Question 1

If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is:

Accepted Answer

A)  0.8 
B)  1.25 
C)  80 
D)  125 
A)  0.8 
B)  1.25 
C)  80 
D)  125 D

Question 2

GDP is considered a good measure of economic wellbeing. However, GDP is not a perfect measure of wellbeing. Why? Discuss factors that are not included in GDP but that affect whether people are better off.

Accepted Answer

GDP is not a perfect measure of wellbeing, in that GDP excludes the value of some items, such as leisure, quality of environment and quality of life. That is:
a. If people in the economy work more hours by reducing leisure time, more goods and services will be produced, and GDP will rise. But the welfare loss from reduced leisure might offset the welfare gain from producing and consuming a greater quantity of goods and services.
b. Many countries have suffered a severe decline in air and water quality due to industrialisation. A country's GDP might increase through industrialisation, yet it is most likely that wellbeing will fall. The deterioration in air and water quality in turn detracts from the quality of life. 
c. Another item that GDP excludes is the quality of life. Such things as a low crime rate and low traffic congestion would increase quality of life.

Question 3

Gross domestic product measures:

Accepted Answer

A)  the total income of everyone in the economy 
B)  the total expenditure on the economy's output of goods and services 
C)  both A and B 
D)  neither A nor B 
A)  the total income of everyone in the economy 
B)  the total expenditure on the economy's output of goods and services 
C)  both A and B 
D)  neither A nor B C

Question 4

The difference between the values of final production and value of the inputs is called:

Accepted Answer

A)  the surplus of the final goods and services 
B)  the profit of the final goods and services 
C)  the value added of the final goods and services 
D)  the gross product of the final goods and services 
A)  the surplus of the final goods and services 
B)  the profit of the final goods and services 
C)  the value added of the final goods and services 
D)  the gross product of the final goods and services

Question 5

The four components of GDP are:
The four components of GDP are:

Accepted Answer

A)  consumption, money supply, government purchases and exports 
B)  consumption, investment, transfer payments and imports 
C)  consumption, investment, government purchases and foreign exchange 
D)  consumption, investment, government purchases and net exports 
A)  consumption, money supply, government purchases and exports 
B)  consumption, investment, transfer payments and imports 
C)  consumption, investment, government purchases and foreign exchange 
D)  consumption, investment, government purchases and net exports

Question 6

Macroeconomics is:

Accepted Answer

A)  the study of economics at the level of the industry 
B)  the study of the economy as a whole 
C)  the study of individual households and firms and their interactions in markets 
D)  the study of money and financial markets 
A)  the study of economics at the level of the industry 
B)  the study of the economy as a whole 
C)  the study of individual households and firms and their interactions in markets 
D)  the study of money and financial markets

Question 7

A company produces an intermediate good on the last day of the year. If it is sold, GDP will not increase, but if it is not sold, GDP will increase.

Accepted Answer

A) True 
 B)False

Question 8

A farmer sells wheat to a miller for $100. The miller makes the wheat into flour and sells it to a baker for $200. The baker makes the wheat into bread and sells it to a grocer for $300. The grocer sells the bread to the public for $400. The effect on GDP is:

Accepted Answer

A)  an increase of $1000 
B)  an increase of $100 
C)  an increase of $600 
D)  an increase of $400 
A)  an increase of $1000 
B)  an increase of $100 
C)  an increase of $600 
D)  an increase of $400

Question 9

Nominal GDP will decrease:

Accepted Answer

A)  only if the average level of prices decreases 
B)  only if the quantity of goods and services produced decreases 
C)  if either the average level of prices or the quantity of goods and services produced decreases 
D)  only if the unemployment rate decreases 
A)  only if the average level of prices decreases 
B)  only if the quantity of goods and services produced decreases 
C)  if either the average level of prices or the quantity of goods and services produced decreases 
D)  only if the unemployment rate decreases

Question 10

Since black market and non-market measures are excluded from measures of GDP, the GDP measure tends to:

Accepted Answer

A)  overestimate the total production of an economy 
B)  underestimate the total production in an economy 
C)  not make a significant difference in determining the total production of an economy 
D)  lead one to the conclusion that GDP measures are not very useful to anyone but market economists 
A)  overestimate the total production of an economy 
B)  underestimate the total production in an economy 
C)  not make a significant difference in determining the total production of an economy 
D)  lead one to the conclusion that GDP measures are not very useful to anyone but market economists

Question 11

Over time, the three measures of GDP tend to arrive at the same result.

Accepted Answer

A) True 
 B)False

Question 12

If the GDP deflator is 200 and real GDP is $40 billion, then nominal GDP is:

Accepted Answer

A)  $8000 billion 
B)  $20 billion 
C)  $80 billion 
D)  $2000 billion 
A)  $8000 billion 
B)  $20 billion 
C)  $80 billion 
D)  $2000 billion

Question 13

GDP is used as the basic measure of a society's economic wellbeing. A better measure of the economic wellbeing of individuals in society is:

Accepted Answer

A)  GDP per person 
B)  the consumption component of GDP 
C)  government expenditures per person 
D)  the level of business investment 
A)  GDP per person 
B)  the consumption component of GDP 
C)  government expenditures per person 
D)  the level of business investment

Question 14

Real GDP is:

Accepted Answer

A)  the production of goods and services valued at current-year prices 
B)  the production of goods and services valued at constant prices 
C)  the production of goods and services valued at future-year prices 
D)  the production of goods and services valued at the ratio of current-year prices to constant prices 
A)  the production of goods and services valued at current-year prices 
B)  the production of goods and services valued at constant prices 
C)  the production of goods and services valued at future-year prices 
D)  the production of goods and services valued at the ratio of current-year prices to constant prices

Question 15

The GDP deflator is not used to identify the increase in the cost of living for typical Australian households.

Accepted Answer

A) True 
 B)False

Question 16

Statistics such as GDP, the unemployment rate, the rate of inflation and the trade balance are:

Accepted Answer

A)  both microeconomic and macroeconomic 
B)  neither macroeconomic nor microeconomic, but properly in the realm of political science 
C)  microeconomic, since they affect individual households and firms 
D)  macroeconomic, since they tell us something about the entire economy 
A)  both microeconomic and macroeconomic 
B)  neither macroeconomic nor microeconomic, but properly in the realm of political science 
C)  microeconomic, since they affect individual households and firms 
D)  macroeconomic, since they tell us something about the entire economy

Question 17

For each of the following events, ceteris paribus, state the effect on GDP (does it increase/decrease/remain unchanged?) and why.
A. A few small boat builders decide to move from the production of simple boats for leisure use to the production of yachts for the America's Cup.
B. You are short of cash and you need more exercise so you sell your car for $1000.
C. The Australian Tax Office gets tough on illegal unrecorded activity (the underground economy )
D. A major oil spill occurs off the coastline of an area with high unemployment levels. Many of the local unemployed are employed to help with the clean-up.

Accepted Answer

A. Increased, more value-added; possibly

Question 18

Consider a country with a consumption of $485 billion, an investment of $175 billion, government purchases of $176 billion, government transfer payments of $24 billion, exports of $19 billion and imports of $40 billion for the year 2010. The country's GDP for 2010 is:

Accepted Answer

A)  $791 billion 
B)  $839 billion 
C)  $857 billion 
D)  $815 billion 
A)  $791 billion 
B)  $839 billion 
C)  $857 billion 
D)  $815 billion

Question 19

If Canada's GDP is $1000 billion and Poland's GDP is $100 billion, the average Canadian citizen must be ten times as well-off as the average Polish citizen.

Accepted Answer

A) True 
 B)False

Question 20

Sales made on eBay are all regarded as inputs to the GDP for the country.

Accepted Answer

A) True 
 B)False

Exam 24: Measuring a Nations Income

If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is:

GDP is considered a good measure of economic wellbeing. However, GDP is not a perfect measure of wellbeing. Why? Discuss factors that are not included in GDP but that affect whether people are better off.

Gross domestic product measures:

The difference between the values of final production and value of the inputs is called:

The four components of GDP are: The four components of GDP are:

Macroeconomics is:

A company produces an intermediate good on the last day of the year. If it is sold, GDP will not increase, but if it is not sold, GDP will increase.

A farmer sells wheat to a miller for $100. The miller makes the wheat into flour and sells it to a baker for $200. The baker makes the wheat into bread and sells it to a grocer for $300. The grocer sells the bread to the public for $400. The effect on GDP is:

Nominal GDP will decrease:

Since black market and non-market measures are excluded from measures of GDP, the GDP measure tends to:

Over time, the three measures of GDP tend to arrive at the same result.

If the GDP deflator is 200 and real GDP is $40 billion, then nominal GDP is:

GDP is used as the basic measure of a society's economic wellbeing. A better measure of the economic wellbeing of individuals in society is:

Real GDP is:

The GDP deflator is not used to identify the increase in the cost of living for typical Australian households.

Statistics such as GDP, the unemployment rate, the rate of inflation and the trade balance are:

Consider a country with a consumption of $485 billion, an investment of $175 billion, government purchases of $176 billion, government transfer payments of $24 billion, exports of $19 billion and imports of $40 billion for the year 2010. The country's GDP for 2010 is:

If Canada's GDP is $1000 billion and Poland's GDP is $100 billion, the average Canadian citizen must be ten times as well-off as the average Polish citizen.

Sales made on eBay are all regarded as inputs to the GDP for the country.

Ten Lessons From Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand and Government Policies

Consumers, Producers and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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