Chapter 20

To calculate GDP from the income side, one must add together wages, A) interest, rent, depreciation, profits and indirect taxes net of subsidies. B) consumption and depreciation. C) investment, rent, depreciation, profits and indirect taxes net of subsidies. D) net exports, depreciation, and profits. E) government income, interest, and profits.

A

Total value added in an economy is equal to the value of A) all final goods produced. B) all profits of all firms in the economy. C) the sum of the value of primary, intermediate and final goods. D) all final and intermediate goods produced. E) all inputs and outputs in the economy.

A

When computing GDP from the expenditure side, which of the following items is excluded from the government component? A) employment-insurance benefits B) costs of Parliamentary Committees C) salaries to Canadian Forces officers D) purchases of land by the government E) operating costs of the Canadian Coast Guard

A

Historically, nominal GDP has increased faster than real GDP because A) the general price level has increased. B) improvements in product quality have not been reflected in prices. C) imports have risen more rapidly than exports. D) exports have risen more rapidly than imports. E) the general price level has fallen.

A

In national-income accounting, the value of intermediate products A) should be subtracted from the value of final goods in determining a firm's total value added. B) must equal the value added by the firm. C) should be added to the value of other inputs in determining a firm's contribution to GDP. D) is counted as factor income in the calculation of GDP from the income side. E) should always be counted as part of GDP in the expenditure approach.

A

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 is statistically very inaccurate. C) it does not include non-market activities. D) people frequently buy things they do not want. E) all of the above

C

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) have very high rates of pollution. C) have a high degree of foreign direct investment. D) have a large share of nonmarket activities. E) emphasize agricultural and resource-based production.

D

If a firm's depreciation exceeds its gross investment, then its A) capital stock will be growing. B) depreciation cannot exceed gross investment. C) net investment will be positive. D) gross investment will be negative. E) capital stock will be shrinking.

E

In national-income accounting, "depreciation" refers to A) the increase in the economy's stock of capital per year. B) the amount by which the capital stock is depleted during the accounting period. C) the difference between gross investment and net investment. D) a term used in accounting, not economics. E) both B and C are correct.

E

In the national income and product accounts, a reduction of inventories counts as A) depreciation. B) consumption. C) positive investment. D) saving. E) negative investment.

E

Gross domestic product is the sum of factor incomes ________ indirect business taxes, ________ subsidies, ________ depreciation. A) plus; minus; minus B) minus; plus; plus C) plus; minus; plus D) plus; plus; plus E) plus; plus; minus

C

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 $1 200 worth of shoes. The value added by the tanner is A) $1200. B) $400. C) $300. D) $0. E) $500.

C

The best measure of total income received by Canadian citizens is A) nominal GDP. B) net domestic income at factor cost. C) GNP. D) real GDP. E) disposable personal income.

C

All goods and services produced by one firm but used as inputs into a further stage of production are called A) national income goods. B) value added. C) final goods. D) intermediate goods. E) consumption goods.

D

One reason that GDP tends to understate the economic well-being of the country's residents is that it ignores the A) benefits of increased leisure time. B) incomes of police officers whose labour reduces the impact of illegal activity. C) legal expenditures from people who earn their incomes from criminal activity. D) the incomes earned by Members of Parliament. E) incomes and value added by employees of used car lots.

A

An example of a transfer payment is A) government spending on military equipment. B) pensions paid from the Canada Pension Plan. C) private firms' payments of dividends. D) government payments of salaries to schoolteachers. E) government payments of salaries to Members of Parliament.

B

Suppose you are hired as a consultant to estimate the increase in consumer demand for automobiles for the coming year. Which measure of aggregate income would be most useful to you for this type of forecasting? A) Net National Product B) Disposable Income C) Gross National Product D) Gross Domestic Product E) GDP Deflator

B

Which of the following would be classified as "investment" in the national income and product accounts? A) The holding of money B) The purchase of a government bond C) The construction of a new factory D) The purchase of Telus stock E) The payment of real-estate fees

C

GDP from the expenditure side is equal to the sum of A) Ca + Ia + Ga + (IMa - Xa). B) Ca + Ia + Ga + (Xa - IMa). C) Ca + Ia + Ga - net exports. D) Ca + Ia + Ga. E) Ca + Ia + net exports.

B

In national-income accounting, a rise in Ga will be recorded (other things being equal) if A) the total salaries paid to civil servants rise. B) labour productivity in the government sector rises. C) output of government-produced goods and services increases. D) wages in the government sector fall. E) the government's purchases of office furniture falls.

A

In national-income accounting, changes in inventories are A) classified as part of current actual investment. B) referred to as intermediate goods. C) not included in the national accounts. D) included under actual consumption expenditures. E) described as actual fixed investment.

A

Suppose that the nominal national income in some country fell from 100 to 95 during the year. Over the same period, inflation was 5 percent. Therefore the real national income in this country A) fell by 10 percent. B) fell by 5 percent. C) was unaffected. D) rose by 5 percent. E) rose by 10 percent.

A

Consider a firm producing skateboards in one factory. In determining this firm's value added, we would start with its total revenue and subtract the cost of each of the following, EXCEPT A) the wheels and bearings B) salaries to the firm's cleaning staff C) computers for the office staff D) the wood for the base of the board E) electricity used in the factory

B

Which of the following is included in current calculations of GDP? A) The purchase of a vintage automobile B) Computers produced here and exported to Europe C) Welfare payments D) Volunteer work E) The value of vegetables from a home garden

B

Which of the following pairs are conceptually identical? A) Personal income and personal disposable income B) Gross domestic product and gross domestic expenditure C) Gross domestic product and personal disposable income D) Gross national product and gross domestic product E) Personal income and labour income

B

In macroeconomics, the term "capital goods" refers to A) money. B) all factors of production. C) man-made factors of production, such as tools, machines, and factory buildings. D) the financial resources necessary to start a firm. E) stocks and bonds.

C

One major reason that GDP is an inaccurate measure of the "quality of life" is that A) it cannot be adjusted for changes in prices. B) it is statistically very inaccurate. C) it does not include the value of leisure. D) people frequently buy things they do not want. E) all of the above

C

The change in the country's capital stock during a year is equal to A) capital consumption allowance. B) gross fixed investment. C) net investment. D) net change in inventories plus capital consumption allowance. E) gross investment.

C

Transfer payments are excluded from the government component in the calculation of GDP because A) it is difficult to assess the market value of a transfer payment. B) they are not counted as income by any economic agent. C) they do not represent the purchase of a good or a service. D) they are small enough to ignore when computing the national accounts. E) they do not generate additional income in the economy.

C

When calculating GDP from the expenditure side, Ga comprises A) only purchases of goods and not services. B) only expenditures made by the federal government. C) government purchases of goods and services, excluding transfer payments. D) government expenditures on goods and services, including transfer payments. E) only expenditures made by provincial and local governments.

C

An example of a transfer payment is A) government payments of salaries to Members of Parliament. B) government payments of salaries to police officers in the vice squad. C) private firms' payments of dividends. D) payments to senior citizens from Old Age Security (OAS). E) government spending on military equipment.

D

Of the following possibilities, the best measure of the average material living standards of domestic residents is A) per capita net exports. B) GDP. C) GNP. D) per capita GNP. E) per capita GDP.

D

How does net domestic income differ from gross domestic product? Net domestic income is GDP minus A) that part of it not actually paid to households, plus transfer payments to households. B) that part of it not actually paid to households, minus personal income taxes paid by households. C) that part of it not actually paid to households, plus transfer payments to households, minus personal taxes paid by households. D) the sum of corporate, personal and sales taxes paid to the government. E) replacement investment.

E

If nominal GDP in some year is $3800 and the GDP deflator for the same year is 152, then the real GDP for that year is A) $3500. B) $3800. C) $2280. D) $5776. E) $2500.

E

Suppose a Canadian firm imports $1 000 worth of bananas and sells them for $2 000. The effect on Canadian GDP would be A) to decrease the value of GDP by $3 000. B) to increase the value of GDP by $1 000. C) no effect on GDP since the bananas were produced outside Canada. D) to increase the value of GDP by $3 000. E) to increase the value of GDP by $2 000.

B

A country's computed GDP deflator A) is set to be equal to 100 in its base year. B) excludes the changes in the price of imported goods. C) is a measure that gives an overall idea about the changes in prices in an economy. D) is less relevant than the measured CPI for the typical consumer. E) all of the above

E

In national-income accounting, government expenditures on the salaries of civil servants are included at A) the market value of the goods and services they produce B) their imputed market value. C) opportunity cost. D) their after-tax salaries. E) their pre-tax salaries, or factor incomes.

E

Suppose that in 2000, Canada Cars Corporation produced $20 million worth of cars and trucks but was able to sell only $16 million worth. Is the remaining $4 million increase in inventories part of GDP for 2000? 1. Yes, since changes in inventories are part of consumption expenditures. 2. Yes, since they are part of the economy's output in 2000. 3. Yes, since changes in inventories are part of actual investment. A) 1 only B) 2 only C) 3 only D) both 1 and 2 E) both 2 and 3

E

When calculating GDP from the expenditure side, "actual consumption expenditures" includes A) increases in automobile inventories. B) the purchase of a new house. C) American tourists travelling to and spending in Canada. D) the construction of an apartment building. E) the monthly rental of an apartment.

E

An example of an item that would be excluded from a measure of GDP from the expenditure side is A) government pension payments to a retired person. B) a new truck purchased by a furniture-delivery company. C) the purchase of windows by an automobile assembly plant. D) the purchase of a tattoo for Mary Smith's ankle. E) fertilizer purchased by Farmer Jones to increase crop yields.

A

Disposable personal income A) is the part of national income that is available to households to spend or save. B) equals personal income, minus personal income taxes, plus transfer payments and interest on public debt. C) includes capital consumption allowances. D) includes undistributed corporate profits. E) is equal to wages.

A

In national-income accounting, "double counting" A) occurs when the value of output is counted more than once in the calculation of national income. B) occurs when the value of some output is omitted in the calculation of national income. C) leads to an underestimation of GDP in any given period. D) means that consumption will always be less than GDP. E) means that pre-tax and after-tax GDP will be identical.

A

In Canada, the measurement of national income and national product is conducted by A) the Department of Finance. B) Statistics Canada. C) statisticians in universities. D) the Bank of Canada. E) the Treasury Board.

B

Jodie's Bakery generates a yearly revenue of $6000. Throughout the year Jodie spends $1500 on flour, $1000 on fruit, $500 on sugar & spices, $1500 on butter, and employs an assistant whom she pays $1000. Calculate the value of the annual output produced by Jodie's Bakery using the value added method. A) $1000 B) $1500 C) $4500 D) $5000 E) $7000

B

Statistics Canada excludes from GDP the value of goods and services exchanged "under the counter" because A) Statistics Canada is responsible for making an ethical decision about which activities to exclude from national income measures. B) satisfactory methods for their measurement have not been developed. C) these goods are all intermediate goods. D) their production has zero opportunity cost. E) these goods do not contribute to well-being.

B

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

B

To calculate GDP from the expenditure side, one must add together A) consumption, investment, government purchases, and exports. B) consumption, investment, government purchases, and net exports. C) wages, profits, government purchases and net exports. D) consumption, government purchases, and interest. E) wages, rent, interest, and profits.

B

To calculate the change in the value of inventories for the investment component of GDP, one should use their A) cost of production at the time they were produced. B) current market value. C) cost of production minus the costs of labour and capital. D) value at the time the goods are sold and removed from inventory. E) market value at the time they were produced.

B

In national-income accounting, replacement investment is the investment that A) when added to gross investment is equal to total saving. B) is done by the government. C) maintains the existing capital stock at a constant level. D) is used in the calculation of GDP from the expenditure side. E) is equal to all existing capital stock in the country.

C

Net domestic income is a useful concept primarily because it A) represents national income plus depreciation. B) does not include inventory investment. C) excludes the value of output that is used as replacement investment. D) includes government transfer payments. E) includes all goods produced but not exchanged in markets.

C

Real GDP is equivalent to A) the money value of all goods and services produced in an economy per year plus imports. B) the nominal value of GNP multiplied by the GDP deflator. C) the value of all goods and services produced in an economy per year adjusted for price changes. D) personal disposable income plus depreciation. E) the market value of all goods and services produced in an economy per year.

C

When calculating GDP from the expenditure side, which of the following is true of the government purchases component, Ga? A) it excludes government investment expenditure B) it includes employment insurance and employment benefits C) it excludes transfer payments D) it is based on the government's planned spending E) it only includes federal government expenditures

C

One reason that real GDP tends to overstate the economic well-being of the country's residents is that it ignores A) the costs of increased leisure time. B) the tips that waiters receive. C) the market-based activity done from the home. D) the economic "bads" associated with production, such as pollution. E) transactions such as teenaged-babysitting services.

D

Suppose a Canadian firm imports $5 000 worth of frisbees from China and sells them for $10 000. The effect on GDP would be A) to increase the value of GDP by $10 000. B) to increase the value of GDP by $15 000. C) to decrease the value of GDP by $15 000. D) to increase the value of GDP by $5 000. E) no effect on GDP since the frisbees were produced outside of Canada.

D

Suppose that in 2008, ABC Corporation produced $6 million worth of natural gas pipes but was able to sell only $5 million worth. Is the remaining $1 million of unsold pipes part of GDP for 2008? A) Yes, since changes in inventories are part of consumption expenditures. B) No, since they are part of the economy's output only when sold. C) No, since changes in inventories are part of actual investment. D) Yes, since they are part of the economy's output in 2008. E) none of the above

D

Suppose that the nominal national income in some country increased by 10 percent during the year, when inflation was 5 percent. Therefore the real national income A) fell by 10 percent. B) fell by 5 percent. C) was unaffected. D) rose by 5 percent. E) rose by 10 percent.

D

The term "fixed investment" refers to A) investment in stocks and bonds. B) the existing capital stock. C) total investment minus depreciation. D) investment in plant and equipment. E) none of the above.

D

The "value added" for an individual firm is calculated by A) adding the cost of the intermediate goods used by the firm. B) calculating the profit generated by the firm. C) calculating the revenue generated by the firm. D) subtracting the income that goes to the factors of production used by the firm from the firm's revenue. E) adding up the income received by the factors of production used by the firm.

E

When calculating GDP from the income side, which of the following is included in non-factor payments? A) bond interest B) income tax C) wages and salaries D) business profits E) GST

E

When calculating GDP using the expenditure approach, the investment component includes A) net investment minus depreciation. B) fixed investment minus depreciation. C) gross investment plus depreciation. D) net investment only. E) net investment plus depreciation.

E

Which of the following is included in the current calculations of GDP? A) Volunteer work undertaken by Mary Smith B) Welfare payments C) The purchase of a 1939 painting D) The purchase of a second hand automobile E) Pizza purchased by college students for dinner

E

Which of the following is the most appropriate measure for evaluating the average material living standards of Canadian residents? A) disposable income B) per capita Gross Domestic Product C) Net Domestic Income at Factor Cost D) per capita Net National Product E) per capita Gross National Product

E

Which of the following purchases by households is considered as consumption expenditure for the purposes of national-income accounting? A) a Government of Canada Treasury bill B) the purchase of company stock C) tractors for use on a family farm D) a new house E) legal services

E

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

A

A farmer raises free-range chickens, which he sells to a company for $1000. That company sells the "processed" chickens to a grocery store for $1600, which in turn produces roasted chickens which are sold to the public for $2400. Based on this information, the value of total output is equal to A) $2400 B) $5000 C) $1600 D) $4000 E) $1400

A

When calculating GDP from the expenditure side, how do net exports enter the equation? A) They are included as a separate category. B) They may or may not be included depending on whether they are for final or intermediate goods. C) They are included but as part of C, I, or G. D) They are NOT included because they do not represent an expenditure by Canadians. E) They are included only if it is a positive number.

A

Which of the following is excluded from GDP? A) the purchase price of illegal drugs sold by a drug dealer B) the repairs to a police car after damage as a result of a high speed chase C) the purchase of new computers by a police department D) the labour services provided by a police officer in the narcotics squad E) the labour supplied by a lawyer to defend a suspect charged with a criminal offense

A

Which of the following purchases by households is considered to be an investment expenditure? A) the purchase of a newly constructed house B) the purchase of a government bond C) a deposit to a Guaranteed Investment Account (GIC) D) the purchase of a DVD player E) the purchase of an imported car

A

Which of the following statements regarding investment is correct? A) Housing construction is classified as investment expenditure rather than consumption expenditure. B) The accumulation of inventories does not count as current investment. C) The capital stock includes investment in stocks and bonds. D) Depreciation refers to funds used to increase the existing stock of capital. E) Rental payments are included as investment expenditures.

A

Which one of the following is an example of "government purchases"? A) $4000 spent for services provided by a private consultant B) $100 000 paid as interest on the national debt C) $600 paid to an unemployed worker for employment insurance D) $2000 paid to a retiree E) $1000 paid to a poor person for income support

A

Why are illegal activities, unreported activities, and nonmarket activities excluded from GDP? A) They are difficult to measure. B) The do not contribute to the true national output of goods and services. C) They do not have an opportunity cost. D) They are morally repugnant. E) They do not contribute to human welfare.

A

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 $1 200 worth of shoes. The value added from these transactions is A) $ 800. B) $1 200. C) $2 300. D) $2 500. E) $1 000.

B

Which of the following statements regarding housing expenditures in the national accounts is correct? A) New residential construction is classified as consumption. B) The provision of new public housing by the government is classified as private investment. C) Rental payments for houses are counted as part of consumption. D) Owner-occupied housing is counted as investment by imputing the value of the housing services enjoyed by the owner. E) The cost of a home purchased from its previous occupant is part of investment.

C

Disposable personal income is calculated as A) equal to the gross wages plus interest received by the household. B) GNP minus that part of it not actually paid to households, minus transfer payments to households. C) GNP minus that part of it not actually paid to households, plus personal income taxes paid by households. D) GNP minus that part of it not actually paid to households, plus transfer payments, minus personal income taxes. E) equal to the gross wages plus salaries received by the household.

D

When adding up the value of all goods produced in the economy, double counting can be avoided if only the ________ is included. A) revenue of intermediate goods and services. B) value of intermediate goods and services. C) cost of intermediate goods and services. D) value of final good and services. E) revenue of all goods and services.

D

When calculating GDP from the expenditure side, which of the following is true of the investment component, Ia? A) it includes the transfer of houses between individuals B) it only includes business fixed investment C) it only includes decumulation of inventories D) it includes changes in inventories E) it excludes expansions of existing factories

D

In national-income accounting, a fall in Ga (other things being equal) will be recorded if A) the total salaries paid to civil servants falls. B) the true market value of government-produced goods and services decreases. C) labour productivity in the government sector falls. D) wages in the government sector rise. E) all of the above.

A

In Lumberville, the lumberjack cuts trees and sells them to the local mill for $500. The local mill processes these trees into wood planks and sells them to the carpenter for $800. Finally, the carpenter uses these wood planks to make tables which he sells for $1400 to Lumberville's residents. If we allowed double counting, the total value of Lumberville's output would be calculated as ________. But if we correctly compute the total value added, the value of the total output in Lumberville would be ________. A) $2200; $4200 B) $2700; $1400 C) $1400; $1400 D) $2200; $2700 E) $4200; $2700

B

In national-income accounting, what does the term Ia represent? A) actual net investment plus depreciation B) actual gross investment (including depreciation) C) actual net investment D) actual net investment minus depreciation E) actual fixed investment minus depreciation

B

Which of the following is included in current calculations of GDP? A) The number of volunteer hours worked B) Homemaker tasks C) The purchase of an antique table D) The salary of the Prime Minister E) The purchase of illegal drugs

D

Which of the following statements about depreciation is NOT correct? A) It is the value of final output that represents capital used up over the period in question. B) It is the difference between gross and net investment. C) It is the amount by which the capital stock is depleted through the production process. D) It does not influence a firm's profits. E) If gross investment exactly equals depreciation, the stock of capital will be constant.

D

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

D

Which of the following statements about national-income accounting is correct? A) GDP on the income side is calculated by adding up total expenditure for each of the main components of final output. B) GDP from the expenditure side and GDP from the income side differ by the amount of investment in the economy. C) GDP on the expenditure side is calculated by adding up all the income claims generated by the act of production. D) The value of the expenditure on a nation's output is equal to the total income claims generated by producing that output. E) The total value added in the economy is equal to the sum of all components in the circular flow of expenditure and income.

D

A government transfer payment to a person is A) an important component of national income. B) considered a component of G in the calculation of GDP. C) considered a consumption expenditure. D) evidence that government expenditures are too high. E) included in disposable income measures but not national income.

E