Deck 5: Measuring a Nations Income

Question 1

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.

Answer 1

C

Question 2

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 the expenditure of an economy exceeds its income
D)that money "flows" from households to firms and not the other way around

Answer 2

A

Question 3

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

A)the unemployment rate
B)the inflation rate
C)GDP
D)the trade deficit

Answer 3

C

Question 4

In order to include many different products in an aggregate measure, how is GDP computed?

A)using values of goods based on surveys of consumers
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 5

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 6

Which of the following questions 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 7

In a simple circular-flow diagram, how are total income and total expenditure interrelated?

A)They are seldom equal because of the dynamic changes 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

In a simple circular-flow diagram, how are total income and total expenditures in an economy interrelated?

A)They are equal because firms re-invest their revenue.
B)They are equal only if there is no saving.
C)They never equal because some people's income does not come from production activities.
D)They are equal because every transaction has a buyer and a seller.

Question 9

How is GDP computed?

A)Add up the quantities of all final goods and services.
B)Add up the cost of producing final goods and services.
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 10

For which of the following purposes do economists use the tools of supply and demand?

A)for analyzing individual markets, but not the overall economy
B)for analyzing a small firm's decision making
C)for analyzing a consumer's decision making
D)for analyzing individual markets as well as the economy as a whole

Question 11

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 12

Which of the following headlines would be most closely related to what macroeconomists study?

A)Unemployment 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 13

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 14

Which of the following is the correct 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 15

What is the goal of macroeconomics?

A)to explain how economic changes affect prices of particular goods
B)to devise policies to deal with market failures, such as externalities and monopoly
C)to explain changes that affect households and firms in general
D)to explain how income taxes influence labour supply

Question 16

Which of the following topics are studied in macroeconomics?

A)national output, the inflation rate, and the trade deficit
B)the price of Cisco 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 17

In an economy consisting of only households and firms, how can GDP be computed?

A)by adding up the total expenditures of households and subtracting savings
B)by adding up the 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 total income paid by firms

Question 18

If Robert works as a lawyer, how should his contributions to GDP be calculated?

A)using his income from providing legal services, not his expenditure on goods and services
B)using his expenditure, not his income
C)using both his income and his expenditure
D)using either his income or his expenditure, not both

Question 19

According to the simple circular-flow model, which of the following do firms buy from households?

A)natural resources, such as oil and minerals
B)goods and services
C)inventions and innovations
D)labour

Question 20

What do macroeconomists study?

A)decisions of households and firms
B)economy-wide phenomena
C)the interaction of households and firms in markets
D)regulations of firms and unions

Question 21

If Susan decides to change the oil in her car herself instead of having Speedy Lube change the oil 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 22

Which of the following is NOT included in GDP?

A)unpaid cleaning and maintenance of houses
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 23

Roommates Grace and Kelly are sharing household chores and think they have an even exchange. Other things the same, 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

How is the value of housing service provided by the economy's stock of houses included in GDP?

A)It is not included in GDP since it is not sold on the market.
B)It is counted and is valued as the mortgage payment made on the house.
C)It is counted and uses only the purchase price of the house in the year it is sold.
D)It is counted and is based on an estimate of its rental value.

Question 25

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 26

Over the past few decades Canadians have chosen to cook less at home and eat more at restaurants. What effect has this practice had on 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 27

If Ralph pays someone to mow his lawn and Norton mows his own lawn, what is the impact on GDP?

A)The answer depends on what Norton reports to survey takers.
B)What Ralph pays to have his lawn mowed and the estimated value to Norton of mowing his own lawn are both included in GDP.
C)Neither what Ralph pays nor the estimated value of Norton's mowing is included in GDP.
D)Only what Ralph pays to have his lawn mowed is included in GDP.

Question 28

Which of the following non-market goods or services 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 illegal drugs

Question 29

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 30

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 31

Sally prepared her own meals during the first quarter of 2010, and then ate at restaurants every day in the second quarter of 2010. What is the impact on GDP of Sally's change of habit?

A)It necessarily raises GDP.
B)It necessarily reduces GDP.
C)It raises GDP because the restaurant meals are more expensive.
D)It has no impact on GDP.

Question 32

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 33

Suppose that an apartment complex converts to a condominium where the renters are now owners of their former apartments. What is included in GDP?

A)The rent was included in GDP; the purchases of the condominiums are not.
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.
D)The rent was not included in GDP; the purchases are not included either.

Question 34

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 35

How is flour treated in GDP terms?

A)It is counted as an intermediate good.
B)It is counted as an intermediate 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 counted as a final good.

Question 36

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 37

Suppose that an apartment complex converts to a condominium where the renters are now owners of their former apartments. Suppose that an estimate of 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 38

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 they are too difficult to measure.
D)They are included because they are final goods for the firm producing them.

Question 39

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 40

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 41

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 42

A Canadian company owns a fast food restaurant in Romania. Where is the value of goods and services it produces included?

A)in both Romanian and Canadian GDP
B)partly in Romanian GDP and partly in Canadian GDP
C)in Romanian GDP, but not Canadian GDP
D)in Canadian GDP, but not Romanian GDP

Question 43

How is NNP calculated?

A)by subtracting saving 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 44

George buys and lives in a newly constructed home he paid $200 000 for in 2010. He sells the house in 2011 for $225 000. How is GDP impacted?

A)The 2011 sale increases 2011 GDP by $225 000 and does nothing to 2010 GDP.
B)The 2011 sale increases 2011 GDP by $25 000 and does nothing to 2010 GDP.
C)The 2011 sale does not increase 2011 GDP and does nothing to 2010 GDP.
D)The 2011 sale increases 2011 GDP by $225 000, and 2010 GDP is revised upward by $25 000.

Question 45

Greg, a Canadian citizen, works only in the United States. How does the value added to production from his employment impact GDP and GNP?

A)It is included in both Canadian GDP and Canadian GNP.
B)It is included only in Canadian GDP.
C)It is included only in Canadian GNP.
D)It is not included in either Canadian GDP or Canadian GNP.

Question 46

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 47

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 is included in both Canadian GDP and Canadian GNP.
B)It is included only in Canadian GDP.
C)It is included only in Canadian GNP.
D)It is not included in either Canadian GDP or Canadian GNP.

Question 48

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)known illegal activities
D)goods produced by a Canadian company in France

Question 49

The local Chevrolet dealership has an increase in inventory of 25 cars in 2009. How will the sale of all 25 cars, in 2010, affect the GDP?

A)The value of the cars will be counted as part of GDP in 2009, but not in 2010.
B)The value of the cars will not affect the 2009 GDP, but will be included in 2010 GDP.
C)The value of the cars will be included both in 2009 and 2010 GDP.
D)The value of the cars will not be included in GDP in 2009 or 2010.

Question 50

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

Question 51

Which of the following 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)interest income from a savings account

Question 52

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

A)profits of corporations
B)indirect business taxes
C)retained earnings of corporations
D)depreciation

Question 53

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 54

Anna, a Canadian citizen, works only in Germany. How is the value added to production from her employment included in GDP?

A)It is only included in Canadian GDP.
B)It is only included in German GDP.
C)It is included in both German and Canadian GDP.
D)It is included in neither German nor Canadian GDP.

Question 55

In the national income accounts, what is depreciation called?

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

Question 56

Which of the following 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)the sale of an old piece of jewellery

Question 57

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 58

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 59

Which of the following is counted in Canadian GDP?

A)goods and services produced by Canadian citizens working in foreign countries
B)both the peaches used by a bakery to make peach pies and the peach pies
C)final goods and services purchased by the government
D)imported final goods and services purchased by Canadian government

Question 60

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 61

What is the income that households and non-corporate businesses receive called?

A)disposable personal income
B)proprietors' income
C)national income
D)personal income

Question 62

If Canadian GDP in the fourth quarter is $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 non-seasonally 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 63

Table 5-2

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

A)$380
B)$388
C)$404
D)$405

Question 64

Table 5-1

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

A)$154
B)$164
C)$170
D)$178

Question 65

Table 5-1

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

A)$164
B)$170
C)$178
D)$192

Question 66

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 67

Table 5-2

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

A)$420
B)$435
C)$440
D)$460

Question 68

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 69

The government reports that "GDP increased by 1.6 percent in the last quarter." What does this statement mean?

A)GDP increased by 6.4 percent for the year.
B)GDP increased at an annual rate of 6.4 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 70

Which of the following best defines disposable personal income?

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

Question 71

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.

Question 72

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 73

Table 5-1

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

A)$170
B)$185
C)$192
D)$215

Question 74

Table 5-1

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

A)$185
B)$193
C)$207
D)$215

Question 75

Table 5-1

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

A)$119
B)$154
C)$164
D)$170

Question 76

If the government reports that "GDP increased at an annual rate of 6.0 percent for the fourth quarter of 2010," by how much did GDP increase?

A)6.0 percent during 2010
B)24.0 percent during 2010
C)6.0 percent during the fourth quarter of 2010
D)1.5 percent during the fourth quarter of 2010

Question 77

Table 5-2

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

A)$417
B)$367
C)$349
D)$348

Question 78

Table 5-2

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

A)$353
B)$343
C)$278
D)$273

Question 79

Table 5-2

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

A)$386
B)$392
C)$396
D)$398

Question 80

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