Deck 4: Economic Activity and Performance

Question 1

Macroeconomics is concerned with:

A) an examination of the individual economic units that make up the economy.
B) the operation of the entire economy.
C) the operation and performance of firms in a particular industry.
D) the effect of government economic policy on individual households.

Answer 1

the operation of the entire economy.

Question 2

Three main indicators of macroeconomic activity and performance are:

A) investment, consumption and government expenditure.
B) investment, output and sales.
C) output, price and employment.
D) investment, inflation and unemployment.

Answer 2

output, price and employment.

Question 3

Which of the following conditions would not be studied by the macroeconomist?

A) The level of national unemployment during 2005.
B) The effect of government economic policy on the inflation rate during 2000-2005.
C) The effect of changing petroleum prices on the demand for coal.
D) The effect of lower income taxes on the rate of economic growth.

Answer 3

The effect of changing petroleum prices on the demand for coal.

Question 4

All the following are important macroeconomic issues except:

A) growth of the economy.
B) the rate of inflation in an economic system.
C) both the overall level and changes in the overall level of unemployment in the economy.
D) the effect of government economic policy on individual households.

Question 5

Economic growth is measured by:

A) an increase in investment spending.
B) an increase in real GDP.
C) an increase in nominal GDP.
D) an increase in the GDP deflator.

Question 6

In the economy of Betania, the real GDP in 2005 was $1 million, while in 2006 real GNP was $1.2 million. Therefore, Betania's real GDP has grown by:

A) 20 per cent.
B) 12 per cent.
C) 10 per cent.
D) 33 per cent.

Question 7

Which of the following statements is false?

A) Canada's real GDP growth rate was 3% in the 1980s.
B) Canada's real GDP growth rate was 2.5% in the 1990s.
C) Canada's real GDP growth rate was 3% in 2000-2008.
D) Canada's real GDP growth rate was 3.5% in 2008-2010.

Question 8

The rate of inflation is the:

A) price level.
B) consumer price index.
C) annual percentage change in the general price level.
D) the average price of a given class of goods or services relative to the price of the same goods and services in a base year.

Question 9

The annual percentage rate of change in the general price level is the:

A) relative price
B) rate of inflation.
C) price level.
D) cost of living.

Question 10

The CPI in year one was 145. The CPI in year two was 151. The rate of inflation between years one and two was _____ percent.

A) 4.0
B) 4.1
C) 4.5
D) 5.1

Question 11

Which of the following statements is false?

A) Canada's inflation rate in the 1980s was around 3%.
B) Canada's inflation rate in the 1980s was higher than that in the 1990s.
C) Canada's inflation rate in the 1990s was around 2%.
D) Canada's inflation rate in 2000-2008 was below 2%.

Question 12

The labour force equals the number of people:

A) employed.
B) unemployed.
C) aged 15 years and older.
D) employed and unemployed.

Question 13

Who of the following would be counted as unemployed by Statistics Canada?

A) A person with a part-time job.
B) A person with a full-time job.
C) A person employed or unemployed but actively looking for a job.
D) A person willing to work who had not looked for a job in two months.

Question 14

If labour force in Utopia grows by 7 per cent and employment grows by 5 percent unemployment rate will:

A) increase by about 2 percent.
B) remain unchanged.
C) fall by about 2 percent.
D) rise by about 12 percent.

Question 15

The unemployment rate in Canada in 2000-2008 has averaged about:

A) 10 percent.
B) 15 percent.
C) 2 percent.
D) 7 percent.

Question 16

Which of the following statements is false?

A) Discouraged workers are not considered as unemployed workers.
B) Higher is the number of discouraged workers, higher is the unemployment rate.
C) Participation rate will decline if the growth of labour force is less than the growth of population above 15 years of age.
D) Labour force equals employed plus unemployed workers.

Question 17

Which of the following statements is true?

A) Higher the cyclical unemployment, higher is the natural rate of unemployment.
B) Natural unemployment rate is unrelated to structural unemployment rate.
C) Cyclical unemployment rate reflects the level of economic activity.
D) Natural unemployment rate reflects cyclical unemployment rate.

Question 18

Which of the following statements is false?

A) Cyclical unemployment would increase with diminished economic activity.
B) Cyclical unemployment would be eliminated by higher levels of economic activity.
C) Structural unemployment is one of the components of cyclical unemployment.
D) Higher the structural unemployment rate, higher is the natural rate of unemployment.

Question 19

An economic system's factors of production consist of:

A) its stock of financial wealth.
B) all the goods produced for household consumption during a given time period.
C) goods and services used in the production of output.
D) its stock of financial capital used to invest in plants and equipment.

Question 20

In a simple circular flow model of a private-sector closed economy:

A) We ignore trade-flows and financial flows between countries.
B) We include all spending from households and governments.
C) We include all spending from households and businesses.
D) We include all spending from households, businesses and governments.

Question 21

The circular flow without taxation, government spending and international trade, shows how real resources and financial payments flow between _______ and __________.

A) government, firms
B) government, households
C) firms, government
D) firms, households

Question 22

The simple circular flow model shows that:

A) firms hire the factors from households and produce the output consumed by households.
B) households provide the factors to firms and buy the output produced by firms.
C) the source of household income is the producing sector and the source of firms' revenue is household spending.
D) all of the above are correct.

Question 23

In the circular flow model, the factors of production:

A) are supplied by households to firms.
B) are used by firms to produce goods and services.
C) include land, labour, machines, and tools.
D) all of the above.

Question 24

An economic system's factors of production:

A) are ultimately owned by private households and provide the source of household income.
B) are used to produce goods and services.
C) include labour, buildings, machines, and land.
D) all the above.

Question 25

Your full-time accountant retires, so you hire a part-time accounting student at a much lower wage. As a result, GNP will:

A) rise.
B) remain unchanged.
C) fall.
D) none of the above.

Question 26

When hiring the factors of production to produce output, firms:

A) show little concern for the consumption decisions of households.
B) often waste many factors by not producing efficiently.
C) generate the income for households to consume their output.
D) directly contribute to the inflation rate.

Question 27

In the absence of government and foreign trade, the national accounts show that:

A) firms supply both the resources and output used in production.
B) households demand both resources and outputs.
C) firms supply resources and households demand outputs.
D) households supply resources and firms supply output.

Question 28

All the following statements are correct except:

A) if double counting is not avoided, the GDP measurement will be too high.
B) GDP includes all market and non-market values of goods and services produced during a given time period.
C) since GDP includes only the value of currently produced goods, second-hand transactions are not included in GDP.
D) GDP measures the market value of final goods and services produced in a country during a given time period.

Question 29

Double counting can be avoided when computing GDP by:

A) simply deducting a double-counting factor from the GDP estimates.
B) adding the value of only the intermediate (non-final) goods and services produced.
C) adding only the value contributed by firms at each stage of production.
D) including the value of all output produced in the economy.

Question 30

Which of the following statements is false?

A) Output-based GDP is based on the sum of value added approach.
B) The value added method shows the values of each stages of production towards the values of the final goods and services.
C) To find the value added, the costs of the goods and services purchased from other businesses and industries are deducted from the value of its final product.
D) Value added GDP estimate is based on expenditures by households and businesses.

Question 31

The expenditure-based GDP is equal to:

A) C+I+G+X.
B) C+I+G+X-Z.
C) C+I+G.
D) C + I + G - taxes.

Question 32

The income-based GDP is based on:

A) employment income, corporate business income, unincorporated business income, interest and investment income.
B)employment income net of taxes, corporate business income net of taxes, unincorporated business income net of taxes, interest and investment income.
C) personal income and income transfers from governments to households and businesses.
D) personal income net of taxes.

Question 33

Which of the following statements is false?

A) Net investment is equal to gross investment minus depreciation
B) Government expenditures (G) in the expenditure-based GDP accounting include transfer payments to households.
C) Net exports (NX) are equal to exports (X) minus imports (Z).
D Consumption expenditures (C) in the expenditure-based GDP accounting include expenditures on . goods and services produced in the foreign countries.

Question 34

Nominal GDP measures:

A) total incomes.
B) total output.
C) total expenditure.
D) all of the above.

Question 35

Nominal GDP measures the value of current:

A) output at current prices.
B) output when prices are held constant.
C) income received by households.
D) investment spending by firms.

Question 36

By using the expenditures (aggregate expenditure) approach, GDP may be defined as:

A) GDP=C+I+(G-NX).
B) GDP=(C-I)+G+NX.
C) GDP=C+I+G+NX.
D) GDP=C+(I-G)+NX.

Question 37

Intermediate goods are:

A) partly finished goods.
B) goods in transit.
C) goods that can only be used with other goods.
D) types of money.

Question 38

Which is a good example of an intermediate good?

A) nuts and bolts.
B) electricity generation.
C) steel supplied to a car manufacturer.
D) a lathe.

Question 39

An increase in the economy's stock of physical productive capital is called:

A) saving.
B) inventory adjustment.
C) investment.
D) crowding out.

Question 40

All of the following are components of investment except:

A) increases in plant and equipment.
B) inventory expansion.
C) residential housing construction.
D) purchases of stocks and bonds.

Question 41

The purchase of new capital goods by firms is called:

A) investment.
B) consumption.
C) depreciation.
D) planting.

Question 42

Inventories are stocks of goods currently held by a firm ________________.

A) in case of bankruptcy
B) as investments
C) for future production or sale
D) as a hedge against price increases

Question 43

With respect to the national accounts measurement of economic activity, government purchases are:

A) expenditures on current output.
B) taxes net of subsidies.
C) imports.
D) investment.

Question 44

An open economy is one with:

A) a government sector.
B) firms.
C) international trade.
D) households.

Question 45

_______ are domestically produced but sold abroad and considered as ___________ in the expenditure on domestic output.

A) imports, reductions
B) imports, increases
C) exports, reductions
D) exports, increases

Question 46

Which of the following statements is false?

A) The output and income measures of GDP describe the supply side of the economy.
B) The expenditure measure of GDP describes the demand side of the economy.
C) The income measure of GDP describes the supply side of the economy.
D) The value added measure of GDP describes the supply side of the economy.

Question 47

Which of the following statements is false?

A) Net investment cannot be negative.
B) If net investment is positive, it means gross investment minus depreciation is positive.
C) Depreciation can not be negative.
D) Gross investment cannot be negative.

Question 48

The value of a nation's foreign-sector transactions on its GDP is measured by its:

A) imports.
B) exports minus imports.
C) exports.
D) foreign aid.

Question 49

The major component of Canadian net domestic income is:

A) profit and business income.
B) investment income.
C) rental income.
D) employment income.

Question 50

Net domestic income includes all the following except:

A) small business income.
B) depreciation.
C) net interest.
D) company profits.

Question 51

In Canada, the approximate value of the share of employment income in GDP in 2008 is:

A) 10%.
B) 25%.
C) 50%.
D) 75%.

Question 52

The approximate value of the share of profits business and investment income in Canada's GDP in 2008 is:

A) 10%.
B) 25%.
C) 50%.
D) 75%.

Question 53

Capital consumption allowances correspond to each of the following except:

A) depreciation.
B) fixed capital used up in the production process.
C) difference between GDP and NDP.
D) difference between GDP and GNP.

Question 54

The difference between GDP at market prices and GDP at basic prices is:

A) net indirect taxes.
B) direct taxes.
C) progressive taxes.
D) regressive taxes.

Question 55

To obtain a measure of net domestic income from GDP, it is necessary to:

A) add any transfer payments made by government to households.
B) deduct the value of capital used up in the production of current output.
C) deduct net indirect taxes and depreciation.
D) add any increases in the nation's stock of capital.

Question 56

All the following are correct except:

A) NNP = GNP - depreciation.
B) GNP = gross domestic product + net factor income from abroad.
C) NDI = GDP - net indirect taxes + capital consumption.
D) aggregate spending = C + I + G + NX = GDP.

Question 57

Suppose the net investment in an economy is $100 billion, depreciation is $200 billion, consumption expenditure is $800 billion, government expenditure is $100 billion, taxes minus transfers are $10 billion and net exports are minus $20 billion. The economy's GDP is:

A) $1170 billion.
B) $1180 billion.
C) $1200 billion.
D) $1220 billion.

Question 58

Suppose, the GDP of an economy is $1220 billion, gross investment (I) is $300 billion, consumption expenditure (C) is $800 billion and government expenditure (G) is $100 billion. The economy's net export (NX) is:

A) - $20 billion.
B) zero.
C) $20 billion.
D) $40 billion.

Question 59

To get from GDP to GNP requires the addition of:

A) exports.
B) net property income from abroad.
C) foreign exchange.
D) foreign assets.

Question 60

The ratio of nominal GDP to real GDP is known as the:

A) personal saving rate.
B) GDP deflator.
C) consumer price index.
D) price-adjusted GDP.

Question 61

Inflation adjustment is the difference between:

A) nominal GDP and real GDP.
B) nominal GDP and nominal GNP.
C) nominal incomes and nominal expenditure.
D) nominal output and nominal incomes.

Question 62

An economy's real GDP measures the:

A) market value of all goods and services produced during a particular time period.
B) value of all goods and services produced during a particular time period at constant prices.
C) value of all investment goods and services produced during a particular time period when prices are held constant.
D) market value of all investment goods and services produced during a particular time period.

Question 63

Real output, real income and real expenditure are all measures of:

A) real consumption.
B) real GDP.
C) real investment.
D) real net exports.

Question 64

If nominal GDP increases by 10 percent from one year to the next but real GDP is unchanged then:

A) Factor costs have increased by 10 percent but net indirect tax rates have not changed.
B) Factor costs have not changed but net indirect tax rates have increased by 10 percent.
C) The GDP deflator has increased by 10 percent.
D) All the above.

Question 65

An increase in labour costs by 5 percent, all other things held constant will:

A) lower nominal GDP by less than 5 percent.
B) raise nominal GDP by more than 5 percent.
C) leave nominal GDP unchanged.
D) raise nominal GDP by less than 5 percent.

Question 66

If increased productivity lowers unit labour costs across the economy by 2 percent:

A) real GDP will increase with no change in nominal GDP.
B) real and nominal GDP will both increase.
C) real and nominal GDP will both fall.
D) real and nominal GDP will both be unchanged.

Question 67

If nominal GDP increases at a rate of 10 per cent per year while the GDP deflator increases at 8 per cent per year, then:

A) real GDP remains constant.
B) real GDP rises by 10 per cent.
C) real GDP falls by 8 per cent.
D) real GDP rises by 2 per cent.

Question 68

Assuming a nominal GDP of $2 billion and a GDP deflator of 170, real GDP must be about:

A) $3.4 billion.
B) $1.2 billion.
C) $0.3 billion.
D) $3.7 billion.

Question 69

With a GDP deflator of 240 and real GNP of $1.8 billion, nominal GDP must be:

A) $4.32 billion.
B) $5.2 billion.
C) $0.6 billion.
D) $3.9 billion.

Question 70

If the GDP deflator was 105 in 2000 and 115 in 2001, the annual rate of inflation was:

A) 10 per cent.
B) 15 per cent.
C) 9.5 per cent.
D) 0.9 per cent.

Question 71

In the economy of Outlandia nominal GDP grew by 8% last year and the GDP deflator increased from
130 to 136.5. As a result:

A) real GDP declined by 1.5%.
B) real GDP increased by 14.5%.
C) real GDP was unchanged.
D) real GDP increased by 3%.

Question 72

Of the following, which is the best indicator of an economy's standard of living?

A) real GNP.
B) real GNP per capita.
C) nominal GNP per capita.
D) nominal GNP.

Question 73

-The GDP deflator index in 2002 was:

A) 100.
B) 105.
C) 115.
D) None of the above.

Question 74

-Economy's nominal GDP in 2003 was:

A) $440 billion.
B) $460 billion.
C) $462 billion.
D) None of the above.

Question 75

-Economy's real GDP in 2004 was:

A) $440 billion.
B) $460 billion.
C) $462 billion.
D) None of the above.

Question 76

All the following statements are correct except:

A) per capita real GDP is often used as a measure of a nation's standard of living.
B) a changing distribution of income does not affect per capita GDP.
C) in a comparison of per capita real GDP over time, changing population growth does not affect the measure.
D) growth per capita real GDP is often used as a measure of a nation's changing standard of living.

Question 77

A measure of an economy's net economic welfare:

A) is smaller than its GDP.
B) includes the value of non-market activities and leisure time and deducts the costs of nuisance goods.
C) is an alternative to using GDP as a measure of society's well-being.
D) is more comprehensive than the GDP accounts.

Question 78

The most reliable measure of economic performance is:

A) nominal GDP.
B) nominal GDP per head.
C) real GDP.
D) real GDP per head.

Question 79

GDP is not satisfactory measure of economic welfare because:

A) it excludes non-market activities.
B) it excludes externalities.
C) it excludes the black economy.
D) all the above.

Question 80

High real GDP countries tend to have ______ infant mortality rates and ______ literacy rates than low-real GDP countries.

A) higher; higher
B) higher; lower
C) lower; higher
D) lower; lower