Deck 20: The Measurement of National Income

Question 1

Which of the following statements about national -income accounting is correct?

A)The total value added in the economy is equal to the sum of all components in the circular flow of expenditure and income.
B)The value of the expenditure on a nationʹs output is equal to the total income claims generated by producing that output.
C)GDP on the expenditure side is calculated by adding up all the income claims generated by the act of production.
D)GDP on the income side is calculated by adding up total expenditure for each of the main components of final output.
E)GDP from the expenditure side and GDP from the income side differ by the amount of investment in the economy.

Answer 1

The value of the expenditure on a nationʹs output is equal to the total income claims generated by producing that output.

Question 2

Suppose national accounting was done by adding up the market values of all outputs of all firms.This approach would

A)accurately reflect the value of production in the economy.
B)obtain gross domestic product.
C)obtain gross national product.
D)underestimate the value of production in the economy.
E)overestimate the value of production in the economy.

Answer 2

overestimate the value of production in the economy.

Question 3

In national-income accounting,the value of intermediate products

A)should always be counted as part of GDP in the expenditure approach.
B)should be subtracted from the value of final goods in determining a firmʹs total value added.
C)should be added to the value of other inputs in determining a firmʹs contribution to GDP.
D)must equal the value added by the firm.
E)is counted as factor income in the calculation of GDP from the income side.

Answer 3

should be subtracted from the value of final goods in determining a firmʹs total value added.

Question 4

A farmer raises free-range chickens,which he sells to a company for $1000.That company sells the ʺprocessedʺ chickens to a grocery store for $1600,which in turn produces roasted chickens which are sold to the public for
$2400.Based on this information,the value of total output is equal to

A)$1400.
B)$1600.
C)$2400.
D)$4000.
E)$5000.

Question 5

In Shoetown,a rancher takes $0 worth of inputs and produces animal skins,which he sells to the tanner for $400.The tanner then sells leather to the shoemaker for $700,and the shoemaker then sells $1200 worth of shoes.The value added from these transactions is

A)$800.
B)$1000.
C)$1200.
D)$2300.
E)$2500.

Question 6

In national-income accounting,ʺdouble countingʺ

A)occurs when the value of some output is omitted in the calculation of national income.
B)means that pre-tax and after-tax GDP will be different.
C)occurs when the value of output is counted more than once in the calculation of national income.
D)means that consumption will always be less than GDP.
E)leads to an underestimation of GDP in any given period.

Question 7

Consider the circular flow of expenditure and income in the Canadian economy.Which of the following is an injection into the circular flow?

A)Bombardier imports machine parts from Germany.
B)Bombardier exports subway cars to Mexico.
C)Loblaws pays corporate income tax to the federal government.
D)You put $500 into your TFSA (tax-free savings account).
E)You make an online purchase from a U.S.retailer.

Question 8

In Canada,the measurement of national income and national product is conducted by

A)the Department of Finance.
B)the Bank of Canada.
C)the Treasury Board.
D)statisticians in universities.
E)Statistics Canada.

Question 9

In Shoetown,a rancher takes $0 worth of inputs and produces animal skins,which he sells to the tanner for $400.The tanner then sells leather to the shoemaker for $700,and the shoemaker then sells $1200 worth of shoes.The value added by the tanner is

A)$0.
B)$300.
C)$400.
D)$500.
E)$1200.

Question 10

Consider the circular flow of expenditure and income in the Canadian economy.Which of the following is an injection into the circular flow?

A)imports
B)taxes
C)saving
D)consumption
E)investment

Question 11

Total value added in an economy is equal to the value of

A)all final goods produced.
B)all final and intermediate goods produced.
C)all inputs and outputs in the economy.
D)all profits of all firms in the economy.
E)the sum of the value of primary,intermediate and final goods.

Question 12

All goods and services produced by one firm but used as inputs into a further stage of production are called

A)value added.
B)intermediate goods.
C)national income goods.
D)final goods.
E)consumption goods.

Question 13

When adding up the value of all goods produced in the economy,double counting can be avoided if only the ________ is included.

A)value of final good and services
B)value of intermediate goods and services
C)cost of intermediate goods and services
D)revenue of all goods and services
E)revenue of intermediate goods and services

Question 14

Consider the circular flow of income and expenditure in the Canadian economy.Which of the following is a withdrawal from the circular flow?

A)investment
B)consumption
C)saving
D)exports
E)government purchases

Question 15

The ʺvalue addedʺ for an individual firm can be calculated by

A)adding the cost of the intermediate goods used by the firm.
B)subtracting the payments made to the factors of production used by the firm from the firmʹs revenue.
C)calculating the revenue generated by the firm.
D)calculating the profit generated by the firm.
E)adding up the payments made to the factors of production used by the firm.

Question 16

Suppose a Canadian firm imports $5000 worth of frisbees from China and sells them for $10 000.The effect on GDP would be

A)to decrease the value of GDP by $15 000.
B)to increase the value of GDP by $15 000.
C)to increase the value of GDP by $10 000.
D)to increase the value of GDP by $5000.
E)No effect on GDP since the frisbees were produced outside of Canada.

Question 17

Consider the circular flow of income and expenditure in the Canadian economy.Which of the following is a withdrawal from the circular flow?

A)Your family buys weekly groceries.
B)Bombardier exports subway cars to Mexico.
C)You put $500 into your TFSA (tax-free savings account).
D)The B.C.provincial government builds a new hospital.
E)Canadian farmers sell wheat to China.

Question 18

Jodieʹs Bakery generates a yearly revenue of $6000.Throughout the year Jodie spends $1500 on flour,$1000 on fruit,$500 on sugar & spices,$1500 on butter,and employs an assistant whom she pays $1000.Calculate the value of the annual output produced by Jodieʹs Bakery using the value added method.

A)$1000
B)$1500
C)$4500
D)$5000
E)$6000

Question 19

In Lumberville,the lumberjack cuts trees and sells them to the local mill for $500.The local mill processes these trees into wood planks and sells them to the carpenter for $800.Finally,the carpenter uses these wood planks to make tables which he sells for $1400 to Lumbervilleʹs residents.If we allowed double counting,the total value of Lumbervilleʹs output would be calculated as ________.But if we correctly compute the total value added,the value of the total output in Lumberville would be ________.

A)$1400; $1400
B)$2200; $2700
C)$2200; $4200
D)$2700; $1400
E)$4200; $2700

Question 20

Consider the circular flow of expenditure and income in the Canadian economy.Which of the following is an injection into the circular flow?

A)Loblaws imports cheese from Switzerland.
B)You pay GST on your purchases.
C)You contribute to your company pension plan.
D)A Toyota plant in Canada imports car parts from Japan.
E)The Government of Canada purchases new Coast Guard ships.

Question 21

In national-income accounting,a fall in Ga (other things being equal)will be recorded if

A)labour productivity in the government sector falls.
B)the true market value of government-produced goods and services decreases.
C)wages in the government sector rise.
D)the Canadian armed forces reduces the size of the army.
E)the number of employed civil servants increases,but total government salaries remains unchanged.

Question 22

In national-income accounting,a rise in Ga will be recorded (other things being equal)if

A)labour productivity in the government sector rises.
B)output of government-produced goods and services increases.
C)the total salaries paid to civil servants rise.
D)wages in the government sector fall.
E)the governmentʹs purchases of office furniture falls.

Question 23

Which of the following statements about depreciation is correct?

A)Depreciation includes net additions to the economyʹs total stock of capital.
B)The total amount of capital goods in a country is called depreciation.
C)Net investment is equal to gross investment minus depreciation.
D)Net investment is equal to gross investment plus depreciation.
E)Depreciation is equal to net investment.

Question 24

Consider the circular flow of expenditure and income in the Canadian economy.Which of the following is a withdrawal from the circular flow?

A)The Alberta provincial government purchases water bomber aircraft for fighting forest fires.
B)Canadian barley is exported to the European Union.
C)The Toronto transit authority buys subway cars from Mexico.
D)A Toyota plant in Canada exports new vehicles to the United States.
E)You spend your savings to pay for university tuition.

Question 25

Suppose a government collects $12 billion in various tax revenues,and pays $2.5 billion in debt interest,$9 billion in social security benefits,and $0.5 billion in government employee wages.What is the direct contribution to GDP coming from this governmentʹs fiscal actions?

A)$0.5 billion
B)$2.5 billion
C)$3.0 billion
D)$11.5 billion
E)$12.0 billion

Question 26

In national-income accounting,ʺdepreciationʺ refers to

A)a term used in accounting,not economics.
B)the amount by which the capital stock is depleted during the accounting period.
C)net investment.
D)the increase in the economyʹs stock of capital per year.
E)the decrease in the economyʹs stock of capital per year.

Question 27

In national-income accounting,a reduction of inventories counts as

A)consumption.
B)depreciation.
C)negative investment.
D)positive investment.
E)saving.

Question 28

In national-income accounting,the term ʺfixed investmentʺ refers to

A)total gross investment minus depreciation.
B)the existing capital stock.
C)the creation of new plant and equipment.
D)investment in stocks and bonds.
E)capital stock that has been repaired.

Question 29

Which of the following would be included in the consumption expenditure component of GDP?

A)export sales of snowmobiles
B)government expenditure for highway construction
C)the increase in inventories at lumber mills
D)expenditure by a firm for architectural services
E)a municipal governmentʹs purchase of new desks for city council chambers

Question 30

When calculating GDP from the expenditure side,Ga comprises

A)only expenditures made by the federal government.
B)government purchases of goods and services,excluding transfer payments.
C)only purchases of goods and not services.
D)only expenditures made by provincial and local governments.
E)government expenditures on goods and services,including transfer payments.

Question 31

The term ʺinvestmentʺ in macroeconomics means

A)the total amount of capital goods in the country.
B)the production of goods for immediate consumption.
C)the same thing as profits.
D)the production of goods not for immediate consumption use.
E)money spent in markets for financial capital.

Question 32

In macroeconomics,the term ʺcapital goodsʺ refers to

A)the financial resources necessary to start a firm.
B)man-made factors of production,such as tools,machines,and factory buildings.
C)money.
D)stocks and bonds.
E)all factors of production.

Question 33

In national-income accounting,replacement investment is the investment that

A)is used in the calculation of GDP from the expenditure side.
B)maintains the existing capital stock at a constant level.
C)is equal to all existing capital stock in the country.
D)when added to gross investment is equal to total saving.
E)is done by the government.

Question 34

To calculate GDP from the expenditure side,one must add together

A)wages,profits,government purchases and net exports.
B)consumption,government purchases,and interest.
C)wages,rent,interest,and profits.
D)consumption,investment,government purchases,and net exports.
E)consumption,investment,government purchases,and exports.

Question 35

Which of the following statements regarding investment is correct?

A)The capital stock includes investment in stocks and bonds.
B)The accumulation of inventories does not count as current investment.
C)Rental payments are included as investment expenditures.
D)Depreciation refers to funds used to increase the existing stock of capital.
E)Housing construction is classified as investment expenditure rather than consumption expenditure.

Question 36

Which of the following purchases by households is considered as consumption expenditure for the purposes of national-income accounting?

A)legal services
B)a new house
C)a Government of Canada Treasury bill
D)tractors for use on a family farm
E)the purchase of company stock

Question 37

Consider the investment component (I)of GDP.To calculate the change in the value of inventories for the investment component of GDP,one should use their

A)cost of production at the time they were produced.
B)cost of production minus the costs of labour and capital.
C)current market value.
D)market value at the time they were produced.
E)value at the time the goods are sold and removed from inventory.

Question 38

Consider the investment component of GDP.The change in the countryʹs capital stock during a year is equal to

A)gross investment.
B)capital consumption allowance.
C)net investment.
D)net change in inventories plus capital consumption allowance.
E)gross fixed investment.

Question 39

GDP from the expenditure side is equal to the sum of

A)Ca + Ia + Ga + (IMa - Xa).
B)Ca + Ia + Ga - net exports.
C)Ca + Ia + Ga + (Xa - IMa).
D)Ca + Ia + Ga.
E)Ca + Ia + net exports.

Question 40

The total investment that occurs in the economy is called gross investment.When calculating GDP using the expenditure approach,this investment component is equivalent to

A)net investment only.
B)net investment minus depreciation.
C)gross investment plus depreciation.
D)net investment plus depreciation.
E)fixed investment minus depreciation.

Question 41

In national-income accounting,what does the term Ia represent?

A)actual net investment
B)actual net investment minus depreciation
C)actual gross investment (including depreciation)
D)actual inventory investment
E)actual fixed investment minus depreciation

Question 42

In national-income accounting,government expenditures on the salaries of civil servants are included at

A)their imputed market value.
B)the market value of the goods and services they produce.
C)their after-tax salaries.
D)their pre-tax salaries,or factor incomes.
E)opportunity cost.

Question 43

Which of the following would be classified as ʺinvestmentʺ in the national income and product accounts?

A)the purchase of a government bond
B)the purchase of Telus stock
C)the construction of a new factory
D)the payment of real-estate fees
E)the holding of money

Question 44

When calculating GDP from the expenditure side,ʺactual consumption expendituresʺ includes

A)the purchase of a new house.
B)American tourists travelling to and spending in Canada.
C)increases in automobile inventories.
D)the construction of an apartment building.
E)the monthly rental of an apartment.

Question 45

When calculating GDP from the expenditure side,ʺactual consumption expendituresʺ includes

A)a tractor purchased by an Ontario farmer.
B)fees paid by Google Canada to a Toronto law firm.
C)robotic paint equipment purchased by Bombardier.
D)snow-plow equipment purchased by the City of Montreal.
E)Canadian fashion designs purchased by a Swiss department store.

Question 46

Which of the following statements regarding housing expenditures in the national accounts is correct?

A)Owner-occupied housing is counted as investment by imputing the value of the housing services enjoyed by the owner.
B)Rental payments for houses are counted as part of consumption.
C)The provision of new public housing by the government is classified as private investment.
D)New residential construction is classified as consumption.
E)The cost of a home purchased from its previous occupant is part of investment.

Question 47

Consider Canadaʹs national accounts.An example of a transfer payment is

A)government payments of salaries to schoolteachers.
B)government spending on military equipment.
C)pensions paid from the Canada Pension Plan.
D)private firmsʹ payments of dividends.
E)government payments of salaries to Members of Parliament.

Question 48

In national-income accounting,changes in inventories are

A)classified as part of current actual investment.
B)included under actual consumption expenditures.
C)referred to as intermediate goods.
D)described as actual fixed investment.
E)not included in the national accounts.

Question 49

When calculating GDP from the expenditure side,which of the following is true of the government purchases component,Ga?

A)it includes government subsidies to private firms
B)it is based on the governmentʹs planned spending
C)it includes employment insurance and employment benefits
D)it excludes transfer payments
E)it only includes federal government expenditures

Question 50

Suppose that in 2015,ABC Corporation produced $6 million worth of natural gas pipes but was able to sell only $5 million worth.Is the remaining $1 million of unsold pipes part of GDP for 2015?

A)Yes,since changes in inventories are part of consumption expenditures.
B)Yes,since they are part of the economyʹs output in 2015.
C)No,since changes in inventories are part of actual investment.
D)No,since they are part of the economyʹs output only when sold.
E)No,since they are added to existing inventories.

Question 51

When computing GDP from the expenditure side,which of the following items is excluded from the government component?

A)employment-insurance benefits
B)salaries to Canadian Forces officers
C)costs of Parliamentary Committees
D)rental of office space by the government
E)operating costs of the Canadian Coast Guard

Question 52

If a firmʹs depreciation exceeds its gross investment,then its

A)capital stock will be shrinking.
B)capital stock will be growing.
C)gross investment will be negative.
D)net investment will be positive.
E)depreciation cannot exceed gross investment.

Question 53

When calculating GDP from the expenditure side,which of the following is true of the investment component,Ia?

A)it excludes expansions of existing factories
B)it only includes business fixed investment
C)it includes the transfer of houses between individuals
D)it includes changes in inventories
E)it only includes decumulation of inventories

Question 54

In national-income accounting,which of the following transactions by households is considered to be an investment expenditure?

A)the purchase of an iPhone
B)the purchase of a government bond
C)the purchase of a Guaranteed Investment Certificate (GIC)
D)payment for the construction of a custom-built new home
E)the purchase of an imported car

Question 55

Suppose that in 2015,Canada Cars Corporation produced $20 million worth of cars and trucks but was able to sell only $16 million worth.Is the remaining $4 million increase in inventories part of GDP for 2015? 1.Yes,since changes in inventories are part of consumption expenditures.
2.Yes,since they are part of the economyʹs output in 2015.
3.Yes,since changes in inventories are part of actual investment.

A)1 only
B)2 only
C)3 only
D)both 1 and 2
E)both 2 and 3

Question 56

When calculating GDP from the expenditure side,how do net exports enter the equation?

A)They are NOT included because they do not represent an expenditure by Canadians.
B)They may or may not be included depending on whether they are for final or intermediate goods.
C)They are included as a separate category.
D)They are included but as part of C,I,or G.
E)They are included only if it is a positive number.

Question 57

Which one of the following government expenditures is an example of ʺgovernment purchasesʺ?

A)$2000 paid to a retiree
B)$1000 paid to a poor person for income support
C)$4000 spent for services provided by a private consultant
D)$100 000 paid as interest on the national debt
E)$600 paid to an unemployed worker for employment insurance

Question 58

Transfer payments are excluded from the government component in the calculation of GDP because

A)they do not represent the purchase of a good or a service.
B)they are not counted as income by any economic agent.
C)they do not generate additional income in the economy.
D)it is difficult to assess the market value of a transfer payment.
E)they are small enough to ignore when computing the national accounts.

Question 59

Suppose a Canadian firm imports $1000 worth of bananas and sells them for $2000.The effect on Canadian GDP would be

A)to decrease the value of GDP by $3000.
B)to increase the value of GDP by $3000.
C)to increase the value of GDP by $2000.
D)to increase the value of GDP by $1000.
E)no effect on GDP since the bananas were produced outside Canada.

Question 60

An example of an item that would be excluded from a measure of GDP from the expenditure side is

A)the purchase of windows by an automobile assembly plant.
B)fertilizer purchased by Farmer Jones to increase crop yields.
C)buying tomato plants for your garden.
D)government pension payments to a retired person.
E)a new truck purchased by a furniture-delivery company.

Question 61

The table below includes data for a one-year period required to calculate GDP for this economy.All figures are in billions of dollars. TABLE 20-2
Refer to Table 20-2.What is the value of GDP,as calculated from the income side?

A)$3866
B)$3590
C)$3968
D)$3784
E)$3708

Question 62

The table below includes data for a one-year period required to calculate GDP for this economy.All figures are in billions of dollars. TABLE 20-3
Refer to Table 20-3.What is the value of GDP,as calculated from the expenditure side?

A)$12 134
B)$11 482
C)$11 208
D)$10 605
E)$9244

Question 63

To calculate GDP from the income side,one must add together wages,

A)consumption and depreciation.
B)interest,rent,depreciation,profits and indirect taxes net of subsidies.
C)investment,rent,depreciation,profits and indirect taxes net of subsidies.
D)government income,interest,and profits.
E)net exports,depreciation,and profits.

Question 64

In national-income accounting,the concept of net domestic income is useful because it

A)does not include inventory investment.
B)includes government transfer payments.
C)includes all goods produced but not exchanged in markets.
D)excludes the value of output that is used as replacement investment.
E)represents national income plus depreciation.

Question 65

The table below includes data for a one-year period required to calculate GDP from the income side for a teeny-tiny economy. TABLE 20-4
Refer to Table 20-4.What is the value of GDP,as calculated from the income side?

A)$1982.60
B)$1986.00
C)$2010.00
D)$2285.20
E)$2584.40

Question 66

The table below includes data for a one-year period required to calculate GDP for this economy.All figures are in billions of dollars. TABLE 20-3
Refer to Table 20-3.What is the value of net domestic income at factor cost?

A)$9244
B)$9494
C)$8292
D)$8331
E)$8167

Question 67

When measuring actual gross domestic product from the expenditure side,we use the following simple equation:

A)GNP = C + I + G + X.
B)GDP = C + I + G + (X - IMa).
C)GDP = Ca + Ia + Ga + (Xa - IMa).
D)GNP = Ca + Ia + Ga + (Xa - IMa).
E)GDP = C + I + (G - transfers)+ (X - IM).

Question 68

Historically,nominal GDP has increased faster than real GDP because

A)the general price level has fallen.
B)improvements in product quality have not been reflected in prices.
C)exports have risen more rapidly than imports.
D)imports have risen more rapidly than exports.
E)the general price level has increased.

Question 69

The table below includes data for a one-year period required to calculate GDP from the income side for a teeny-tiny economy. TABLE 20-4
Refer to Table 20-4.When calculating GDP from the income side,we need to add together the following items from the data provided:

A)interest and investment income,business profits,depreciation,indirect taxes less subsidies.
B)wages and salaries,business profits,indirect taxes less subsidies.
C)investment expenditure,consumption expenditure,net exports.
D)interest and investment income,business profits,depreciation.
E)wages and salaries,interest and investment income,business profits,depreciation,indirect taxes less subsidies.

Question 70

Suppose that nominal national income in some country fell from $100 billion to $95 billion during the year.Over the same period,inflation was 5%.Therefore the real national income in this country

A)fell by 10%.
B)fell by 5%.
C)was unaffected.
D)rose by 5%.
E)rose by 10%.

Question 71

Suppose that nominal national income in some country increased by 10% during the year,when inflation was 5%.Therefore the real national income

A)fell by 10%.
B)fell by 5%.
C)was unaffected.
D)rose by 5%.
E)rose by 10%.

Question 72

How does net domestic income differ from gross domestic product? Net domestic income is GDP minus

A)that part of it not actually paid to households,plus transfer payments to households.
B)that part of it not actually paid to households,minus personal income taxes paid by households.
C)that part of it not actually paid to households,plus transfer payments to households,minus personal taxes paid by households.
D)replacement investment.
E)the sum of corporate,personal and sales taxes paid to the government.

Question 73

The table below includes data for a one-year period required to calculate GDP for this economy.All figures are in billions of dollars. TABLE 20-2
Refer to Table 20-2.What is the value of GDP,as calculated from the expenditure side?

A)$3936
B)$3904
C)$3866
D)$3784
E)$3708

Question 74

The table below includes data for a one-year period required to calculate GDP from the income side for a teeny-tiny economy. TABLE 20-4
Refer to Table 20-4.What is the value of net domestic income at factor cost?

A)$1711.60
B)$1811.40
C)$1840.40
D)$1910.80
E)$2004.80

Question 75

Real GDP is equivalent to

A)the money value of all goods and services produced in an economy per year plus imports.
B)the market value of all goods and services produced in an economy per year.
C)personal disposable income plus depreciation.
D)the value added of all goods and services produced in an economy per year adjusted for price changes.
E)the nominal value of all goods and services in an economy per year.

Question 76

When calculating GDP from the income side,which of the following is included in non -factor payments?

A)wages and salaries
B)GST
C)income tax
D)bond interest
E)business profits

Question 77

The table below includes data for a one-year period required to calculate GDP from the expenditure side for a teeny-tiny economy. TABLE 20-1
Refer to Table 20-1.What is the value of GDP,as calculated from the expenditure side?

A)$1982.60
B)$1986.00
C)$2010.00
D)$2285.20
E)$2584.40

Question 78

Gross domestic product is the sum of factor incomes ________ indirect business taxes, ________ subsidies,________ depreciation.

A)plus; plus; plus
B)plus; plus; minus
C)plus; minus; minus
D)plus; minus; plus
E)minus; plus; plus

Question 79

The table below includes data for a one-year period required to calculate GDP for this economy.All figures are in billions of dollars. TABLE 20-2
Refer to Table 20-2.What is the value of net domestic income at factor cost?

A)$3626
B)$3869
C)$3936
D)$3728
E)$3904

Question 80

The table below includes data for a one-year period required to calculate GDP for this economy.All figures are in billions of dollars. TABLE 20-3
Refer to Table 20-3.What is the value of GDP,as calculated from the income side?

A)$9494
B)$11 094
C)$9244
D)$8819
E)$10 606