Deck 5: Measuring a Nations Income

Question 1

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

Answer 1

A

Question 2

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

A) unemployment rate
B) inflation rate
C) gross domestic product
D) trade balance

Answer 2

C

Question 3

How should Robert's contributions to GDP be calculated?

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

Answer 3

D

Question 4

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

Question 5

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

Question 6

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

A) The inflation rate rises from 5 percent to 5.5 percent.
B) The price of gold grows by 3.1 percent in the third quarter.
C) The number of tourists visiting Canadian national parks has declined.
D) The price of oranges rises after an early frost.

Question 7

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.

Question 8

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 9

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 10

Which topics are studied in macroeconomics?

A) national income, investment, and exchange rates
B) the price of BCE stock, wage differences between genders, and antitrust laws
C) differences in market structure and how consumers maximize utility
D) the effect of trade tariffs on prices and patterns of international trade

Question 11

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 12

Which of the following is a macroeconomic issue?

A) how many workers a firm employs
B) how changes in the money supply affect interest rates
C) how an increase in wages changes costs of production
D) how an income tax changes a person's decision to look for a job

Question 13

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 14

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 15

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 16

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 17

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 18

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 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

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 21

If a province with legalized gambling made gambling 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 gambling is never included in GDP.

Question 22

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 23

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 24

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 25

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 26

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 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

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 29

If Susan decides to groom her dog herself instead of having Petworld groom him for her, 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 30

What is NOT included in GDP?

A) unpaid childcare
B) services such as those provided by lawyers and hairstylists
C) final goods that are produced but not sold by the end of the year
D) production of foreign citizens living in Canada

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

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 33

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 34

If a province made an illegal activity such as gambling or prostitution legal, then, other things the same, what would happen to GDP?

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

Question 35

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 36

Sean used to volunteer to shovel his elderly neighbour's walk, 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 37

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

A) the value of unpaid housework
B) the value of vegetables that people grow in their gardens
C) the estimated rental value of owner-occupied homes
D) the estimated value of volunteer work

Question 38

How is flour 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 company to make bread.
C) It is counted as a final good if it is used by a consumer who bakes bread for his own consumption.
D) It is always counted as a final good.

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 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 41

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 42

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 43

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 44

The local Nissan dealership has an increase in inventory of 25 cars in 2015. How will the sale of all 25 cars in 2016 affect the GDP?

A) The value of the cars will be counted as part of GDP in 2015 but not in 2016.
B) The value of the cars will not affect the 2015 GDP, but will be included in 2016 GDP.
C) The value of the cars will be included in both 2015 and 2016 GDP.
D) The value of the cars will not be included in GDP in 2015 or 2016.

Question 45

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

A) in both Canadian and Italian GNP
B) in both Canadian and Italian GDP
C) in Canadian GNP and Italian GDP
D) in Canadian GDP and Italian GNP

Question 46

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 47

Which of the following best defines national income?

A) all income produced within a country
B) the total income earned by a nation's residents from the production of goods and services within the borders of the country
C) the total income earned by a nation's residents in the production of goods and services
D) the income received by the national government

Question 48

In the national income accounts, what is depreciation called?

A) total consumption depreciation
B) capital consumption allowance
C) consumption of circulating capital
D) loss due to wear

Question 49

George buys and lives in a newly constructed home he paid $200,000 for in 2015. He sells the house in 2016 for $225,000. How is GDP impacted?

A) The 2016 sale increases 2016 GDP by $225,000 and does nothing to 2015 GDP.
B) The 2016 sale increases 2016 GDP by $25,000 and does nothing to 2015 GDP.
C) The 2016 sale does not increase 2016 GDP and does nothing to 2015 GDP.
D) The 2016 sale increases 2016 GDP by $225,000, and 2015 GDP is revised upward by $25,000.

Question 50

How is Canadian GNP calculated from Canadian GDP?

A) by including income earned by foreigners in Canada and excluding income earned by Canadian citizens abroad
B) by including income earned by Canadian citizens abroad and excluding income earned by foreigners in Canada
C) by including income earned by foreigners in Canada
D) by excluding income earned by Canadian citizens abroad

Question 51

How is NNP calculated?

A) by subtracting savings from the total income of citizens of a nation
B) by subtracting business expenses and taxes from the total profits earned by citizens of a nation
C) by subtracting depreciation from the total income of citizens of a nation
D) by subtracting depreciation from the total profits earned by citizens of a nation

Question 52

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 53

A company makes 500,000 smart phones in the second quarter. It sells 300,000 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 smart phones are included in second-quarter GDP.
B) The smart phones that are not purchased in the second quarter are not counted in the second-quarter GDP.
C) Since all the 500,000 smart phones will eventually be bought by consumers, they are included as consumption in the third quarter.
D) The smart phones will be counted as a change in inventory in the second quarter, and when sold in the third quarter will raise GDP.

Question 54

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 55

Darla, a U.S. citizen, only works in Canada. How does the value added to production from her employment impact GDP and GNP?

A) It raises Canadian and U.S. GDP.
B) It raises Canadian GDP and U.S. GNP.
C) It raises Canadian GNP and U.S. GDP.
D) It raises Canadian and U.S. GNP.

Question 56

Greg, a Canadian citizen, works in the United States but lives with his family in Canada. How does his employment impact GDP and GNP?

A) He raises Canadian GDP because he spends part of his income in Canada.
B) He lowers U.S. GDP because he takes his income out of the U.S.
C) He raises Canadian GNP because he earns income abroad.
D) He lowers Canadian GNP because he earns income abroad.

Question 57

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 58

National income differs from net national product in that it includes business subsidies. What does national income exclude, as opposed to net national product?

A) profits of corporations
B) indirect business taxes
C) retained earnings of corporations
D) capital consumption allowance

Question 59

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 60

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

A) in Romanian GNP
B) in Canadian GDP
C) in Romanian GDP
D) in Japanese GDP

Question 61

Which of the following best defines retained earnings?

A) the part of income that households retain after paying taxes
B) the part of income that businesses retain after paying taxes
C) the part of income that corporations pay to their owners in the form of dividends
D) the part of income that corporations do not pay to their owners in the form of dividends

Question 62

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 63

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 64

Refer to the Table 5-2. What is the personal income for this economy?

A) $338
B) $349
C) $367
D) $417

Question 65

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 66

Which term refers to income that households and noncorporate businesses receive called?

A) disposable personal income
B) aggregate income
C) national income
D) personal income

Question 67

Refer to the Table 5-2. What is the disposable personal income for this economy?

A) $253
B) $263
C) $343
D) $353

Question 68

Refer to the Table 5-1. What is the GNP for this economy?

A) $190
B) $193
C) $207
D) $215

Question 69

How is disposable personal income best defined?

A) as the income that households have left after paying taxes and nontax payments to the government
B) as the income that businesses have left after paying taxes and nontax payments to the government
C) as the income that households and noncorporate businesses have left after paying taxes and nontax payments to the government
D) as the income that households and businesses have left after paying taxes and nontax payments to the government

Question 70

Refer to the Table 5-1. What is the NNP for this economy?

A) $164
B) $170
C) $183
D) $192

Question 71

Refer to the Table 5-1. What is the disposable personal income for this economy?

A) $124
B) $154
C) $164
D) $170

Question 72

Refer to the Table 5-2. What is the GNP for this economy?

A) $410
B) $435
C) $440
D) $460

Question 73

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 74

If the government reports that "GDP has increased at an annual rate of 6.0 percent for the fourth quarter of 2015," by how much has GDP increased?

A) 6.0 percent during 2015
B) 24.0 percent during 2015
C) 6.0 percent during the fourth quarter of 2015
D) 1.5 percent during the fourth quarter of 2015

Question 75

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 76

Refer to the Table 5-1. What is the personal income for this economy?

A) $154
B) $169
C) $170
D) $178

Question 77

Refer to the Table 5-2. What is the NNP for this economy?

A) $380
B) $388
C) $394
D) $405

Question 78

Refer to the Table 5-1. What is the national income for this economy?

A) $175
B) $185
C) $192
D) $215

Question 79

Refer to the Table 5-2. What is the national income for this economy?

A) $382
B) $392
C) $396
D) $398

Question 80

What does personal income include and exclude?

A) It includes retained earnings, corporate income taxes, and social insurance contributions, and excludes interest and transfer payments received by households from government.
B) It excludes retained earnings, corporate income taxes, social insurance contributions, and interest, and includes transfer payments received by households from government.
C) It excludes retained earnings, corporate income taxes, and social insurance contributions, and includes interest and transfer payments received by households from government.
D) It includes retained earnings, corporate income taxes, social insurance contributions, and interest, and excludes transfer payments received by households from government.