Deck 18: Measuring GDP and Economic Growth

Question 1

The components of the expenditure approach to measuring GDP include all of the following EXCEPT

A)the implicit payments for unpaid household work.
B)government expenditure on goods and services.
C)investment.
D)net exports.

Answer 1

A

Question 2

The circular flow shows that

A)GDP equals aggregate income.
B)aggregate expenditure is less than aggregate income.
C)aggregate production equals aggregate expenditure.
D)Both answers A and C are correct.

Answer 2

D

Question 3

Intermediate goods are excluded from GDP because

A)they represent goods that have never been purchased so they cannot be counted.
B)The premise of the question is incorrect because intermediate goods are directly included in calculating GDP.
C)their inclusion would understate GDP.
D)their inclusion would involve double counting.

Answer 3

D

Question 4

In Australia, GDP is typically measured

A)daily.
B)weekly.
C)quarterly.
D)monthly.

Question 5

In the national income accounts, government expenditure on goods and services excludes

A)local government purchases but includes state government purchases.
B)transfer payments.
C)state and local government purchases.
D)spending on national defence.

Question 6

Which of the following items is NOT a component of the expenditure approach to measuring Australia's GDP?

A)Purchases of Australian- made movies by New Zealand
B)Social security payments made by the government
C)Purchases of food made by families
D)Purchases of new homes made by families

Question 7

The difference between gross investment and net investment is

A)depreciation.
B)inflation.
C)initial capital.
D)consumption.

Question 8

In the circular flow model of an economy, households

A)receive income from buyers of goods and services.
B)receive income from the sale of factors in the goods markets.
C)receive income from producers for the use of factors in the factor markets.
D)pay firms for the use of their factors.

Question 9

Real GDP can be criticised as a measure of economic welfare because it

A)does not include the leisure time available to a society.
B)does not take account of the degradation of environmental quality.
C)does not include the value of products produced in the household.
D)All of the above answers are correct.

Question 10

Which of the following expenditures is for an intermediate good?

A)The government buys new tyres for its military vehicles.
B)Holden buys new tyres to put on the cars it's building.
C)You buy new tyres for your used car.
D)An Australian tyre firm sells new tyres to Indonesia.

Question 11

Consumption expenditure is the payment by households for consumption of

A)goods and services.
B)goods but not services.
C)goods and exports.
D)services but not goods.

Question 12

The business cycle is the

A)irregular fluctuations of real GDP around potential GDP.
B)irregular fluctuations of prices around real GDP.
C)regular growth rate of real GDP.
D)regular fluctuations of real GDP below potential GDP.

Question 13

Suppose XYZ Ltd. buys a new copier for its store for $1,000. A year later, when the firm wants to upgrade to a new copier, it finds that the old copier is only worth $750. Over the year the copier was used, has occurred.

A)replacement investment
B)depreciation
C)gross investment
D)net investment

Question 14

A trough is the

A)upper turning point of a business cycle when an expansion begins.
B)lower turning point of a business cycle when an expansion begins.
C)lower turning point of a business cycle when a recession begins.
D)upper turning point of a business cycle when a recession begins.

Question 15

Real GDP is not a perfect indicator of economic welfare because .

A)it includes a direct measure of health and life expectancy
B)it underestimates inflation
C)it includes the underground economy
D)economic welfare depends on many factors not measured or not measured accurately by real GDP

Question 16

Gross domestic product

A)measures the value of labour payments generated in an economy in a given time period.
B)includes all the goods and none of the services produced in an economy in a given time period.
C)is generally less than government expenditure in any time period.
D)measures the value of the aggregate production of goods and services in a country during a given time period.

Question 17

In the circular flow of economic activity,

A)aggregate income measures the dollar value of labour resources only.
B)aggregate expenditure measures the dollar value of purchases of factors.
C)aggregate expenditure is measured as it moves through the financial markets.
D)aggregate expenditure measures the dollar value of purchases of final goods and services.

Question 18

Government expenditures included in the expenditure approach to GDP include .

A)net exports
B)buying a new bomber
C)social security and education
D)Both answers A and C are correct.

Question 19

gross domestic product is the value of linked back to the prices of a single year.

A)Nominal; total production
B)Real; production possibilities
C)Real; total production
D)Productivity; the consumer price index

Question 20

Gross domestic product (GDP)measures the

A)number of final goods and services produced in the economy in a given time period.
B)market value of old and new final goods and services sold in the economy in a given time period.
C)number of final goods and services sold in the economy in a given time period.
D)market value of final goods and services produced in the economy in a given time period.

Question 21

Let C represent consumption expenditure, S saving, I gross private domestic investment, G government expenditure on goods and services, and X - M net exports of goods and services. Then GDP equals

A)C + I + G + X - M.
B)C + S + G - X - M.
C)C + S + G + X - M.
D)C + I + G - X - M.

Question 22

Two methods of measuring GDP are

A)the income approach and the receipts approach.
B)the goods approach and the services approach.
C)the saving approach and the investment approach.
D)the income approach and the expenditure approach.

Question 23

The four parts of the business cycle occur in the following order:

A)recession, trough, peak, expansion.
B)expansion, trough, peak, recession.
C)expansion, trough, recession, peak.
D)recession, trough, expansion, peak.

Question 24

The factor market can BEST be described as where

A)governments sell goods and services.
B)firms buy the services of labour, land, capital and entrepreneurship.
C)households buy goods and services.
D)firms buy goods and services.

Question 25

The circular flow model shows that consumer goods and services produced by business firms are sold in the

A)factor market.
B)financial market.
C)labour market.
D)goods market.

Question 26

In part, the underground economy exists because of

A)the irrationality of people who choose to evade taxes.
B)the greater efficiency of barter transactions compared to monetary ones.
C)the ease of entry into the occupations that compose it.
D)high tax rates.

Question 27

Which of the following would lead GDP to overstate economic welfare?

A)A self- employed CPA who takes a longer than normal vacation.
B)Restaurant workers that under- report tip income.
C)The existence of home- cooked meals.
D)Electric utilities that switch to burning coal because of higher natural gas prices and thereby create more acid rain pollution.

Question 28

The maximum amount of production that can be produced while avoiding shortages of labour, capital, land and entrepreneurship that would bring rising inflation is called

A)actual GDP.
B)nominal GDP.
C)real GDP.
D)potential GDP.

Question 29

In the above figure, the distance between points S and T represents

A)a peak.
B)a trough.
C)an expansion.
D)a recession.

Question 30

is gross investment minus .

A)The capital stock; net investment
B)The capital stock; depreciation
C)Net investment; depreciation
D)Depreciation; replacement investment

Question 31

In the definition of GDP, "market value" refers to

A)valuing production in production units.
B)not counting intermediate products.
C)when the production took place.
D)valuing production according to the market price.

Question 32

GDP equals

A)C+S+G+(X+M).
B)C+I+G+(X+M).
C)C+I+G+(X- M).
D)C+S+G+(X- M).

Question 33

GDP is defined as the market value of all _ in a given time period.

A)final goods and services produced in a country by only the citizens of the country
B)final goods and services produced in a country
C)final goods produced in a country
D)final goods and services produced by citizens of a particular country regardless of where in the world they are located

Question 34

The word "final" in the definition of GDP refers to

A)the time period when production took place.
B)counting the intermediate goods and services used to produce GDP.
C)not counting intermediate goods or services.
D)valuing production at market prices.

Question 35

In the above figure, consumption expenditure is shown by flow

A)A.
B)B.
C)C.
D)F.

Question 36

Which of the following is true regarding the circular flow diagram?

A)I only
B)I and II
C)I and III
D)III only

Question 37

Normally in Australia the relationship between nominal and real GDP for a given year is that

A)nominal GDP is greater than real GDP because of price increases.
B)nominal GDP is greater than real GDP because of price decreases.
C)nominal GDP equals real GDP.
D)real GDP is greater than nominal GDP because of price increases.

Question 38

Real GDP does not show the state of economic welfare in a country in part because GDP omits

A)I only
B)I and III
C)II and III
D)I, II and III

Question 39

Which of the following is included in the government expenditure component of the expenditure approach to GDP?

A)Taxes
B)State government expenditure on local schools
C)Transfer payments
D)Changes in inventories

Question 40

The presence of creates a difference in the value between the market price and the factor cost of a product.

A)indirect taxes and subsidies
B)corporate profits and subsidies
C)indirect taxes and consumption
D)subsidies and direct taxes

Question 41

If Dick Smith, an Australian manufacturer of electronics, opens a new manufacturing facility in Thailand this would

A)count for both Thailand's GDP and Australian GDP.
B)count as part of Australian GDP since it is an Australian company.
C)add to Thailand's GDP but not to Australian GDP.
D)add to neither Australian GDP nor Thailand's GDP.

Question 42

The expenditure approach measures GDP by adding

A)consumption expenditure, gross private domestic investment, net exports of goods and services, and government expenditure on goods and services.
B)compensation of employees, rental income, corporate profits, net interest, proprietors' income, indirect taxes paid, and depreciation and subtracting subsidies paid by the government.
C)compensation of employees, rental income, corporate profits, net interest, proprietors' income, subsidies paid by the government, indirect taxes paid and depreciation.
D)compensation of employees, rental income, corporate profits, net interest and proprietors' income.

Question 43

The three categories of income used in the income approach to the measurement of GDP are

A)compensation of employees, saving and rental income.
B)compensation of employees, gross operating surplus and gross mixed income.
C)compensation of employees, gross mixed income and investment.
D)consumption, corporate profits and gross mixed income.

Question 44

GDP counts only final goods and services because this

A)method avoids including any goods that are produced this year and sold next year.
B)amount can be more easily determined in the marketplace.
C)method avoids understating the value of GDP produced during a given year.
D)method avoids double counting of goods going through several stages of production.

Question 45

Of the following, which is correct?

A)Nominal GDP is not affected by changes in prices of goods and services.
B)Nominal GDP does not change when the production of goods and services increases.
C)Nominal GDP increases when the prices of goods and services increase.
D)Real GDP changes only when the prices of goods and services really change.

Question 46

Which of the following is an example of the gross private domestic investment component of GDP?

A)I only
B)II only
C)Both I and II
D)Neither I nor II

Question 47

The relationship between real GDP and potential GDP is that

A)real GDP is always below potential GDP.
B)real GDP always equals potential GDP.
C)real GDP never equals potential GDP.
D)real GDP fluctuates about potential GDP.

Question 48

In the above figure, a trough is at point and a peak is at point .

A)b; c
B)d; c
C)a; b
D)b; a

Question 49

According to the circular flow diagram, the dollar value of a nation's output is equal to

A)net income minus taxes.
B)total income.
C)profits.
D)wages.

Question 50

In the national income accounts, government expenditure on goods and services refer to those purchases made by

A)all levels of government.
B)the Commonwealth government only.
C)Commonwealth and state governments only.
D)state and local governments only.

Question 51

GDP does not directly include intermediate goods because

A)that would understate the true size of GDP.
B)that would count the intermediate goods twice.
C)intermediate goods are not useful to consumers.
D)intermediate goods are not valuable.

Question 52

Gross investment equals

A)depreciation + change in inventories.
B)net investment + change in inventories.
C)net investment + depreciation.
D)net investment - depreciation + change in inventories.

Question 53

Which of the following is true regarding real GDP?

A)I and II
B)I and III
C)II and III
D)I, II and III

Question 54

When a recession ends, the turning point that immediately follows is called a

A)peak.
B)trough.
C)depression.
D)None of the above answers is correct.

Question 55

The circular flow of income shows that

A)firms generally are the demanders in the goods markets and suppliers in the factor markets.
B)governments purchase goods and services.
C)households transact only in the goods market.
D)None of the above answers is correct.

Question 56

In the calculation of gross domestic product by the expenditure approach, the "investment" component is

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

Question 57

If we compare the four sources of spending in the economy, we see that

A)household consumption is the smallest.
B)household consumption is the largest.
C)business investment is the largest.
D)government expenditure is the largest.

Question 58

Depreciation is defined as the

A)decrease in the stock of capital due to wear and tear.
B)increase in the stock of capital due to wear and tear.
C)increase in the stock of capital due to investment by firms.
D)decrease in the stock of capital due to investment by firms.

Question 59

Last year in the country of Ecoland imports equaled exports. Ecoland's GDP was $500 million, its consumer expenditure was $380 million, and its investment was $20 million. Ecoland's government expenditure on goods and services was .

A)$100 million
B)$500 million
C)$900 million
D)zero

Question 60

A loaf of bread purchased by one of your instructors would be BEST described as

A)a financial asset.
B)a used good.
C)a final good.
D)an intermediate good.

Question 61

Because pollution reduces economic welfare, on this count real GDP as measured

A)decreases as pollution increases.
B)understates economic welfare.
C)increases to take into account the expenditures that will be made in the future to clean up the pollution.
D)overstates economic welfare.

Question 62

All of the following are included in gross private domestic investment expenditure EXCEPT

A)a business's purchase of a fleet of cars.
B)a business's purchase of another company's stock.
C)a retail store's purchase of shoes to add to its inventory.
D)a household's purchase of a new house.

Question 63

The largest component of GDP in the expenditure approach is

A)gross private domestic investment.
B)personal consumption expenditures.
C)net exports.
D)government expenditure on goods and services.

Question 64

Business cycles are

A)unpredictable, but always have two phases and two turning points.
B)irregular, with some having two recessions and no expansion.
C)predictable, with a recession following a trough.
D)unpredictable, and don't always have two phases and two turning points.

Question 65

The circular flow diagram shows

A)the effects of inflation in a simple economy.
B)how the prices of factors are determined.
C)the flows between different sectors of the economy.
D)how nominal GDP is distinct from real GDP.

Question 66

Real GDP is

A)an increase in the average level of prices.
B)the value of total production of all the nation's farms, factories, shops and offices measured in the prices of a single year.
C)the value of total production when the unemployment rate is 6 per cent.
D)the value of total production of all the nation's farms, factories, shops and offices measured at the prices of the year it was produced.

Question 67

In any year, real GDP

A)always equals potential GDP.
B)must always be less than potential GDP.
C)might be greater or less than potential GDP.
D)will always be greater than potential GDP because of the tendency of nations to incur inflation.

Question 68

Net exports of goods and services equal the

A)value of imports of goods and services minus the value of exports of goods and services.
B)value of exports of goods and services divided by the value of imports of goods and services.
C)value of exports of goods and services minus the value of imports of goods and services.
D)value of exports of goods and services plus the value of imports of goods and services.

Question 69

Gross private domestic investment is all purchases of newly- produced business capital goods and buildings

A)plus the change in business inventories plus residential construction.
B)minus the change in business inventories.
C)plus purchases of capital goods produced in previous years to replace any depreciated capital goods.
D)plus fixed investment minus inventory investment.

Question 70

Gross domestic product is a measure of the total value of all

A)capital accumulation in an economy over a period of time.
B)sales in an economy over a period of time.
C)consumer income in an economy over a period of time.
D)final goods and services produced in an economy over a period of time.

Question 71

The business cycle refers to

A)changes in the level of employment.
B)fluctuations in the level of real GDP around potential GDP.
C)changes in the level of nominal GDP.
D)changes in the level of the stock market.

Question 72

Potential GDP is

A)always different from real GDP.
B)another name for real GDP.
C)the level of GDP not adjusted for price changes.
D)the maximum amount of GDP that can be produced while avoiding shortages of labour, capital, land and entrepreneurship that would bring rising inflation.

Question 73

In the above figure, a recession begins at point and an expansion begins at point
.

A)d; c
B)a; b
C)b; c
D)b; a

Question 74

Which of the following is true regarding business cycles?

A)II and III
B)II only
C)I and II
D)I and III

Question 75

The difference between gross investment and net investment is

A)depreciation.
B)equal to saving.
C)the real interest rate.
D)the capital stock.

Question 76

A tonne of coal purchased by your local utility firm to burn to make electricity would be BEST described as

A)a financial asset.
B)a used good.
C)a final product.
D)an intermediate good.

Question 77

Which of the following statements is true?

A)Potential GDP fluctuates around real GDP.
B)Real GDP fluctuates around potential GDP.
C)When all of the economy's resources are fully employed, the value of production is called real GDP.
D)Potential GDP is the same as real GDP.

Question 78

The four categories of expenditure used by the expenditure approach method to calculate GDP are

A)saving, taxes, government expenditure and investment.
B)consumption expenditure, investment, net imports and saving.
C)consumption expenditure, investment, government expenditure and net exports.
D)consumption expenditure, taxes, saving and investment.

Question 79

If we compare the U.S. GDP and the Chinese GDP,

A)real GDP per person is about the same in the two countries.
B)China's real GDP per person is less than real GDP per person in the United States.
C)U.S. real GDP per person is less than China's real GDP per person once we adjust for currency differences.
D)U.S. real GDP per person is much larger than China's real GDP per person when purchasing power parity prices are used but is less than China's real GDP per person when exchange rate prices are used.

Question 80

Transfer payments are not included in GDP because

A)they do not generate additional income.
B)their value is included in government expenditure.
C)they are not purchases of goods or services.
D)their market value cannot be accurately determined.