Deck 3: Measuring a Nations Well-Being

Question 1

For an economy as a whole, income equals expenditure because the income of the seller must be equal to the expenditure of the buyer.

Answer 1

True

Question 2

Wages are an example of a transfer payment because there is a transfer of payment from the firm to the worker.

Answer 2

False

Question 3

If a timber yard sells r₁9 000 of timber to a carpenter and the carpenter uses the timber to build a wooden house which he sells for R95 000, the contribution to GDP is r₁14 000.

Answer 3

False

Question 4

Nominal GDP employs current prices to value output while real GDP employs constant base-year prices to value output.

Question 5

Gross domestic product measures

A)income and expenditures.
B)income but not expenditures.
C)expenditures but not income.
D)neither income nor expenditures.

Question 6

Changes in the GDP deflator reflect only changes in the prices of goods and services.

Question 7

If nominal GDP in 2015 exceeds nominal GDP in 2014, real output must have risen.

Question 8

Expenditures on a nation's domestic production

A)is less than its domestic production.
B)are equal to its domestic production.
C)are greater than its domestic production.
D)could be less than, equal to, or greater than its domestic production.

Question 9

In the circular-flow diagram, payments for labour, land, and capital flow from firms to households through the markets for the factors of production.

Question 10

An example of a transfer payment is

A)profit.
B)rent.
C)unemployment benefits.
D)government purchases.
E)wages.

Question 11

Suppose that an economy produces 40,000 units of good A which sells at R76 a unit and 20,000 units of good B which sells at R95 per unit.Production of good A contributes

A)2 times as much to GDP as the production of good B.
B)8/5 times as much to GDP as the production of good B.
C)5/4 times as much to GDP as the production of good B.
D)4/5 times as much to GDP as production of good B.

Question 12

Cigarettes should be valued in GDP at r₁7.50 per pack, even though r₁5.00 of that price is tax, because the buyers paid r₁7.50 per pack.

Question 13

A country with a larger GDP per person generally has a greater standard of living or quality of life than a country with a smaller GDP per person.

Question 14

GDP does not make adjustments for leisure time, environmental quality, or volunteer work.

Question 15

Macroeconomists study

A)the decisions of individual households and firms.
B)the interaction between households and firms.
C)economy-wide phenomena.
D)regulations imposed on firms and unions.

Question 16

Which of the following statements about GDP is correct?

A)GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services.
B)Money continuously flows from households to firms and then back to households, and GDP measures this flow of money.
C)GDP is generally regarded as the best single measure of a society's economic well-being.
D)All of the above are correct.

Question 17

The production of an apple contributes more to GDP than the production of a gold ring because food is necessary for life itself.

Question 18

For an economy as a whole,

A)wages must equal profit.
B)consumption must equal saving.
C)income must equal expenditure.
D)the number of buyers must equal the number of sellers.

Question 19

The circular-flow model is not used anymore because it fails to perfectly replicate real world situations.

Question 20

Because every transaction has a buyer and a seller,

A)GDP is more closely associated with an economy's income than it is with an economy's expenditure.
B)every transaction contributes equally to an economy's income and to its expenditure.
C)the number of firms must be equal to the number of households in a simple circular-flow diagram.
D)firms' profits are necessarily zero in a simple circular-flow diagram.

Question 21

The value of plant and equipment worn out in the process of manufacturing goods and services is measured by

A)intermediate production.
B)Net National Product.
C)investment.
D)depreciation.
E)consumption.

Question 22

SA Gross Domestic Product (in contrast to Gross National Product) measures the production and income of

A)South African-owned firms no matter where they are located in the world.
B)None of these answers.
C)the domestic service sector only.
D)people and factories located within the borders of the SA.
E)the domestic manufacturing sector only.

Question 23

In producing a sweater, a man who shears sheep pays a farmer R76 for a sheep's wool.The shearing shop sells the wool to a knitting mill for r₁33.The knitting mill makes it into a fine fabric and sells it to a sweater-making firm for R247.The sweater-making firm sells the sweater to a clothing store for R380, and the clothing store sells the sweater, gift wrapped, for R950.What is the contribution to GDP of the production and sale of the sweater?

A)R76
B)R836
C)R950
D)r₁805

Question 24

Figure 1


Refer to Figure 1.What is the value of the GDP deflator in 2014?

A)100
B)113
C)116
D)119
E)138

Question 25

If nominal GDP in one year exceeds nominal GDP in the previous year, then the production of output

A)must have fallen.
B)must have risen.
C)must have stayed the same.
D)may have risen, fallen, or stayed the same because there is not enough information to determine what happened to real output.

Question 26

Gross Domestic Product can be measured as the sum of

A)final goods and services, intermediate goods, transfer payments, and rent.
B)consumption, investment, government purchases, and net exports.
C)consumption, transfer payments, wages, and profits.
D)Net National Product, Gross National Product, and disposable personal income.
E)investment, wages, profits, and intermediate production.

Question 27

Figure 1


Refer to Figure 1.What is the percentage increase in real GDP from 2013 to 2014?

A)0 per cent
B)7 per cent
C)22 per cent
D)27 per cent
E)32 per cent

Question 28

Figure 1

$\begin{array}{ccccc}\text { Year } & \begin{array}{c}\text { Price of } \\\text { pens }\end{array} & \begin{array}{c}\text { Quantity of } \\\text { pens }\end{array} & \text { Price of books } & \begin{array}{c}\text { Quantity of } \\\text { books }\end{array} \\\hline 2013 & \text { R57 } & 100 & \text { R190 } & 50 \\2014 & \text { R57 } & 120 & \text { R228 } & 70 \\2015 & \text { R76 } & 120 & \text { R266 } & 70\end{array}$

-Refer to FigurE?.What is the approximate percentage increase in prices from 2014 to 2015?

A)0 per cent
B)13 per cent
C)16 per cent
D)38 per cent
E)22 per cent

Question 29

Figure 1

$\begin{array}{ccccc}\text { Year } & \begin{array}{c}\text { Price of } \\\text { pens }\end{array} & \begin{array}{c}\text { Quantity of } \\\text { pens }\end{array} & \text { Price of books } & \begin{array}{c}\text { Quantity of } \\\text { books }\end{array} \\\hline 2013 & \text { R57 } & 100 & \text { R190 } & 50 \\2014 & \text { R57 } & 120 & \text { R228 } & 70 \\2015 & \text { R76 } & 120 & \text { R266 } & 70\end{array}$

-Refer to Figure 1.What is the value of real GDP for 2014?

A)R15 200
B)R20 140
C)R21 660
D)R22 800
E)R27 740

Question 30

If a cobbler buys leather for r₁ 900 and thread for R950 and uses them to produce and sell R9 500 worth of shoes to consumers, the contribution to GDP is

A)R950.
B)R1 900.
C)R12 2 350.
D)R9 500.
E)R11 400.

Question 31

Which of the following would be excluded from SA GDP for 2014? The sale of

A)a haircut.
B)the value of a lawyer's services.
C)a 2014 Honda made in SA.
D)a loaf of bread.
E)a home built in 2013 and first sold in 2014.

Question 32

GDP would include which of the following?

A)The value of taking a day off from work.
B)Consulting services.
C)Intermediate sales.
D)Illegal drug sales.
E)Housework.

Question 33

Real GDP is measured in ________ prices while nominal GDP is measured in ________ prices.

A)Foreign; domestic
B)Current year; base year
C)Domestic; foreign
D)Base year; current year
E)Intermediate; final

Question 34

The four categories of expenditures that make up GDP are consumption, investment,

A)Exports, and government purchases.
B)Imports, and government purchases.
C)Net exports, and government purchases.
D)Net exports, and government transfer payments.

Question 35

Which of the following would be counted in SA's GDP?

A) The purchase of a historic monument.
B) The purchase of a haircut.
C) The purchase of a R19 000 government savings bond.
D) The value generated when Thabo washes his car in his garden.

Question 36

Figure 1


Refer to Figure 1.What is the percentage increase in prices from 2013 to 2014?

A)0 per cent
B)13 per cent
C)16 per cent
D)22 per cent
E)38 per cent

Question 37

Marie grows vegetables in her garden to feed her family.The vegetables she grows are not counted in GDP because

A)they were not produced for the marketplace.
B)they are an intermediate good, which Marie will process further.
C)the vegetables have no value.
D)it reduces the amount of vegetables she will buy from shops.

Question 38

If private investment increased by R950 billion while GDP remained the same, which of the following could have occurred, all else being the same?

A)Consumption spending decreased by R950 billion.
B)Exports increased by R950 billion.
C)Imports decreased by R950 billion.
D)Net exports increased by R950 billion.

Question 39

Gross Domestic Product is the sum of the market value of

A)intermediate goods.
B)final goods and services.
C)manufactured goods.
D)inferior goods and services.
E)normal goods and services.

Question 40

Assume net exports are R-4180, consumption is R95 000, tax revenues are r₁9 000, government purchases are R28 500, and 2010 GDP, calculated by the expenditures approach, is r₁52 000.We can conclude that

A)private investment was R36 860.
B)public investment was R5 890.
C)private investment was R9 880.
D)private investment was R32 680.

Question 41

Explain why it is the case that the value of intermediate goods produced and sold during the year is not included directly as part of GDP, but the value of intermediate goods produced and not sold is included directly as part of GDP.

Question 42

Last year country A had a nominal GDP of R600 billion, a GDP deflator of 150 and a population of 40 million.Country B had a nominal GDP of R720 billion, a GDP deflator of 120 and a population of 50 million.From these numbers which country is likely to have had the higher standard of living?

A)Country A because it had the higher nominal GDP per person.
B)Country B because it had the higher nominal GDP per person.
C)Country A because it had the higher real GDP per person.
D)Country B because it had the higher real GDP per person.

Question 43

Describe the main components of GDP.

Question 44

Identify the immediate effect of each of the following events on UK GDP and its components.
a.James receives a Social Security check.
b.John buys an Italian sports car.
c.Henry buys domestically produced tools for his construction company.

Question 45

SA GDP would exclude which of the following?

A)Lawyer services purchased by a homebuyer.
B)The purchase of a new Nissan produced in SA.
C)Copper purchased by a pipe manufacturer in SA.
D)The purchase of a new computer produced in SA.
E)Lawn care services purchased by a SA homeowner.

Question 46

Since it is counted as investment, why doesn't the purchase of earthmoving equipment from China by a SA corporation increase SA GDP?

Question 47

The three sources of income for the household are

A)taxes, subsidies from the government, and rent.
B)wages, rent, and profit.
C)wages, rent, and subsidies from the government.
D)wages, rebates, and rent.

Question 48

Suppose a person marries his or her gardener and therefore no longer pays him or her for gardening services.GDP

A)stays the same as long as the services are still provided.
B)increases since the services are now provided for free.
C)decreases since there is no longer a market exchange.
D)stays the same, since services are not included in GDP.

Question 49

GDP is used as the basic measure of a society's economic well-being.A better measure of the economic well-being of individuals in society is

A)savings per person.
B)GDP per person.
C)government expenditures per person.
D)investment per business firm.

Question 50

Real GDP is nominal GDP

A)plus depreciation.
B)adjusted for changes in the price level.
C)minus depreciation.
D)minus taxes.

Question 51

GDP may not be a reliable indicator of the standard of living of a country because it does not include

A)spending on investment goods.
B)the value of goods and services produced outside the market system.
C)discretionary spending of non-resident workers.
D)the estimated value of goods to individuals.
E)the private costs of consumption.

Question 52

Assume that between two periods, GDP of a European country measured in current prices fell from €96 billion to €48 billion.Over the same period, the relevant price index fell from 100 to 75.
a.What was the percentage decline in nominal GDP during the period?
b.What was the percentage decline in real GDP during this period? Show your work.

Question 53

If your grandparents buy a newly built retirement home, this transaction would affect

A)investment.
B)net exports.
C)government purchases.
D)consumption.
E)disposable income.

Question 54

GDP per person tells us the income and expenditure of the

A)richest person in the economy.
B)poorest person in the economy.
C)average person in the economy.
D)entire economy.

Question 55

Households play what role(s) in the circular-flow diagram?

A)Purchasers of factors of production and sellers of services.
B)Purchasers of factors of production and sellers of goods.
C)Purchasers of goods and services only.
D)Purchasers of goods and services and sellers of factors of production.

Question 56

How is your purchase of a R760 000 BMW automobile that was produced entirely in Germany recorded in the SA GDP accounts?

A)Consumption increases by R760 000 and net exports decreases by R760 000.
B)Net exports increases by R760 000.
C)There is no impact because this transaction does not involve domestic production.
D)Investment increases by R760 000 and net exports increases by R760 000.
E)Net exports decreases by R760 000.

Question 57

GDP is defined as the market value of all final goods and services produced within a country in a given period of time.In spite of this definition, some production is left out of GDP.Explain why some final goods and services are not included.

Question 58

GDP is not a perfect measure of well-being; for example,

A)GDP excludes the value of volunteer work.
B)GDP does not address the distribution of income.
C)GDP does not address environmental quality.
D)All of the above are correct.

Question 59

Suppose that population grows by 2 per cent.For the standard of living to rise, which of the following must occur?

A)Nominal GDP must grow by more than 2 per cent.
B)Real GDP must grow by more than 2 per cent.
C)Real GDP per capita must grow by more than 2 per cent.
D)Consumption spending must grow by more than 2 per cent.

Question 60

Suppose the government passes a law eliminating public holidays, resulting in increased production of goods and services.Based on this scenario, which of the following statements is correct?

A)GDP would definitely increase, despite the fact that GDP includes leisure.
B)GDP would definitely increase because GDP excludes leisure.
C)GDP could either increase or decrease because GDP includes leisure.
D)GDP could either increase or decrease because GDP excludes leisure.

Question 61

Why is GDP per capita a good measure of economic well-being?

Question 62

In Europe, real GDP is substantially higher today than it was 60 years ago.What does this tell us, and what does it not tell us, about the well-being of Europeans?

Question 63

You find that your salary for the year is higher this year than it was last year.Does that mean that your real income has increased? Explain carefully.

Question 64

Using the outline below, draw a circular-flow diagram representing the interactions between households and firms in a simple economy.Explain briefly the various parts of the diagram.

Question 65

The table below contains data for country A for the year 2014.
In 2014 what was country A's:
a) GDP in 2010
b) Consumption
c) Investment
d) Government purchases
e) Exports
f) Imports
g) Net exports