CHAPTER 4- Monitoring The Value Of Production: GDP

The components and robots for the Toyota auto assembly lines in Canada are built in Japan. Toyota assembles cars for the Canadian market in Ontario Choose the correct statement

The assembly line components and robots appear as imports in Canada's GDP

Which if the following increases Canadian GDP

The ice cream I buy from my grocery store

The largest component of GDP using the expenditure approach is

consumption expenditure

In the circular flow diagram, aggregate expenditure includes

consumption expenditure, investment, government expenditure and net exports

Real GDP

fluctuates around potential GDP

Which one of the following flows from firms to households?

goods and services

Which of the following is not correct?

Gross investment is the amount by which the value of capital increases.

Which of the following are equal to one another? I. aggregate production II. aggregate expenditure III. aggregate income

I equals II equals III.

The components and robots for the Toyota auto assembly lines in Canada are built in Japan. Toyota assembles cars for the Canadian market in Ontario Choose the incorrect statement

If any parts for the cars come from Japan, they are recored as a negative entry in calculation Japan's GDP

The underground economy is any economic activity that

Is hidden to avoid taxes and regulations because it is illegal

Net domestic income at market prices equals

all incomes plus indirect taxes minus subsidies.

Suppose the economy's capital increases over the year. It must be true that

net investment was positive.

The maximum level of real GDP that can be produced while avoiding shortages of labour, capital, land, and entrepreneurial ability that would bring rising inflation is

nominal GDP.

Which of the following statements by politicians is talking about the business cycle?

"Canadian unemployment is falling due to the upturn in the economy."

Refer to Fact 20.1.1. Peter's net investment in 2012 is

$1,500.

Refer to Figure, which shows the circular flow of expenditure and income for Venus. During 2012, A was $100, B was $50, C was $30 and D was $10. How much is net exports?

$10

Refer to Figure 20.1.1, which shows the circular flow of expenditure and income for Venus. During 2012, A was $100, B was $50, C was $30 and D was $10. What is aggregate income?

$100

Refer to Figure 4.1.1, which shows the circular flow of expenditure and income for Venus. During 2012, A was $100, B was $50, C was $30 and D was $10. How much is GDP?

$100

Refer to Figure 4.1.1, which shows the circular flow of expenditure and income for Venus. During 2012, A was $100, B was $50, C was $30 and D was $10. How much is aggregate expenditure?

$100

Suppose the economy of Econoworld produces only two goods, kayaks and birdseed. In one year 20 kayaks are produced and sold for $1,000 each and 10 bags of birdseed are produced and sold for $30 each. The value of nominal GDP for this year is

$20,300.

At the beginning of 2012, Peter's Perfectly Prickly Piercing Parlour had $5,000 worth of bellybutton and eyebrow rings on hand, 2 computers (each worth $1,000), 1 cash register worth $100, electrical equipment worth $500, and one piercing needle worth $500. At the end of 2012, they had $5,000 worth of bellybutton and eyebrow rings, a new high speed computer worth $3,000 (they had to throw out the old ones), the same cash register, which was now worthless, electrical equipment worth $600, and they had upgraded the needle at a cost of $700 which was valued at $1,000. Peter's depreciation in 2017 is

$2300

A south sea island produces only coconuts. In 2005, the price of a coconut is $2.00 and the quantity produced is 400. In 2012, the price of a coconut is $1.50 and the quantity produced is 350. 2005 is the reference base year. Real GDP in 2012 in terms of base-year prices is

$700.

Refer to Fact 20.1.1. Peter's capital at the beginning of 2017 is

$8,100

Refer to Fact 20.1.1. Peter's gross investment in 2017 is

$3,800.

Refer to Fact 20.1.1. Peter's capital at the end of 2017 is

$9,600

Which of the following relationships is correct?

Gross Investment = Net Investment + Depreciation

To measure GDP, Statistics Canada uses

-the expenditure approach. - the income approach.

Which of the following items would be included in a current measure of GDP?

A professional gardener who regularly cuts your lawn.

Given that pollution is a by-product of some production processes,

GDP tends to overstate economic well-being.

30) Suppose in current dollar terms, GDP increased by approximately 7 percent between one period and the next, but real GDP fell by 2 percent. Which one of the following explanations is most likely? A) Prices fell by 9 percent. B) Prices fell by 2 percent. C) Output rose by 2 percent. D) Prices increased by 7 percent. E) Prices increased by 9 percent.

E

3) Which of the following statements is true?

Final goods and services produced in Canada by foreigners are part of Canada's GDP.

An art collector recently sold a piece of pottery for $300. He had purchased it for $200 two years earlier. How will the most recent sale affect GDP?

GDP is unaffected

Why is the Human Development Index thought to be a better measure of economic well-being than real GDP per person?

It includes health and education measures, as well as real GDP per person.

Choose the correct statement.

Nominal GDP is just a more precise name for GDP.

In a given year, nominal GDP increases by approximately 7 percent, but real DGP falls by 2 percent. Which one of the following is most likely?

Price increased by 9 percent

Which one of the following would not be counted as part of this year's GDP?

The government bond you buy for your newborn niece

Which of the following adds to Canadian GDP?

The ice cream I buy from my grocery store.

Which of the following would be an example of a consumption expenditure?

The purchase of a new car by the Singh household.

Of the following items, which one would be considered as investment in the National Income and Expenditure Accounts?

The purchase of a new van by a potter who packs it with

The expenditure approach measures GDP by adding together

The total expenditures of consumers, firms, net exporters, and by governments at all levels.

Which one of the following is false?

Y = C + I + G + M - X

Which one of the following is true?

Y = C + I + G + X - M

Stock and bond sales are not included in GDP because they

are not goods and services.

Which one of the following is not an example of investment in the expenditure approach to measuring GDP? General Motors

buys shares in another company.

In calculating GDP, economists use the value of final goods and services because

by using final goods and services, they avoid double counting.

One of the reasons why real GDP grows is that

capital grows as a result of investment.

Suppose Mail Boxes Etc. buys a new copier for its store for $1,000. A year later, when the firm wants to upgrade to a new copier, it finds that the old copier is only worth $750. Over the year the copier was used, ________ has occurred.

depreciation

SaskWidget produces plastic parts. At the beginning of the year, they held $24 million worth of capital. At the end of the year, they held $20 million worth of capital. One can conclude that

depreciation exceeded gross investment by $4 million.

Net domestic income at market prices can be derived by which one of the following? GDP (income approach) minus

depreciation.

Which of the following is not a reason for GDP incorrectly measuring the value of total output?

environmental quality

Which approach to measuring GDP is being used when Statistics Canada sums spending on goods and services for consumer goods, government, business investments and exports, net of imports?

expenditure

Consumption expenditure includes only

expenditure by Canadian households on goods and services produced in Canada and in the rest of the world

For the aggregate economy, income equals

expenditure equals GDP.

8) Complete the following sentence. Net exports equals

exports minus imports.

In the National Income and Expenditure Accounts, government expenditure refers to spending on goods and services by

federal, provincial, and local governments.

In the circular flow model,

firms are sellers of goods and services in goods markets.

The change in capital from year to year is equal to

gross investment minus depreciation.

The purchasers in the goods markets are

households, firms, government, and those who import our goods.

The circular flow diagram illustrates the expenditures made by

households, firms, governments, and the rest of the world.

Nominal GDP will increase

if either the average level of prices rises or the quantity of goods and services produced increases.

What we produce during our working time is ________ as part of GDP and the enjoyment we gain from our leisure time is ________ as part of GDP.

included; not included

Government expenditure on goods and services

includes expenditure by all levels of government on goods and services

Wages, salaries, and supplementary labour income are components of which approach to measuring GDP?

income approach

Which approach to measuring GDP is being used when Statistics Canada sums wages, salaries and supplementary labour income, and other factor incomes?

income approach

In the Canadian economy, market prices and factor costs would be the same except for

indirect taxes and subsidies.

The purchase of a new home is categorized as

investment

The firm that printed your textbook bought the paper from XYZ Paper Mills. This purchase of paper ________ part of GDP because the paper is ________ good.

is not; an intermediate

The existence of which one of the following is not a reason for the fact that GDP gives an incorrect estimate of the value of total output in the economy?

leisure time

A common definition of recession is a period with .

negative growth rate in real GDP that lasts at least two quarters.

17) The sum of wages, salaries and supplementary labour income, and other factor incomes is

net domestic income at factor cost.

A bakery uses flour to produce bread. When calculating GDP, we include ________, because when we add the value of the flour to the value of the loaf of bread to calculate GDP, the result is ________.

only the value of the bread sold in a store; double counting

Which one of the following is an income flow from firms to households?

payments for factor services

Which one of the following is an expenditure flow from households to firms?

payments for goods and services

The business cycle is defined as the

periodic but irregular up-and-down movement of total production and other measures of economic activity.

21) Capital in year 2018 equals capital in year 2017

plus net investment.

If nominal GDP increased by 11 percent during a year while real GDP increased by only 5 percent, then the

price level increased by 6 percent.

Intermediate goods are

produced by one firm, bought by another firm, and used as a component of a final good or service.

Real GDP will increase only if the

quantity of goods and services produced increases.

If you want to investigate the claim that more goods and services were produced in the economy during 2017 than 2018, what should you look at?

real GDP

The four parts of the business cycle occur in the following order

recession, trough, expansion, peak.

To derive net domestic income at market prices from GDP,

subtract depreciation from GDP.

To obtain the factor cost of a good from its market price

subtract indirect taxes and add subsidies.

Which one of the following would be included in the calculation of GDP by the expenditure approach?

the cost of a new kitchen cupboards when you renovate your house

In recent history, real GDP has risen less rapidly than nominal GDP. This is because

the general price level rose.

Gross domestic product is

the market value of all the final goods and services produced in a country during a given time period.

Potential GDP is

the maximum amount of GDP that can be produced while avoiding shortages of labour, capital, land, and entrepreneurship that would bring rising inflation

From the following list, choose the item that would be included in a current measure of GDP.

the purchase of 10 litres of gasoline for your car

In calculating GDP, all of the following are excluded except

the value of all homes built in the year but not sold

Real GDP equals

the value of final goods and services produced in a given year when valued at the prices of a reference base year.

The value of intermediate goods is not counted in GDP

to avoid counting their value twice and overstating the value of GDP.

2) A hypothetical economy produced four final goods during the year: plates, TVs, bicycles, and computers. Forty plates were produced and sold for $10 each. Five TVs were produced and sold for $300 each. Fifty bicycles were produced and sold for $100 each. Three computers were produced and sold for $750 each. With this information, one could determine

total income

Since non-market exchanges are excluded from measures of GDP, the GDP measure tends to

underestimate the total production of an economy.

The existence of which one of the following is a reason for the fact that GDP gives an underestimated value of total output in the economy?

underground economy

Business cycles are

unpredictable, but always have two phases and two turning points.