Deck 5: Measuring a Nations Income

Question 1

In a simple circular-flow diagram, how are total income and total expenditure interrelated?

A) They are seldom equal because of fluctuations in the business cycle that occur in an economy.
B) They are equal only when all goods and services produced are sold.
C) They are always equal because every transaction has a buyer and a seller.
D) They are always equal because of accounting rules.

Answer 1

They are always equal because every transaction has a buyer and a seller.

Question 2

How is GDP computed?

A) add up the quantities of all final goods and services within a country
B) add up the cost of producing final goods and services within a country
C) use weights determined by a survey regarding how much people value different sorts of goods and services to compute GDP as a weighted average
D) add up the market values of all final goods and services produced within a country in a given period of time

Answer 2

add up the market values of all final goods and services produced within a country in a given period of time

Question 3

In a simple circular-flow diagram, why is total income equal to total expenditure?

A) because firms re-invest their profits
B) because savings are small
C) because income from interest is not part of GDP
D) because every transaction has a buyer and a seller

Answer 3

because every transaction has a buyer and a seller

Question 4

According to the simple circular-flow model, what do firms buy from households?

A) natural resources, such as oil and minerals
B) goods and services
C) inventions and innovations
D) labour

Question 5

In order to include many different products in an aggregate measure, how is GDP computed?

A) using values of goods based on consumers' tastes
B) using primarily costs of production
C) using primarily market prices
D) using weights that are computed by how much of a particular good is produced relative to total output

Question 6

What does the simple circular-flow diagram illustrate?

A) that expenditure generates income so that income and the value of production are equal
B) that the economy's income exceeds its expenditure
C) that factors of production "flow" from firms to households
D) that money "flows" from households to firms

Question 7

Which of the following is the best definition of GDP?

A) the market value of all goods produced within a country
B) the market value of all final goods and services produced by the citizens of a country
C) the market value of all final goods and services consumed within a country over a number of years
D) the market value of all final goods and services produced within a country in a given period of time

Question 8

What is the goal of macroeconomics?

A) to explain how economic changes affect prices of particular goods
B) to explain market failures, such as externalities and monopoly
C) to explain changes that affect the economy as a whole
D) to explain how an income tax influences a person's decision to work

Question 9

Why does expenditure equal income?

A) because firms are required by law to pay out all their revenue as income to someone
B) because ultimately firms are owned by households
C) because for every sale there is a buyer and a seller
D) because the demand and supply of goods and services must be equal

Question 10

Which market is the model of supply and demand most appropriate for?

A) markets in which there is one large seller and many buyers
B) markets in which there is one large buyer and many sellers
C) markets in which there are few sellers and few buyers
D) markets in which there are many sellers and many buyers

Question 11

Which question is more likely to be studied by a macroeconomist than a microeconomist?

A) Why do prices in general rise by more in some countries than others?
B) Why do wages differ across industries?
C) Does education increase a worker's income on average?
D) Is there usually a gain from trade between two countries?

Question 12

Why is GDP computed using market prices as the value of final goods and services?

A) because market prices do not change much, so it is easy to make comparisons between years
B) because if market prices are out of line with how people value goods, the government sets ceilings and floors on them
C) because costs change too much to reflect the value of goods and services
D) because market prices reflect the value of goods and services

Question 13

Which headline would be most closely related to what macroeconomists study?

A) The unemployment rate decreases from 6 percent to 5 percent.
B) The price of gasoline rises due to reduced output in the Middle East.
C) The number of people living on the streets has increased over the past decade.
D) The government introduces regulations to keep the telecommunications industry competitive.

Question 14

Which statistic is the best single measure of an economy's well-being?

A) the exchange rate
B) the labour force participation rate
C) the gross domestic product
D) the natural rate of unemployment

Question 15

In an economy consisting of only households and firms, how can GDP be computed?

A) by calculating the average total expenditures of households and subtracting savings
B) by calculating the average income paid by firms only in exchange for labour
C) by adding up either total income paid by firms or total expenditures of households, but not both
D) by adding up both the total expenditures of households and the total income paid by firms

Question 16

Which of the following is a macroeconomic issue?

A) how much more consumers purchase when the prices of necessities decrease
B) how changes in interest rates affect investment
C) how an increase in wages changes how many hours a person is willing to work
D) how an increase in the amount of competition leads to a decrease in prices

Question 17

Which topics are studied in macroeconomics?

A) unemployment, government spending, and interest rates
B) postsecondary education, wage differences between genders, and health care costs
C) differences in market structure and competition laws
D) the effect of exchange rates on prices and patterns of international trade

Question 18

If GDP rises, what happens?

A) Income and expenditure must both rise.
B) Income and expenditure must both fall.
C) Income must rise, but expenditure may rise or fall.
D) Expenditure must rise, but income may rise or fall.

Question 19

What is the relationship between income and expenditure for an economy?

A) Income is greater than expenditure.
B) Income is less than expenditure.
C) Income equals expenditure.
D) Income could be greater or less than expenditure.

Question 20

How should Dianne's contributions to GDP be calculated?

A) using her income, not her expenditure
B) using her expenditure, not her income
C) using both her income and her expenditure
D) using either her income or her expenditure, but not both

Question 21

How does the value of total sales of all firms in the country for a year compare with GDP?

A) It equals GDP for the year.
B) It is larger than GDP for the year.
C) It is smaller than GDP for the year.
D) It could be larger or smaller than GDP for the year.

Question 22

If Canada made cannabis illegal, then, other things the same, what would happen to GDP?

A) It would decrease.
B) It would increase.
C) It would not change because both legal and illegal production are included in GDP.
D) It does not change because cannabis is never included in GDP.

Question 23

How is a potato treated in GDP terms?

A) It is always counted as an intermediate good.
B) It is counted as a final good if it is used by a restaurant to make French fries.
C) It is counted as a final good if it is used by a consumer who makes mashed potatoes for her own consumption.
D) It is always counted as a final good.

Question 24

How are intermediate goods accounted for when calculating GDP?

A) The value of all intermediate goods is included in GDP.
B) The value of intermediate goods is included in GDP only if they were produced in the previous year.
C) The value of intermediate goods is included in GDP only if they are purchased by firms rather than households.
D) The value of intermediate goods is not included in GDP unless they are part of inventory.

Question 25

How are grapes treated in GDP terms?

A) They are always counted as intermediate goods.
B) They are counted as intermediate goods only if they are used to produce another good like wine.
C) They are counted as intermediate goods only if they are consumed.
D) They are counted as intermediate goods whether they are used to produce other goods or consumed.

Question 26

Which nonmarket good or service is included as an estimate in Canadian GDP?

A) the value of unpaid child care
B) the value of clothes made by a parent for their child
C) the estimated rental value of owner-occupied homes
D) the estimated value of volunteer work

Question 27

Sally used to prepare her own meals, but now she eats out more. How does Sally's change of habit affect GDP?

A) It raises GDP by the additional value Sally produces during her new extra time.
B) It raises GDP by the price of the restaurant meals.
C) It raises GDP by less than the restaurant price of the meals because now Sally does not work anymore for preparing meals.
D) It raises GDP by more than the restaurant price of the meals because Sally can do something else during the extra time that she now has.

Question 28

Joao used to volunteer to cut his elderly neighbour's grass, but now his neighbour pays a company to do it. How does this change affect GDP?

A) It decreases GDP by more than the price of the service.
B) It increases GDP by less than the price of the service. .
C) It decreases GDP by the price of the service.
D) It increases GDP by the price of the service.

Question 29

Over the past few decades, Canadians have chosen to cook less at home and eat more at restaurants. How has this practice affected GDP?

A) It has increased measured GDP.
B) It has reduced measured GDP.
C) It has not affected measured GDP.
D) It has had an ambiguous effect on GDP.

Question 30

How are intermediate goods treated in GDP computations?

A) They are included so we can get a measure of sales.
B) They are excluded because their value is already counted in the value of final goods.
C) They are excluded because there are too many to accurately measure.
D) They are included because they are final goods for the firm producing them.

Question 31

Suppose an apartment complex converts to a condominium (i.e., the renters become owners of their apartments). Suppose the value of the condominium owners' housing services is now the same as their former rent. What happens to GDP?

A) GDP necessarily increases.
B) GDP necessarily decreases.
C) GDP is unaffected because neither the rent nor the estimate of the value of housing services is included in GDP.
D) GDP is unaffected because previously rent was included in GDP, and now it is replaced by the estimate of the value of housing services.

Question 32

If Deanna decides to cut her son's hair herself instead of having a hairdresser do it, what is the impact on GDP?

A) It necessarily rises.
B) It necessarily falls.
C) It will be unaffected because the same service is produced in either case.
D) It will be unaffected because car maintenance is not included in GDP.

Question 33

Canada legalized cannabis in 2018. What happened to GDP as a result of this change in the law?

A) it increased
B) it decreased
C) it did not change because both legal and illegal production are included in GDP
D) it did not change because these activities are never included in GDP

Question 34

A professional gambler moves from a province where gambling is illegal to a province where gambling is legal. What impact does this move have on Canada's GDP?

A) It raises GDP.
B) It decreases GDP.
C) It does not change GDP because gambling is never included in GDP.
D) It does not change GDP because in either case his income is included.

Question 35

Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. What would this change do by itself?

A) It would make GDP fall over time.
B) It would not make any change in GDP over time.
C) It would make GDP rise over time.
D) It would change GDP, but in an uncertain direction.

Question 36

Suppose an apartment complex converts to a condominium (i.e., the renters become owners of their apartments). What is included in GDP?

A) The rent was included in GDP; the purchases of the condominiums are not included.
B) The rent was included in GDP, and so is the purchase of the condominiums.
C) The rent was not included in GDP; the purchases of the condominiums are included.
D) The rent was not included in GDP; the purchases are not included either.

Question 37

What is NOT included in GDP?

A) volunteer work with a local charity
B) services such as those provided by banks and insurance companies
C) final goods that are produced but not sold by the end of the year
D) production of foreign citizens living in Canada

Question 38

Roommates Grace and Kelly are sharing household chores and think they have an even exchange. If instead they paid each other for the chores the other did, what would happen to GDP?

A) It would fall.
B) It would rise.
C) It would be unaffected because paid or not, household chores are not included in GDP.
D) It would be unaffected because paid or not, household chores are included in GDP.

Question 39

A professional gambler moves from a province where gambling is legal to a province where gambling is illegal. What impact does this move have on Canada's GDP?

A) It raises GDP.
B) It decreases GDP.
C) It does not change GDP because gambling is never included in GDP.
D) It does not change GDP because in either case his income is included.

Question 40

How is the value of housing services included in GDP?

A) It is valued as the annual depreciation of the house.
B) It is valued as the mortgage payment made on the house.
C) It uses the purchase price of the house in the year it is sold.
D) It is based on an estimate of its rental value.

Question 41

What is included in GDP?

A) the sale of stocks and bonds
B) the sale of used goods
C) the sale of services such as visits to a doctor
D) the sale of ownership in a new company

Question 42

A company makes 4,000 solar panels in the second quarter. It sells 3,000 of them before the end of the second quarter, and holds the others in its warehouse. How is the second quarter GDP affected?

A) The solar panels are included in second-quarter GDP.
B) The solar panels that are not purchased in the second quarter are not counted in the second-quarter GDP.
C) Since all the 4,000 solar panels will eventually be bought by consumers, they are included as consumption in the third quarter.
D) The solar panels will be counted as a change in inventory in the second quarter, and when sold in the third quarter will raise GDP.

Question 43

If GDP in the fourth quarter is announced to be $1.6 trillion, what does this number reflect?

A) the actual amount of final goods and services produced in the fourth quarter
B) about four times the annual GDP rate
C) a somewhat lower amount than the amount actually produced in the fourth quarter, because GDP is seasonally adjusted, and nonseasonally adjusted GDP for the fourth quarter is typical higher
D) about four times the amount actually produced in that quarter, plus what had been removed for seasonal adjustment

Question 44

Larissa buys and lives in a newly constructed home she paid $400,000 for in 2019. She sells the house in 2020 for $450,000. How is GDP impacted?

A) The 2020 sale increases 2020 GDP by $450,000 and does nothing to 2019 GDP.
B) The 2020 sale increases 2020 GDP by $50,000 and does nothing to 2019 GDP.
C) The 2020 sale does not increase 2020 GDP and does nothing to 2019 GDP.
D) The 2020 sale increases 2020 GDP by $450,000, and 2019 GDP is revised upward by $50,000.

Question 45

What is the term used when GDP is modified to account for fluctuations in production that occur during the year?

A) realization
B) deflation
C) seasonally adjusted
D) manually adjusted

Question 46

If the government reports that "GDP has increased at an annual rate of 8.0 percent for the fourth quarter of 2019," by how much has GDP increased?

A) 8.0 percent during 2019
B) 32.0 percent during 2019
C) 8.0 percent during the fourth quarter of 2019
D) 2.0 percent during the fourth quarter of 2019

Question 47

Which of the following is included in Canadian GDP?

A) the difference in the price of the sale of an existing home and its original purchase price
B) goods produced by foreign citizens working in Canada
C) the estimated value of volunteer activities
D) goods produced by a Canadian company in France

Question 48

What is included in GDP?

A) the sale of stocks and bonds
B) the estimated rental value of owner-occupied housing
C) unpaid production of goods and services at home
D) proceeds of a garage sale

Question 49

Anna, a Canadian citizen who works in France for a Swiss firm, receives her pay in a German bank. To which country's GDP does Anna's employment contribute?

A) Canada.
B) Germany
C) France
D) Switzerland

Question 50

Which of the following is counted in GDP?

A) the estimated value of housework
B) the value of illegally produced goods and services
C) the value of newly issued stocks and bonds
D) the estimated value of housing services

Question 51

How is gasoline treated in GDP terms?

A) It is counted as an intermediate good.
B) It is counted as a final good if a company uses it to provide transportation services.
C) It is counted as a final good if a consumer uses it to mow her yard.
D) It is counted as an intermediate good if a consumer uses it to mow a friend's yard without pay.

Question 52

Hank, a British citizen, only works in Canada. How does the value added to production from his employment impact the GDP of both countries?

A) It raises both Canadian and British GDP.
B) It raises Canadian GDP and lowers British GDP.
C) It raises Canadian GDP and British GDP is unaffected.
D) It lowers Canadian GDP and raises British GDP.

Question 53

The local Land Rover dealership has an increase in inventory of 10 SUVs in 2019. How will the sale of all 10 SUVs in 2020 affect the GDP?

A) The value of the cars will be counted as part of GDP in 2019 but not in 2020.
B) The value of the cars will not affect the 2019 GDP, but will be included in 2020 GDP.
C) The value of the cars will be included in both 2019 and 2020 GDP.
D) The value of the cars will not be included in GDP in 2019 or 2020.

Question 54

A Canadian company owned by a Japanese citizen has opened a Mexican restaurant in France. Where is the profit included?

A) in Mexican GDP
B) in Canadian GDP
C) in French GDP
D) in Japanese GDP

Question 55

Which of the following is counted in Canadian GDP?

A) goods and services produced by Canadian citizens working in the U.S.
B) American intermediate goods used in the production of Canadian final goods
C) Canadian final goods and services purchased by the American government
D) American final goods and services purchased by the Canadian government

Question 56

How are goods that go into inventory and are not sold during the current period treated in GDP terms?

A) They are counted as intermediate goods and so are not included in current-period GDP.
B) They are counted in current GDP only if the firm that produced them sells them to another firm.
C) They are included in current-period GDP as inventory investment.
D) They are included in current-period GDP as consumption.

Question 57

Sophie, a Canadian citizen, works in the United States but lives with her family in Canada. How does her employment impact the GDP of both countries?

A) it raises both the Canadian and the U.S. GDP
B) it raises the Canadian GDP and lowers the U.S. GDP
C) it raises the U.S. GDP and the Canadian GDP is unaffected
D) it lowers the U.S. GDP and raises the Canadian GDP

Question 58

An Italian company opens a pasta company in Ottawa. Where are the profits from this pasta company included?

A) in both the Canadian and Italian GDP
B) in only the Canadian GDP
C) in only the Italian GDP
D) in neither the Canadian GDP nor Italian GDP

Question 59

The government reports that "GDP increased by 1.6 percent in the last quarter." What does this statement mean?

A) GDP increased at an annual rate of 6.4 percent during the last quarter.
B) GDP increased at an annual rate of 4.8 percent during the last quarter.
C) GDP increased at an annual rate of 1.6 percent during the last quarter.
D) GDP increased at an annual rate of 0.4 percent during the last quarter.

Question 60

In Canada, GDP is reported each quarter. How are these numbers computed?

A) These numbers are adjusted to make them measure at annual and seasonally adjusted rates.
B) These numbers are adjusted to make them annual rates, but no adjustment for seasonal variations is made.
C) These numbers are quarterly rates that have been seasonally adjusted.
D) These numbers are at quarterly rates and have not been seasonally adjusted.

Question 61

How is the estimated rental value of owner-occupied houses included in GDP?

A) as consumption, for new and old houses
B) as investment, for new and old houses
C) as consumption, only for new houses
D) as investment, only for new houses

Question 62

To encourage formation of small businesses, the government could provide subsidies. How would these subsidies be treated?

A) They would be included in GDP because they are part of government expenditures.
B) They would be included in GDP because they are part of investment expenditures.
C) They would not be included in GDP because they are transfer payments.
D) They would not be included in GDP because the government raises taxes to pay for them.

Question 63

A Canadian solar panel company purchases new assembly equipment. What impact does this purchase have on investment and GDP?

A) It makes investment higher and GDP higher.
B) It leaves GDP unchanged and makes investment higher.
C) It makes investment higher and GDP lower.
D) It leaves investment unchanged and makes GDP lower.

Question 64

A Canadian tourist buys a $1000 camera in the U.S. What happens to Canadian imports/exports and GDP?

A) Canadian imports increase by $1000, and Canadian GDP increases by $1000.
B) Canadian imports increase by $1000, but Canadian GDP is unaffected.
C) Canadian imports and Canadian GDP are unaffected.
D) Canadian exports increase by $1000, and Canadian GDP increases by $1000.

Question 65

If a Canadian citizen buys a smart phone made in China by a Chinese firm, what is the impact on net exports and GDP?

A) Canadian net exports and Canadian GDP decrease.
B) Canadian net exports are unaffected, but Canadian GDP decreases.
C) Canadian net exports and Canadian GDP are unaffected.
D) Canadian net exports decrease, but Canadian GDP is unaffected.

Question 66

What government level(s) will be considered when computing government purchases for GDP accounting purposes?

A) the federal government only
B) provincial and federal governments only
C) local, provincial, and federal governments
D) local and provincial governments only

Question 67

A German citizen buys an automobile produced in Canada by a Japanese company. What happens as a result?

A) Canadian net exports increase and GDP is unaffected; German net exports decrease and GDP is unaffected.
B) Canadian net exports and GDP increase, German net exports decrease, and GDP is unaffected.
C) Canadian net exports and GDP increase, German net exports and GDP decrease.
D) Canadian net exports and GDP are unaffected; German net exports and GDP decrease.

Question 68

Which month of the year has an increase in production and is seasonally adjusted?

A) February
B) April
C) September
D) December

Question 69

If the Canadian government pays a retired Member of Parliament $80,000 in retirement benefits in 2019, how is the payment treated?

A) It is included in 2019 GDP as government purchases.
B) It is not included in 2019 GDP because it is a transfer payment.
C) It is included in 2019 GDP as transfer payments.
D) It is not included in 2019 GDP because it is part of government purchases.

Question 70

A wind farm in Manitoba buys a large turbine generator from a Swedish-owned factory located in Ontario and using local workers. What happens as a result?

A) Canadian government spending and GDP increase by the same amount.
B) Canadian investment increases but GDP is unaffected.
C) Canadian investment and GDP increase by the same amount.
D) Canadian investment increases, but Canadian GDP increases by a smaller amount.

Question 71

Makena buys a designer dress produced by a Canadian-owned fashion shop in France. As a result, Canadian consumption increases. What happens as a result?

A) Canadian net exports decrease and GDP increases.
B) Canadian net exports decrease and GDP decreases.
C) Canadian net exports decrease and GDP is unaffected.
D) Canadian net exports are unaffected and GDP is unaffected.

Question 72

A firm produces consumer goods and adds some to inventory in the third quarter. In the fourth quarter, the firm sells the goods at a retail outlet. As a result of these actions, what happens to the consumption and investment components of GDP in the fourth quarter?

A) investment decreases, consumption does not change
B) investment increases, consumption decreases
C) investment decreases, consumption increases
D) investment does not change, consumption increases

Question 73

Which of the following best defines a transfer payment?

A) government spending on imported goods
B) money that Canadian citizens working abroad send back to their families in Canada
C) payments to governments, other than taxes
D) a form of government spending that is not made in exchange for a currently produced good or service

Question 74

After the terrorist attacks on September 11, 2001, governments raised expenditures to increase security at airports. How are these purchases of goods and services treated in GDP?

A) They are not included in GDP since they are not productive.
B) They are not included in GDP since governments will have to raise taxes to pay for them.
C) They are included in GDP since government expenditures are included in GDP.
D) They are included in GDP only to the extent that the federal, but not provincial or local governments, paid for them.

Question 75

When a firm produces consumer goods and adds some to inventory rather than selling them, how is the increase in inventory counted in GDP?

A) It is counted in the current quarter GDP as capital consumption allowance.
B) It is counted in the current quarter GDP as investment.
C) It is counted in the current quarter GDP as consumption.
D) It is counted in the current quarter GDP as a statistical discrepancy.

Question 76

In the nation of Ophelia, quarterly GDP is always higher in the second quarter than in other quarters. In order to account for this predictable jump in GDP, what will Ophelia's government statisticians most likely do?

A) Make sure to account for inventory changes during the second quarter.
B) Report real GDP, not nominal GDP.
C) Focus on GNP rather than GDP during the second quarter.
D) Make a seasonal adjustment for the second quarter data.

Question 77

A Manitoba farmer buys a new tractor made in Alberta by a German company. What is the impact on investment and GDP?

A) Canadian investment and German GDP increase, but Canadian GDP is unaffected.
B) Canadian investment and GDP increase, but German GDP is unaffected.
C) Canadian investment, Canadian GDP, and German GDP are unaffected, because tractors are intermediate goods.
D) Canadian investment, Canadian GDP, and German GDP all increase.

Question 78

Which statement best represents a transfer payment?

A) You transfer $1000 from your bank account to a mutual fund.
B) The bank transfers $10 quarterly interest to your savings account.
C) The government sends your grandfather his pension cheque.
D) Your employer automatically transfers $100 each month from your wages to a nontaxable medical spending account.

Question 79

In computing GDP, what is investment?

A) spending on stocks, bonds, and other financial assets
B) spending on real estate and financial assets
C) spending on new capital equipment, inventories, and structures, including new housing
D) spending on capital equipment, inventories, and structures, excluding household purchases of new housing

Question 80

Which example would affect GDP, as measured by Statistics Canada?

A) A smartphone manufacturer sells mobile phones to an insurance company.
B) Isabelle receives $1000 from her mom as birthday gift.
C) Roberta purchases the condo that she used to rent.
D) A farmer takes 5000 litres of water from a nearby river.