Lecture 3

Question 1

Refer to Table 20-1.
What is the value of GDP, as calculated from the expenditure side?

A) $1982.60
B) $1986.00
C) $2584.40
D) $2285.20
E) $2010.00

Answer 1

D) $2285.20

Question 2

Suppose that nominal national income in some country increased by 10% during the year, when inflation was 5%. Therefore the real national income

A) rose by 5%.
B) fell by 10%.
C) fell by 5%.
D) was unaffected.
E) rose by 10%.

Answer 2

A) rose by 5%.

Question 3

Consider Canada’s GDP deflator and Consumer Price Index (CPI). Now suppose the prices of the following goods and services increased. Which is likely to have a larger effect on the GDP deflator than the CPI?

A) bananas
B) forest products
C) chocolate
D) Hollywood movies
E) consumer electronics

Answer 3

B) forest products

Question 4

Suppose national accounting was done by adding up the market values of all outputs of all firms. This approach would

A) obtain gross national product.
B) underestimate the value of production in the economy.
C) overestimate the value of production in the economy.
D) accurately reflect the value of production in the economy.
E) obtain gross domestic product.

Answer 4

C) overestimate the value of production in the economy.

Question 5

Consider the circular flow of income and expenditure in the Canadian economy. Which of the following is a withdrawal from the circular flow?

A) saving
B) government purchases
C) consumption
D) investment
E) exports

Answer 5

A) saving

Question 6

One major reason that GDP is an inaccurate measure of the true level of economic activity is that

A) it cannot be adjusted for changes in prices.
B) it includes net exports.
C) people frequently buy things they do not want.
D) it is statistically very inaccurate.
E) it does not include non-market activities.

Answer 6

B) it includes net exports.

Question 7

Refer to Table 20-5.
The nominal Gross Domestic Product in 2016 was

A) $1820.
B) $980.
C) $840.
D) $700.
E) $1740.

Answer 7

A) $1820.

Question 8

The term “investment” in macroeconomics means

A) the production of goods not for immediate consumption use.
B) the total amount of capital goods in the country.
C) money spent in markets for financial capital.
D) the production of goods for immediate consumption.
E) the same thing as profits.

Answer 8

A) the production of goods not for immediate consumption use.

Question 9

Consider the circular flow of expenditure and income in the Canadian economy. Which of the following is an injection into the circular flow?

A) consumption
B) taxes
C) investment
D) imports
E) saving

Answer 9

C) investment

Question 10

Consider a firm providing consulting engineering services. In determining this firm’s value added to national income, we would start with its total revenue and subtract the cost of (among other things)

1) hard hats for engineers;
2) executive compensation;
3) wages and benefits to in-house engineers.

A) 1 and 2
B) 1 and 3
C) 2 only
D) 1 only
E) 2 and 3

Answer 10

D) 1 only

Question 11

In national-income accounting, a reduction of inventories counts as

A) positive investment.
B) consumption.
C) depreciation.
D) negative investment.
E) saving.

Answer 11

D) negative investment.

Question 12

To calculate GDP from the income side, one must add together wages,

A) government income, interest, and profits.
B) consumption and depreciation.
C) investment, rent, depreciation, profits and indirect taxes net of subsidies.
D) interest, rent, depreciation, profits and indirect taxes net of subsidies.
E) net exports, depreciation, and profits.

Answer 12

D) interest, rent, depreciation, profits and indirect taxes net of subsidies.

Question 13

If a firm’s depreciation exceeds its gross investment, then its

A) capital stock will be growing.
B) net investment will be positive.
C) gross investment will be negative.
D) capital stock will be shrinking.
E) depreciation cannot exceed gross investment.

Answer 13

D) capital stock will be shrinking.

Question 14

Refer to Table 20-5.
The real GDP in 2016, expressed in 2015 prices, was

A) $1010.
B) $970.
C) $700.
D) $1740.
E) $840.

Answer 14

A) $1010.

Question 15

Why are illegal activities, unreported activities, and non-market activities excluded from GDP?

A) They do not contribute to human welfare.
B) They do not have an opportunity cost.
C) They are difficult to measure.
D) The do not contribute to the true national output of goods and services.
E) They are morally repugnant.

Answer 15

C) They are difficult to measure.

Question 16

Which of the following statements about depreciation is correct?

A) Depreciation includes net additions to the economy’s total stock of capital.
B) Depreciation is equal to net investment.
C) The total amount of capital goods in a country is called depreciation.
D) Net investment is equal to gross investment plus depreciation.
E) Net investment is equal to gross investment minus depreciation.

Answer 16

E) Net investment is equal to gross investment minus depreciation.

Question 17

The “value added” for an individual firm can be calculated by

A) adding up the payments made to the factors of production used by the firm.
B) adding the cost of the intermediate goods used by the firm.
C) subtracting the payments made to the factors of production used by the firm from the firm’s revenue.
D) calculating the profit generated by the firm.
E) calculating the revenue generated by the firm.

Answer 17

A) adding up the payments made to the factors of production used by the firm.

Question 18

Consider Canada’s GDP deflator and Consumer Price Index (CPI). Now suppose the prices of the following goods and services increased. Which is likely to have a larger direct effect on the CPI than the GDP deflator?

A) lumber
B) car parts
C) consumer electronics
D) engineering services
E) aircraft engines

Answer 18

C) consumer electronics

Question 19

Which of the following would be included in the consumption expenditure component of GDP?

A) export sales of snowmobiles
B) government expenditure for highway construction
C) a municipal government’s purchase of new desks for city council chambers
D) the increase in inventories at lumber mills
E) expenditure by a firm for architectural services

Answer 19

E) expenditure by a firm for architectural services

Question 20

When calculating GDP from the expenditure side, “actual consumption expenditures” includes

A) the monthly rental of an apartment.
B) increases in automobile inventories.
C) the purchase of a new house.
D) American tourists travelling to and spending in Canada.
E) the construction of an apartment building.

Answer 20

A) the monthly rental of an apartment.

Question 21

A country’s computed GDP deflator
1) excludes the changes in the price of imported goods;
2) is less relevant than the measured CPI for the typical consumer;
3) is set to be equal to 100 in its base year.
Question 9 options:

A) 1, 2, and 3
B) 2 and 3
C) 1 and 3
D) 2 only
E) 1 only

Answer 21

A) 1, 2, and 3

Question 22

Measures of GDP may understate the economic well-being of people in developing countries if those countries tend to

A) import much more than they export.
B) emphasize agricultural and resource-based production.
C) have a large share of nonmarket activities.
D) have a high degree of foreign direct investment.
E) have very high rates of pollution.

Answer 22

C) have a large share of nonmarket activities.

Question 23

When adding up the value of all goods produced in the economy, double counting can be avoided if only the ________ is included.

A) cost of intermediate goods and services
B) revenue of all goods and services
C) value of intermediate goods and services
D) value of final good and services
E) revenue of intermediate goods and services

Answer 23

D) value of final good and services

Question 24

Refer to Table 20-5. The implicit GDP deflator in 2016, when 2015 is used as the base year, was approximately

A) 193.
B) 203.
C) 180.
D) 105.
E) 160.

Answer 24

C) 180.

Question 25

In Shoetown, a rancher takes $0 worth of inputs and produces animal skins, which he sells to the tanner for $400. The tanner then sells leather to the shoemaker for $700, and the shoemaker then sells $1200 worth of shoes. The value added from these transactions is

A) $1000.
B) $2500.
C) $2300.
D) $1200.
E) $800.

Answer 25

D) $1200.