Question 1

Wages are an example of a transfer payment because there is a transfer of payment from the firm to the worker.

Accepted Answer

Wages are not an example of a transfer payment because it is a payment made in exchange for work done by the worker, not a government transfer to the worker. Transfer payments are typically made by the government to individuals or households as a form of assistance or social welfare, such as unemployment benefits or social security payments.

Question 2

Suppose that an economy produces 40,000 units of good A which sells at €4 a unit and 20,000 units of good B which sells at €5 per unit. Production of good A contributes

Accepted Answer

B

Question 3

Gross domestic product measures

Accepted Answer

Gross domestic product measures both income and expenditures within a country's economy. It is a measure of the market value of all the final goods and services produced in a given year. Therefore, both income (from the production of these goods and services) and expenditures (from the purchase and consumption of these goods and services) are included in the calculation of GDP.

Question 4

The circular flow model is not used anymore because it fails to perfectly replicate real world situations

Accepted Answer

The circular flow model is still used as a basic economic model to illustrate the flow of goods and services between households and firms, despite its simplifications and assumptions.

Question 5

Nominal GDP employs current prices to value output while real GDP employs constant base-year prices to value output.

Accepted Answer

Nominal GDP values output using current prices, while real GDP uses a fixed set of base-year prices to adjust for inflation and provide a more accurate measure of economic output over time.

Question 6

Macroeconomists study

Accepted Answer

Macroeconomists study economy-wide phenomena, such as inflation, economic growth, unemployment, and international trade. They analyze financial systems, monetary and fiscal policy, and the interrelationships among different sectors of the economy. They do not focus on individual households and firms or regulations imposed on them.

Question 7

The production of an apple contributes more to GDP than the production of a gold ring because food is necessary for life itself.

Accepted Answer

GDP measures the market value of all final goods and services produced in a country, not their necessity for life. The contribution to GDP depends on the market value, not the essential nature of the product.

Question 8

GDP does not make adjustments for leisure time, environmental quality, or volunteer work.

Accepted Answer

GDP is a measure of the monetary value of all final goods and services produced within a country's borders during a specific period. It doesn't account for factors like leisure time, environmental quality, and volunteer work, which are important for measuring overall welfare and well-being. Therefore, GDP is not considered a comprehensive measure of a country's economic progress.

Question 9

If a timber yard sells €1,000 of timber to a carpenter and the carpenter uses the timber to build a garage which he sells for €5,000, the contribution to GDP is €6,000.

Accepted Answer

The contribution to GDP is €5,000, as only the final sale of the garage is counted to avoid double counting the value of the timber.

Question 10

A country with a larger GDP per person generally has a greater standard of living or quality of life than a country with a smaller GDP per person.

Accepted Answer

GDP per person is a measure of economic productivity and income per person in a country. Generally, a larger GDP per person indicates a country has more resources and income to invest in infrastructure, healthcare, education, and other public services that contribute to a higher standard of living and quality of life for its citizens. However, it should be noted that GDP per person alone does not provide a complete picture of a country's standard of living, as other factors such as income inequality and social welfare policies also play a role.

Question 11

An example of a transfer payment is

Accepted Answer

Transfer payments are payments made by the government to individuals or households for which no goods or services are provided in return. Unemployment benefits are an example of transfer payments, as they are payments made by the government to individuals who are out of work due to no fault of their own. Options A, B, D, and E are not transfer payments, as they involve exchanges of goods or services for payment.

Question 12

If nominal GDP in 2015 exceeds nominal GDP in 2014, real output must have risen.

Accepted Answer

Nominal GDP can increase due to higher prices (inflation) rather than an increase in real output.

Question 13

For an economy as a whole, income equals expenditure because the income of the seller must be equal to the expenditure of the buyer.

Accepted Answer

In an economy, every transaction involves a buyer and a seller. The seller receives income from the buyer, which is equal to the expenditure of the buyer. When we sum up all the income earned by producers in an economy, it is equal to the total expenditure or spending of all buyers in that economy. Therefore, income equals expenditure for the economy as a whole.

Question 14

Cigarettes should be valued in GDP at €7.50 per pack even though €5.00 of that price is tax because the buyers paid €7.50 per pack.

Accepted Answer

The value of a product in GDP is based on the price paid by the buyer, regardless of how much of that price is tax. So in this case, the value of a pack of cigarettes would be €7.50, not just €2.50 (the amount that is not tax).

Question 15

For an economy as a whole,

Accepted Answer

In an economy as a whole, the total income earned by individuals (including wages) must equal the total expenditure on goods and services produced. This is known as the circular flow of income and expenditure. Consumption and saving may not necessarily always be equal, and having the same number of buyers and sellers is not a requirement for the overall functioning of the economy. Profit is a component of income, but not all income is profit (e.g. interest income, rent income, etc.).

Question 16

In the circular-flow diagram, payments for labour, land, and capital flow from firms to households through the markets for the factors of production.

Accepted Answer

This is a correct statement about the circular-flow diagram. The markets for the factors of production include the labour market, land market, and capital market, where households supply their resources (labour, land, and capital) to firms in exchange for payments.

Question 17

Which of the following statements about GDP is correct?

Accepted Answer

The answer of Which of the following statements about GDP...

Question 18

Expenditures on a nation's domestic production

Accepted Answer

The answer of Expenditures on a nation's domestic production
...

Question 19

Changes in the GDP deflator reflect only changes in the prices of goods and services.

Accepted Answer

The GDP deflator is a measure that reflects changes in the overall level of prices in the economy. It is calculated by dividing nominal GDP (the total value of goods and services produced in an economy at current prices) by real GDP (the total value of goods and services produced in an economy at constant prices). Therefore, changes in the GDP deflator reflect only changes in the prices of goods and services, and not changes in the quantities of goods and services produced.

Question 20

Because every transaction has a buyer and a seller,

Accepted Answer

Every transaction contributes equally to an economy's income and expenditure, as each transaction involves a payment to a seller and a receipt of income for the buyer. This is because GDP is measured by adding up all the spending in an economy, which is equal to the total income earned by firms and households. Therefore, the total value of goods and services produced in an economy can be measured either by looking at the total spending or by looking at the total income earned.

Quiz 20: Measuring a Nations Well-Being