Deck 4: GDP: Measuring Total Production and Income

Question 1

In the circular flow model, the value of total production for an economy ________ the value of total expenditures on final goods and services.

A)equals
B)is greater than
C)is less than
D)may be greater than or less than
E)is unrelated to

Answer 1

equals

Question 2

Value added equals the market price of the firm's product minus

A)wages and salaries.
B)the price of intermediate goods.
C)the price of all factors of production.
D)depreciation on plant and equipment.
E)taxes paid to government.

Answer 2

the price of intermediate goods.

Question 3

In the first half of 2015, the Canadian economy slowed down.This slowdown was caused mostly by

A)a fall in the price of natural resources
B)a slow down in the US economy.
C)a reduction in advertising.
D)declining quality of service.
E)falling consumption spending.

Answer 3

a fall in the price of natural resources

Question 4

In the circular flow model, the value of total income for an economy ________ the value of total production.

A)equals
B)is greater than
C)is less than
D)may be greater than or less than
E)is unrelated to

Question 5

In calculating gross domestic product, Statistics Canada uses the sum of the market value of final goods and services produced.This means that Statistics Canada

A)simply counts the total number of goods produced in the market place and then adds them up.
B)values goods at their market prices, multiplies them by the quantity produced, and then adds them up.
C)simply counts the total number of goods and services produced in the marketplace and then adds them up.
D)values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.
E)values goods based on surveys of Canadian people, in which they're asked to value different products, multiplies the resulting values by the quantities produced and then adds them up.

Question 6

The nominal GDP of Canada in 2015 was approximately $1.99 trillion.This means that

A)the value of output in 2015 was around $1.99 trillion.
B)total income in 2015 was around $1.99 trillion.
C)total spending in 2015 was around $1.99 trillion.
D)All of the above are true.

Question 7

During a business cycle expansion, total production ________ and total employment ________.

A)increases; increases
B)increases; decreases
C)decreases; increases
D)decreases; decreases
E)remains constant; decreases

Question 8

Which of the following goods is directly counted in GDP?

A)the lettuce that Subway purchases for its sandwiches
B)the bread that Subway purchases for its sandwiches
C)a 12-inch Subway sandwich purchased by a student
D)the plastic bags that Subway purchases to wrap its sandwiches
E)the rent paid by the Subway franchise owner for their restaurant

Question 9

Table 4.1
Refer to Table 4.1.Suppose that a simple economy produces only four goods and services: sweatshirts, dental examinations, coffee drinks, and coffee beans.Assume all of the coffee beans are used in the production of the coffee drinks.Using the information in the above table, nominal GDP for this simple economy equals

A)$114.50.
B)3,090 units.
C)$7,250.
D)$8,750.
E)$9,750.

Question 10

Macroeconomics, as opposed to microeconomics, includes the study of what determines the level of

A)employment in a specific industry.
B)employment in the economy.
C)output of a specific firm.
D)output of a specific industry.
E)prices of key natural resources.

Question 11

Which of the following would be directly counted in GDP in 2017?

A)kitchen cabinets purchased from Lowes in 2017 to be installed in a house built in 1997
B)kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a brand new country-style home
C)kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a farm house built in 1950
D)kitchen cabinets purchased from Home Depot installed in a newly constructed house
E)none of the above

Question 12

Which of the following is not directly counted in GDP?

A)investment expenditures
B)government purchases
C)intermediate goods
D)consumer goods
E)net exports

Question 13

Gross domestic product is calculated by summing up

A)the total quantity of goods and services in the economy.
B)the total quantity of goods and services produced in the economy during a period of time.
C)the total market value of goods and services in the economy.
D)the total market value of final goods and services produced in the economy during a period of time.
E)the total value of all goods and services produced by a countries people during a period of time.

Question 14

Suppose, in 2018, you purchased a house built in 2010.Which of the following would be included in the gross domestic product for 2018?

A)the value of the house in 2018
B)the value of the house in 2010
C)the value of the house in 2018 minus depreciation
D)the value of the services of the real estate agent
E)the value of the down payment you made on the mortgage

Question 15

Table 4.2
Refer to Table 4.2.Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and ketchup.Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households.Using the information in the above table, nominal GDP for this simple economy equals

A)$7,400.
B)$6,400.
C)$5,800.
D)2,440 units.
E)$83.00.

Question 16

Which of the following headlines would be more closely related to what macroeconomists study than what microeconomists study?

A)Apple Prices Rise due to an Early Frost in Ontario
B)The Canadian Auto Workers Sign a Contract Raising Wages and Benefits 7% Over the Next 3 Years
C)Real GDP Grows by 2.3% in the Second Quarter
D)Airlines Raise Ticket Prices in Response to Rising Fuel Costs
E)Toyota Closes its Cambridge Production Facility

Question 17

Which of the following transactions represents the purchase of a final good?

A)Tim Hortons purchases coffee beans.
B)WestJet buys a new European-made jetliner.
C)Blackberry buys computer processors from Intel.
D)Your father buys a new John Deere riding lawn mower.
E)Pearson buys several tonnes of paper to print text books.

Question 18

In the first half 2015 some Canadian businesses outside the natural resource sector saw a slow down in orders, these businesses were experiencing the effects of

A)deflation.
B)the underground economy.
C)the business cycle.
D)depreciation.
E)global warming.

Question 19

Macroeconomics seeks to understand

A)economic growth, business cycles, and inflation.
B)industry sales, marketing strategies and corporate growth.
C)product demand, product cost, and profit maximization.
D)public choices, private choices, and consumer maximization.
E)the structure of international supply chains.

Question 20

Macroeconomics, as opposed to microeconomics, includes the study of what determines the

A)average price levels of goods and services in the economy.
B)price charged for laptop computers by Dell.
C)wages paid to employees by Dell.
D)quantity of Dell employees.
E)the prices of substitutes for computers.

Question 21

In 2017, Kendall Ford, an automobile dealership, spent $20,000 on a new car lift for its repair shop, $2,000 on a new copy machine for its sales division, and $600,000 on Ford Motor company stock.Unsold cars and trucks were valued at $400,000 on January 1, 2017, and unsold cars and trucks were valued at $900,000 on December 31, 2017.What is Kendall Ford's total investment spending in 2017?

A)$22,000
B)$322,000
C)$522,000
D)$620,000
E)$1,022,000

Question 22

The purchase of a new house is included in

A)consumption expenditures.
B)investment expenditures.
C)government purchases.
D)exports.
E)imports.

Question 23

An example of business fixed investment spending is

A)a purchase of a home by a household.
B)a purchase of a computer by an accounting firm.
C)a purchase of a bond by General Electric Corporation.
D)$200 million of unsold cars at a car dealership.
E)a purchase of shares in Bombardier.

Question 24

To calculate GDP by the expenditure method, one must add

A)wages, rents, interest, and profits.
B)final consumption spending, gross fixed capital formation, investment in inventories, and net exports.
C)final consumption spending, net fixed capital formation, government spending and exports.
D)labour, natural resources, entrepreneurship, and capital.
E)final consumption spending, wages, income taxes, and fixed capital formation.

Question 25

What is the largest component of spending in Canada?

A)final consumption spending
B)gross fixed capital formation
C)government purchases
D)spending on inventories
E)inventory investment

Question 26

In 2015, which component of GDP had a negative value?

A)consumption
B)investment
C)government spending
D)net exports
E)imports

Question 27

The factors of production include

A)wages.
B)capital.
C)investment.
D)transfers.
E)money.

Question 28

The purchase by a foreign government of an airplane produced in Canada is included in Canadian

A)consumption expenditures.
B)investment expenditures.
C)government purchases.
D)net exports.
E)consumer spending.

Question 29

In Canada, household spending on consumption as a percentage of GDP is

A)lower than most other countries.
B)higher than most other countries.
C)the highest among OECD countries.
D)the lowest among OECD countries.
E)slightly below average among OECD countries.

Question 30

The statistical discrepancy captures

A)small errors in the original data.
B)the probability of the income approach being incorrect.
C)mismeasurement due to poor definitions.
D)uncertainty over household spending.
E)the size of the underground economy.

Question 31

The purchase by a household in China of a CD produced in Canada is included in Canadian

A)consumption expenditures.
B)investment expenditures.
C)government purchases.
D)net exports.
E)it is not included in Canadian accounts.

Question 32

The purchase of a new automobile is included in

A)consumption expenditures on services.
B)consumption expenditures on nondurable goods.
C)consumption expenditures on durable goods.
D)investment expenditures.
E)household savings.

Question 33

Table 4.1.1
Refer to Table 4.1.1. Based on the information provided, what is GDP in this economy using the income approach?

A)$1,700 million
B)$1,750 million
C)$3,006 million
D)$3,656 million
E)$4,256 million

Question 34

Which of the following would not be included in compensation of employees when calculating GDP using the income approach?

A)The wage the owner of a small business pays themselves.
B)Canada Pension Plan (CPP)premiums paid by an employer.
C)Wages and salaries paid to workers.
D)The cost of a health insurance plan that a corporation buys for its employees.
E)The cost of payroll taxes.

Question 35

Which of the following would not be included in final consumption when calculating GDP using the expenditure approach?

A)furniture
B)automobile
C)a house
D)refrigerator
E)clothing

Question 36

Investment, as defined by economists, would include the purchase of a

A)corporate bond.
B)government bond.
C)share of stock in SunCor.
D)computer by an accounting firm.
E)work of art you expect to increase in value.

Question 37

Which of the following is not a category used in the Income Approach to calculating GDP?

A)Net exports
B)Compensation of employees
C)Taxes minus subsidies
D)Gross operating surplus
E)Gross mixed income

Question 38

Which of the following is not an example of a transfer payment?

A)employment insurance payments
B)the government's contribution to a teacher's pension plan
C)social program payments to retirees
D)social program payments to disabled persons
E)government payments to parents with small children

Question 39

Investment, as defined by economists, would not include which of the following? Ford

A)buys a new robotic machine (from a plant in Ontario)to assemble cars.
B)adds 1,000 new cars to inventories.
C)builds another assembly plant in Oakville, Ontario.
D)buys Canadian government bonds.
E)buys new computers for its human resources department.

Question 40

In 2015, Canadian household spending accounted for ________ of GDP.

A)70 percent
B)56 percent
C)30 percent
D)46 percent
E)25 percent

Question 41

If the value added of a firm is positive, will the firm necessarily have positive profits?

Question 42

In the circular flow diagram, the value of all the income in the economy is greater than the value of goods and services produced in the economy.

Question 43

Residential investment includes spending by firms on office buildings.

Question 44

Gross domestic product in the economy is measured by the

A)total number of goods and services produced in the economy.
B)dollar value of all final goods and services produced in the economy.
C)total number of goods produced in the economy.
D)total number of services produced in the economy.
E)dollar value of all goods (but not services)produced in the economy.

Question 45

Table 4.3
Refer to Table 4.3.Consider the data above (in billions of dollars)for an economy: Gross domestic product (in billions of dollars)for this economy equals

A)$2,200.
B)$1,600.
C)$1,400.
D)$1,200.
E)$800.

Question 46

American in data on consumption includes which of the following that wouldn't be included in Canadian consumption?

A)purchases of new houses
B)business travel
C)purchases of sports equipment
D)expenditures on health care
E)purchases of new homes

Question 47

Why do we not count the value of intermediate goods and services in gross domestic product?

Question 48

Scenario 4.1
CANOES-R-US makes canoes.It buys the shell of the canoe from another firm for $300 and uses its labour and intermediate goods to make the canoe.It sells the finished canoe to a retail canoe store for $800.The retail canoe store then sells the canoe to a consumer for $1,200.
Refer to Scenario 4.1.The value of each canoe in gross domestic product equals

A)$1,200.
B)$800.
C)$500.
D)$400.
E)$300.

Question 49

Table 4.4
Refer to Table 4.4.Consider the data above (in billions of dollars)for an economy: Based on the expenditure approach in macroeconomic models, gross domestic product (in billions of dollars)for this economy equals

A)$2,200.
B)$2,100.
C)$1,600.
D)$1,400.
E)$800.

Question 50

How can a firm have a negative valued added, as supposedly some state-owned businesses did in the former Soviet Union? What has to be true for value added to be negative?

Question 51

Table 4.5 Consider the table above showing three stages of production of an automobile.
Refer to Table 4.5.The value of each automobile in gross domestic product equals

A)$7,000.
B)$10,000
C)$15,000.
D)$18,000.
E)$25,000.

Question 52

Which of the following is not true about the composition of Canadian GDP in 2015?

A)The majority of consumer spending is on durable goods.
B)Purchases made by government are larger than investment spending.
C)Imports are greater than exports.
D)Business fixed investment is the largest component of investment.

Question 53

Table 4.6
Refer to Table 4.6.Suppose that a simple economy produces only four goods and services: iPods, t-shirts, bottled water, and oranges.Calculate nominal GDP for this simple economy.

Question 54

Scenario 4.1
CANOES-R-US makes canoes.It buys the shell of the canoe from another firm for $300 and uses its labour and intermediate goods to make the canoe.It sells the finished canoe to a retail canoe store for $800.The retail canoe store then sells the canoe to a consumer for $1,200.
Refer to Scenario 4.1.The value added of CANOES-R-US for each canoe equals

A)$1,200.
B)$800.
C)$500.
D)$400.
E)$300.

Question 55

Table 4.7
Refer to Table 4.7.Suppose that a simple economy produces only four goods and services: sweaters, CDs, sugar, and soft drinks.Assume one half of the sugar is used in making the soft drinks and the other half of the sugar is purchased by households.Calculate nominal GDP for this simple economy.

Question 56

The sum of the value added of every firm involved in producing all final goods and services ________ gross domestic product.

A)equals
B)is greater than
C)is less than
D)is sometimes greater than and other times less than
E)is unrelated to

Question 57

People complain that inflation increases the cost of goods and services and therefore reduces their purchasing power.If inflation and income grow at the same rate, is this complaint valid? Explain carefully.

Question 58

Table 4.5 Consider the table above showing three stages of production of an automobile.
Refer to Table 4.5.The value added by the automobile dealer equals

A)$7,000.
B)$10,000
C)$15,000.
D)$18,000.
E)$25,000.

Question 59

When consumers are less confident about their jobs or incomes, they are more likely to

A)reduce purchases of durable goods than nondurable goods.
B)reduce purchases of nondurable goods and increase purchases of durable goods.
C)increase investment spending and decrease consumption spending.
D)increase consumption spending and decrease investment spending.
E)reduce savings for the future.

Question 60

High-income countries such as Canada spend a greater amount on services as compared to goods.

Question 61

Rona sells new and used doors to contractors who build new homes.Rona also sells new and used doors to homeowners.Which of the following would be counted in GDP?

A)the sale of a used door to a homeowner
B)the sale of a new door to homeowner
C)the sale of a used door to TapKon construction for installation into a new home
D)the sale of a new door to TapKon construction for installation into a new home
E)None of these sales are counted in GDP.

Question 62

An example of an intermediate good would be

A)a new car.
B)a used car.
C)the rims on a new car.
D)new rims to replace old rims on a used car.
E)the wages earned by a mechanic repairing your bent rims.

Question 63

One American study found that college students who graduate during a recession have to search longer for a job and end up accepting jobs that, on average, pay ________ than jobs accepted by students who graduate during expansions.

A)50 percent less
B)10 percent less
C)roughly the same
D)7 percent more
E)10 percent more

Question 64

A car that is produced in 2018 is not sold until 2019.According to the definition of GDP, in which year's GDP should it be counted?

A)2018
B)2019
C)Half of the sales price will count as part of 2018 GDP and half will count as part of 2019 GDP.
D)The production cost will count as part of 2018 GDP while the sales price will count as part of 2019 GDP.
E)It should not be counted in either years' GDP.

Question 65

An example of an intermediate good would be

A)the bread that goes into a sub sandwich that is sold by Mr.Sub.
B)the soda pop sold by Mr.Sub.
C)a sub sandwich sold by Mr.Sub.
D)the potato chips sold by Mr.Sub.
E)a Mr.Sub sandwich sold to a construction worker on their lunch break.

Question 66

In comparing China to the United Kingdom, China's relatively ________ growth rate in GDP would make you more likely to take a job in China, and China's relatively ________ level of GDP would make you less likely to take a job in China.

A)high; low
B)high; high
C)low; low
D)low; high
E)stable; volatile

Question 67

Which of the following is not included in gross operating surplus?

A)the depreciation of your university's photocopier
B)the profits net of depreciation of Bombardier
C)the depreciation of a United Way sign
D)the purchase of new equipment by the government

Question 68

Which of the following are included in gross domestic product for an economy in a given year?

A)the value of intermediate goods produced in that year
B)the value of used goods sold in that year
C)the value of final goods produced in that year
D)the value of stocks and bonds sold to finance the building of new factories
E)All of the above would be included in gross domestic product for an economy in a given year.

Question 69

In the circular flow diagram, ________ supply the factors of production and ________ goods and services.

A)households; sell
B)households; buy
C)firms; sell
D)firms; buy

Question 70

An example of a final good would be

A)the sugar sold to Tim Hortons.
B)the whipped cream sold to Tim Hortons.
C)an extra-large double-double sold by Tim Hortons to a student.
D)the coffee beans sold to Tim Hortons.
E)the paper cups sold to Tim Hortons.

Question 71

A transfer payment is a payment by the government to an individual

A)for a service.
B)for an investment good.
C)for a consumption good.
D)for which the government does not receive a good or service in return.
E)for a debt owed.

Question 72

Which of the following transactions would be included in the official calculation of GDP?

A)A student buys a used textbook at the bookstore.
B)Magna sells $2 million worth of seats to General Motors.
C)You wash and wax your father's car as a favour to him.
D)You buy a new iPod.
E)You illegally download music off the Internet to put on your new iPhone.

Question 73

Government spending ________ is included in gross domestic product.

A)at federal, provincial, and local levels of government
B)at the federal level of government only
C)at provincial and local levels of government only
D)on defense goods only
E)at the local level only

Question 74

An example of a transfer payment is

A)a teacher's paycheque.
B)a paycheque for a member of the Royal Canadian Air Force.
C)an Old Age Security Payment.
D)a purchase of a new bridge to PEI.
E)federal income taxes collected in Saskatchewan.

Question 75

________ is/are the payment for the ________ factor of production.

A)Wages; capital
B)Interest; labour
C)Profit; entrepreneurship
D)Rent; capital
E)Taxes; government

Question 76

How are intermediate goods treated in the calculation of GDP?

A)Their value is not counted separately, but included as part of the value of the final good for which they are an input.
B)Their value is counted separately, and their value is also included as part of the value of the final good for which they are an input.
C)Their value is counted separately, but is not included as part of the value of the final good for which they are an input.
D)They are included only if they are imported.
E)Their value is deducted from the value of final goods and services.

Question 77

Investment spending includes spending on

A)stocks.
B)food.
C)changes in business inventories.
D)transfer payments.
E)bonds.

Question 78

A final good is one that

A)is used in the production of another good.
B)is a natural resource used to produce a good.
C)is purchased as an input in the production process.
D)is purchased by its final user.
E)the output of any production process.

Question 79

Which of the following are not considered part of government purchases?

A)Employment Insurance payments
B)teachers' salaries paid by a provincial government
C)a tank purchased by the federal government
D)a bridge purchased by the local government
E)new uniforms for the RCMP

Question 80

Final consumption expenditures do not include household purchases of

A)dental care.
B)social workers salaries.
C)road construction.
D)clothing purchases by households.
E)medication.