Question 1

The purchase of new capital goods by firms is called:
A) investment.
B) consumption.
C) depreciation.
D) planting.

Accepted Answer

Investment is the term used to describe the purchase of new capital goods by firms, as it represents the allocation of resources towards future production and growth.

Question 2

Inventories are stocks of goods currently held by a firm ________________.
A) in case of bankruptcy
B) as investments
C) for future production or sale
D) as a hedge against price increases

Accepted Answer

Inventories are held by firms for future production or sale, allowing them to meet customer demand without delays.

Question 3

With respect to the national accounts measurement of economic activity, government purchases are:
A) expenditures on current output.
B) taxes net of subsidies.
C) imports.
D) investment.

Accepted Answer

Government purchases in national accounts refer to expenditures on goods and services that are used to provide public services, and on goods and services provided by the government to households without charge. This includes spending on current output such as public administration, defense, education, and healthcare, but does not include transfer payments like pensions and unemployment benefits, which are not payments for current output.

Question 4

An open economy is one with:
A) a government sector.
B) firms.
C) international trade.
D) households.

Accepted Answer

An open economy is characterized by its engagement in international trade, meaning it imports and exports goods and services with other countries.

Question 5

_______ are domestically produced but sold abroad and considered as ___________ in the expenditure on domestic output.
A) imports, reductions
B) imports, increases
C) exports, reductions
D) exports, increases

Accepted Answer

Exports are domestically produced goods that are sold abroad and are considered as increases in the expenditure on domestic output, as they contribute to the total economic output of a country by bringing in revenue from overseas.

Question 6

Which of the following statements is false?
A) The output and income measures of GDP describe the supply side of the economy.
B) The expenditure measure of GDP describes the demand side of the economy.
C) The income measure of GDP describes the supply side of the economy.
D) The value added measure of GDP describes the supply side of the economy.

Accepted Answer

The answer of Which of the following statements is false?
A)...

Question 7

Which of the following statements is false?
A) Net investment cannot be negative.
B) If net investment is positive, it means gross investment minus depreciation is positive.
C) Depreciation can not be negative.
D) Gross investment cannot be negative.

Accepted Answer

Net investment can be negative if depreciation exceeds gross investment, indicating a reduction in the capital stock.

Question 8

The value of a nation's foreign-sector transactions on its GDP is measured by its:
A) imports.
B) exports minus imports.
C) exports.
D) foreign aid.

Accepted Answer

The value of a nation's foreign-sector transactions on its GDP is measured by its net exports, which is calculated as exports minus imports. This reflects the net effect of a country's international trade on its economic output.

Question 9

The major component of Canadian net domestic income is:
A) profit and business income.
B) investment income.
C) rental income.
D) employment income.

Accepted Answer

The major component of Canadian net domestic income is employment income. This is because wages and salaries paid to workers constitute the largest portion of income generated within the economy, reflecting the significant role of labor in producing goods and services.

Question 10

Net domestic income includes all the following except:
A) small business income.
B) depreciation.
C) net interest.
D) company profits.

Accepted Answer

Depreciation is not included in net domestic income because it is a non-cash expense that reflects the wear and tear on assets over time, rather than an actual income generated. Net domestic income aims to measure the total income earned within a country, focusing on actual income generation rather than accounting adjustments like depreciation.

Question 11

In Canada, the approximate value of the share of employment income in GDP in 2008 is:
A) 10%.
B) 25%.
C) 50%.
D) 75%.

Accepted Answer

In 2008, the share of employment income in Canada's GDP was approximately 50%. This reflects the proportion of the country's gross domestic product that is attributed to wages and salaries paid to workers, indicating a significant reliance on labor income in the economy.

Question 12

The approximate value of the share of profits business and investment income in Canada's GDP in 2008 is:
A) 10%.
B) 25%.
C) 50%.
D) 75%.

Accepted Answer

In 2008, the share of profits from business and investment income in Canada's GDP was approximately 25%. This reflects the significant contribution of corporate profits and investment income to the overall economic output of the country.

Question 13

Capital consumption allowances correspond to each of the following except:
A) depreciation.
B) fixed capital used up in the production process.
C) difference between GDP and NDP.
D) difference between GDP and GNP.

Accepted Answer

Capital consumption allowances correspond to the depreciation of physical capital, the fixed capital used up in the production process, and the difference between Gross Domestic Product (GDP) and Net Domestic Product (NDP). They do not represent the difference between GDP and Gross National Product (GNP), which involves income from abroad and factors other than capital consumption.

Question 14

The difference between GDP at market prices and GDP at basic prices is:
A) net indirect taxes.
B) direct taxes.
C) progressive taxes.
D) regressive taxes.

Accepted Answer

The difference between GDP at market prices and GDP at basic prices is net indirect taxes. GDP at market prices includes taxes on products (such as VAT and sales taxes) and excludes subsidies on products, whereas GDP at basic prices excludes these taxes and subsidies.

Question 15

To obtain a measure of net domestic income from GDP, it is necessary to:
A) add any transfer payments made by government to households.
B) deduct the value of capital used up in the production of current output.
C) deduct net indirect taxes and depreciation.
D) add any increases in the nation's stock of capital.

Accepted Answer

Net domestic income is obtained by deducting net indirect taxes and depreciation from GDP.

Question 16

All the following are correct except:
A) NNP = GNP - depreciation.
B) GNP = gross domestic product + net factor income from abroad.
C) NDI = GDP - net indirect taxes + capital consumption.
D) aggregate spending = C + I + G + NX = GDP.

Accepted Answer

NDI (National Disposable Income) is calculated as the Net National Product (NNP) at factor cost plus net current transfers from the rest of the world. The formula provided in option C incorrectly describes NDI calculation. It should be NNP at factor cost - Indirect Taxes + Subsidies, not GDP - net indirect taxes + capital consumption.

Question 17

Suppose the net investment in an economy is $100 billion, depreciation is $200 billion, consumption expenditure is $800 billion, government expenditure is $100 billion, taxes minus transfers are $10 billion and net exports are minus $20 billion. The economy's GDP is:
A) $1170 billion.
B) $1180 billion.
C) $1200 billion.
D) $1220 billion.

Accepted Answer

GDP is calculated as the sum of consumption expenditure, investment (net investment + depreciation), government expenditure, and net exports. Here, it is $800 billion + ($100 billion + $200 billion) + $100 billion - $20 billion = $1180 billion.

Question 18

Suppose, the GDP of an economy is $1220 billion, gross investment (I) is $300 billion, consumption expenditure (C) is $800 billion and government expenditure (G) is $100 billion. The economy's net export (NX) is:
A) - $20 billion.
B) zero.
C) $20 billion.
D) $40 billion.

Accepted Answer

GDP = C + I + G + NX. Substituting the given values: $1220 billion = $800 billion + $300 billion + $100 billion + NX. Solving for NX gives NX = $20 billion.

Question 19

To get from GDP to GNP requires the addition of:
A) exports.
B) net property income from abroad.
C) foreign exchange.
D) foreign assets.

Accepted Answer

GNP (Gross National Product) is calculated by adding net property income from abroad (which includes income from foreign investments minus payments made to foreign investors) to the GDP (Gross Domestic Product). Exports are already included in GDP, and foreign exchange and foreign assets are not directly related to the calculation from GDP to GNP.

Question 20

The ratio of nominal GDP to real GDP is known as the:
A) personal saving rate.
B) GDP deflator.
C) consumer price index.
D) price-adjusted GDP.

Accepted Answer

The GDP deflator is a measure that reflects the ratio of nominal GDP to real GDP, allowing for the adjustment of GDP figures for inflation. This makes it possible to compare the GDP of different years by removing the effects of price changes.

Quiz 4: Economic Activity and Performance

The purchase of new capital goods by firms is called:

Inventories are stocks of goods currently held by a firm ________________.

With respect to the national accounts measurement of economic activity, government purchases are:

An open economy is one with:

_ are domestically produced but sold abroad and considered as _____ in the expenditure on domestic output.

Which of the following statements is false?

Which of the following statements is false?

The value of a nation's foreign-sector transactions on its GDP is measured by its:

The major component of Canadian net domestic income is:

Net domestic income includes all the following except:

In Canada, the approximate value of the share of employment income in GDP in 2008 is:

The approximate value of the share of profits business and investment income in Canada's GDP in 2008 is:

Capital consumption allowances correspond to each of the following except:

The difference between GDP at market prices and GDP at basic prices is:

To obtain a measure of net domestic income from GDP, it is necessary to:

All the following are correct except:

Suppose the net investment in an economy is $100 billion, depreciation is $200 billion, consumption expenditure is $800 billion, government expenditure is $100 billion, taxes minus transfers are $10 billion and net exports are minus $20 billion. The economy's GDP is:

Suppose, the GDP of an economy is $1220 billion, gross investment (I) is $300 billion, consumption expenditure (C) is $800 billion and government expenditure (G) is $100 billion. The economy's net export (NX) is:

To get from GDP to GNP requires the addition of:

The ratio of nominal GDP to real GDP is known as the: