Question 1

Which component of consumption spending is the greatest in the Canadian economy?

Accepted Answer

Household consumption is the largest component of consumption spending in most advanced economies, including Canada. In 2019, household consumption accounted for about 58% of Canada's GDP. Government consumption is also a significant component, accounting for around 20% of GDP, followed by gross fixed capital formation at around 23%. Non-profit consumption and wages and salaries are not components of consumption spending.

Question 2

One reason why consumption accounts for more of GDP in the U.S.than it does in Canada is

Accepted Answer

In the U.S., spending on health care is often counted as consumption, which increases the share of consumption in GDP. This is not the case in Canada, where health care spending is counted as government expenditure. This difference in methodology is a significant factor in why consumption accounts for more of GDP in the U.S. than it does in Canada.

Question 3

The circular flow diagram shows that

Accepted Answer

The circular flow diagram represents the exchange of goods and services and money between households and firms. It shows that the total value of all goods and services produced in the economy (GDP) must equal the total value of expenditures on those goods and services (i.e. aggregate demand). In other words, the value of total income earned by households must be equal to the total value of all goods and services produced and sold by firms. This is shown by the flow of income from firms to households in exchange for their labor and other factors of production, and the flow of spending from households to firms in exchange for their goods and services. Therefore, choice A is correct.

Question 4

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

Accepted Answer

Imports are goods and services produced by foreign countries and purchased by Canada. Option A is incorrect because exports are not purchases by Canada, but sales from Canada to foreign countries. Option B is incorrect because it implies that Canada purchases its own exports, which is illogical. Option C is incorrect because imports are purchased by Canada, not by foreign countries. Option E is incorrect because exports are not purchases by foreign countries, but sales from Canada to foreign countries.

Question 5

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

Accepted Answer

The value-added method involves adding up the value added by each firm involved in the production of final goods and services. This means that the value added at each stage of production is included, rather than simply counting the market value of the final product. This avoids double-counting of intermediate goods and services, as only the value added at each stage is included in the calculation.

Question 6

In a small economy for 2017,final consumption spending $6,000,inventory investment is $1,200,gross fixed capital formation is $1,500,exports are $2,000,and imports are $1,000.What is gross domestic product in 2017?

Accepted Answer

The answer of In a small economy for 2017,final consumption...

Question 7

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

Accepted Answer

Investment expenditures in the context of national accounts and economic analysis typically include spending on physical assets like buildings, machinery, and inventory changes. The purchase of financial assets like shares of stock does not count as investment in this context because it does not directly contribute to the production of goods and services.

Question 8

If an economy's exports rise by $8 billion and its imports fall by $8 billion between 2016 and 2017,by how much will GDP change between the two years,all else equal?

Accepted Answer

Net exports is the difference between exports and imports. In this scenario, exports increased by $8 billion and imports decreased by $8 billion, resulting in a $16 billion increase in net exports. All else equal, net exports are a component of GDP, so an increase in net exports will increase GDP by the same amount. Therefore, GDP will increase by $16 billion.

Question 9

The largest component of spending in GDP is

Accepted Answer

Household spending, also known as consumption expenditure, typically accounts for around 70% of GDP in most developed countries. Investment and government spending make up a smaller portion, while net export spending can be positive or negative depending on a country's trade balance. Wages, while important, do not directly contribute to GDP as they are already included in the calculations for household and other spending categories.

Question 10

Table 4.8
 
-Refer to Table 4.8.Consider the table of production and price statistics for a small economy in 2015.If the economy only produces the four goods listed below,what is GDP for 2015?

Accepted Answer

GDP for a given year is calculated by summing the products of the quantities of goods produced and their respective prices for that year. Without the specific table data, the correct answer cannot be directly calculated from the provided information. However, the correct approach involves multiplying the quantity of each good produced in 2015 by its price in 2015 and then summing these products for all goods. The answer provided suggests this calculation has been done, leading to the selection of choice A as the correct GDP value for 2015.

Question 11

Which of the following would result in GDP for an economy equal to $10 trillion?

Accepted Answer

The answer of Which of the following would result in...

Question 12

Demographics and savings suggest that consumption's share of GDP is likely to ________ in the future.

Accepted Answer

Demographics and savings suggest that consumption's share of GDP is likely to drop in the future because as individuals age, they tend to save more and spend less. Additionally, as the population ages, there will be more retirees who are no longer contributing to the workforce and therefore are not generating income to spend on consumption.

Question 13

Which of the following equations correctly measures GDP in an economy?

Accepted Answer

GDP (Gross Domestic Product) is calculated as the sum of consumption (C), investment (I), government spending (G), and net exports (NX, which is exports minus imports). This is accurately represented in option C.

Question 14

In a small economy in 2017 gross fixed capital formation is $1,500,final consumption spending is $6,000,net investment is $1,000,inventory investment is $1,500,exports are $2,000 and imports are $1,000.What is GDP for this economy in 2017?

Accepted Answer

The answer of In a small economy in 2017 gross...

Question 15

Export growth in Canada will help increase Canadian GDP because

Accepted Answer

An increase in exports will increase net exports, assuming no change in imports. Net exports are a component of GDP, so an increase in net exports will increase GDP.

Question 16

Government spending ________ is included in gross domestic product.

Accepted Answer

Government spending at all levels, including federal, provincial, and local, is included in gross domestic product. This includes spending on goods and services such as infrastructure, healthcare, and education.

Question 17

Which of the following would increase gross fixed capital formation in an economy?

Accepted Answer

Gross fixed capital formation refers to the net increase in physical assets within the economy. Choice C, an increase in the number of carts at a local grocery store, directly adds to the physical assets of the business, thus increasing gross fixed capital formation. Choices A, B, D, and E do not directly involve the acquisition or creation of physical assets.

Question 18

Consumption spending is $4.5 billion,investment is $3 billion,and government expenditures are $2 billion.If GDP is $14 billion,which of the following could be true regarding exports and imports in the economy?

Accepted Answer

The answer of Consumption spending is $4.5 billion,investment is $3...

Question 19

Caroline is an artist.She purchases canvas,paints,brushes,and accessories for $75.She sells one of her original paintings to an art gallery for $1,500,even though an art lover would pay $4,500 for that painting.How much value does Caroline add?

Accepted Answer

The value that Caroline adds is equal to the difference between the price she sells her painting for and the price an art lover would pay for it. Therefore, the value she adds is $4,500 - $1,500 = $3,000. However, we need to subtract the cost of her supplies, which is $75. Therefore, the total value added is $3,000 - $75 = $2,925. Option B ($1,425) is closest to this value.

Question 20

Caroline is an artist.She purchases canvas,paints,brushes,and accessories for $75.She sells one of her original paintings to an art gallery for $1,500.The gallery,in turn,sells the painting to an art lover for $4,500.How much value does the gallery add?

Accepted Answer

The gallery adds value by selling the painting for $4,500, which is $3,000 more than what they purchased it for from Caroline. The initial cost of materials is not relevant to this question.

Quiz 4: GDP: Measuring Total Production and Income