a certain year.

Question 19

According to the income-expenditure identity, the total income of a country equals the sum of the four types of expenditure: consumption, investment, government purchases and net exports.

Question 20

Nominal GDP always grows faster than real GDP.

Question 21

Transfer payments are included under

A)consumption
B)investment
C)government purchases
D)none of the options given

Question 22

The four components of GDP are:

A)consumption, money supply, government purchases and exports
B)consumption, investment, transfer payments and imports
C)consumption, investment, government purchases and foreign exchange
D)consumption, investment, government purchases and net exports

Question 23

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

A)estimating the rental value of the housing
B)using the monthly mortgage payment
C)using the purchase price of the house
D)none of the above.Because the value cannot be measured directly, it is excluded.

Question 24

Real GDP is:

A)the production of goods and services valued at current-year prices
B)the production of goods and services valued at constant prices
C)the production of goods and services valued at future-year prices
D)the production of goods and services valued at the ratio of current-year prices to constant prices

Question 25

Which of the following is not omitted from GDP?

A)home production
B)illegal activities
C)leisure activities
D)legal services

Question 26

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

A)both microeconomic and macroeconomic
B)neither macroeconomic nor microeconomic, but properly in the realm of political science
C)microeconomic, since they affect individual households and firms
D)macroeconomic, since they tell us something about the entire economy

Question 27

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?

A)$6 million
B)$4 million
C)$10 million
D)$26 million

Question 28

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:

A)nominal GDP is $1000
B)nominal GDP is $400
C)nominal GDP is $400
D)nominal GDP is $1000

Question 29

Gross domestic product measures:

A)the total income of everyone in the economy
B)the total expenditure on the economy's output of goods and services
C)both A and B
D)neither A nor B

Question 30

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

A)$2000 billion
B)$20 billion
C)$5 billion
D)$192 080 billion

Question 31

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

A)investment
B)exports
C)consumption
D)imports

Question 32

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

A)the surplus of the final goods and services
B)the profit of the final goods and services
C)the value added of the final goods and services
D)the gross product of the final goods and services

Question 33

The goal of macroeconomics is:

A)to explain the workings of the stock market
B)to explain the changes in the overall economy that affect many households, firms and markets
C)to explain decision-making within the business environment
D)to eliminate the fluctuations in the business cycle

Question 34

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

A)the value of intermediate goods is already included in the value of final goods
B)the value of intermediate goods is too difficult to measure
C)the value of intermediate goods is measured by GNP
D)the value of intermediate goods depends on the number of separate production processes

Question 35

When calculating GDO, what matters is

A)the location of production only
B)the ownership of production only
C)both the location and the ownership of production
D)neither the location nor the ownership of production

Question 36

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

A)labour income
B)capital and mixed income
C)transfer payments
D)indirect business taxes

Question 37

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:

A)the real 2005 GDP is $800, and the GDP deflator is 62.5
B)the real 2005 GDP is $800, and the GDP deflator is 160
C)the real 2005 GDP is $500, and the GDP deflator is 62.5
D)the real 2005 GDP is $500, and the GDP deflator is 160

Question 38

Value added is

A)used to measure GDP under the spending approach
B)the final sales value of a firm's output
C)the value of a firm's output plus the value of intermediate goods used in production
D)the value of a firm's output minus the value of intermediate goods used in production

Question 39

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.

A)Therefore GDP is not a useful measure of society's welfare
B)However, GDP is still a useful measure of society's welfare because these other attributes are the responsibility of government
C)However, GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce these contributors to welfare
D)Therefore GDP is not a useful measure of society's welfare unless is it measured per person

Question 40

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

A)$8000 billion
B)$20 billion
C)$80 billion
D)$2000 billion

Question 41

If nominal GDP increased by 11 per cent while real GDP increased by only five per cent, then:

A)the price level must have increased by around six per cent
B)the price level must have increased by around 16 per cent
C)the price level remained steady but real output fell by around six per cent
D)the unemployment rate must have fallen during the year

Question 42

Table 1 shows the following amounts for the years 2009 to 2011. $\begin{array}{|c|c|c|}\hline \text { Year } & \text { Nominal GDP } & \text { Real GDP } \\\hline 2009 & \$ 500 & \$ 500 \\\hline 2010 & \$ 600 & \$ 545.5 \\\hline 2011 & \$ 720 & \$ 600 \\\hline\end{array}$
Prices in $billions
What is the GDP deflator for the three years?

Question 43

For each of the following events, ceteris paribus, state the effect on GDP (does it increase/decrease/remain unchanged?) and why.
A.A few small boat builders decide to move from the production of simple boats for leisure use to the production of yachts for the America's Cup.
B.You are short of cash and you need more exercise so you sell your car for $1000.
C.The Australian Tax Office gets tough on illegal unrecorded activity (the underground economy )
D.A major oil spill occurs off the coastline of an area with high unemployment levels.Many of the local unemployed are employed to help with the clean-up.

Question 44

GDP is considered a good measure of economic wellbeing.However, GDP is not a perfect measure of wellbeing.Why? Discuss factors that are not included in GDP but that affect whether people are better off.

Question 45

If the total GDP in 2011 was $1302 billion, where consumption expenditure equals $713 million, investment = $285 million, government = $308, the net exports would:

A)be 0.4% of the total GDP
B)equal $5 million
C)both a and b
D)have been negative as import spending is greater than export receipts

Question 46

How can GDP increase if production of goods and services is constant?

Question 47

Out of the following list, choose the item that would be included in the expenditure approach to calculating GDP:

A)an unemployment cheque from the government to R.Smith
B)the cost of the second-hand mountain bike you bought from your flatmate
C)a $200 cheque from your Uncle Arthur
D)the purchase of 60 litres of petrol at $1.42 cents per litre for your car

Question 48

If there is inflation

A)nominal GDP grows faster than real GDP
B)the CPI is falling
C)real GDP grows faster than nominal GDP
D)production is rising but prices are held constant

Question 49

Since black market and non-market measures are excluded from measures of GDP, the GDP measure tends to:

A)overestimate the total production of an economy
B)underestimate the total production in an economy
C)not make a significant difference in determining the total production of an economy
D)lead one to the conclusion that GDP measures are not very useful to anyone but market economists

Question 50

What is the process used to separate the change in GDP due to an increased output of goods and services, from the change due to increased prices? Why do we make this distinction?

Question 51

Why does GDP include next exports instead of simply exports?