Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Total value added in an economy is equal to the value of 1)

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

2) Suppose national accounting was done by adding up the market values of all outputs of all firms. 2)
This approach would
A) obtain gross national product.
B) underestimate the value of production in the economy.
C) accurately reflect the value of production in the economy.
D) overestimate the value of production in the economy.
E) obtain gross domestic product.

3) In national-income accounting, "double counting" 3)

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

4) All goods and services produced by one firm but used as inputs into a further stage of production 4)
are called
A) national income goods.
B) intermediate goods.
C) consumption goods.
D) final goods.
E) value added.

5) In national-income accounting, the value of intermediate products 5)

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

6) When adding up the value of all goods produced in the economy, double counting can be avoided 6)
if only the ________ is included.
A) value of intermediate goods and services
B) revenue of intermediate goods and services
C) value of final good and services
D) revenue of all goods and services
E) cost of intermediate goods and services

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 7) In Shoetown, a rancher takes $0 worth of inputs and produces animal skins, which he sells to the 7)
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) $2500. B) $2300. C) $1200. D) $1000. E) $800.

8) In Shoetown, a rancher takes $0 worth of inputs and produces animal skins, which he sells to the 8)
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 by the tanner is
A) $400. B) $0. C) $1200. D) $500. E) $300.

9) Suppose a Canadian firm imports $5000 worth of frisbees from China and sells them for $10 000. 9)
The effect on GDP would be
A) to increase the value of GDP by $10 000.
B) to increase the value of GDP by $5000.
C) to decrease the value of GDP by $15 000.
D) to increase the value of GDP by $15 000.
E) No effect on GDP since the frisbees were produced outside of Canada.

10) A farmer raises free-range chickens, which he sells to a company for $1000. That company sells the 10)
"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) $4000. B) $1600. C) $2400. D) $5000. E) $1400.

11) Consider a firm producing skateboards in one factory. In determining this firm's value added to 11)
national income, we would start with its total revenue and subtract the cost of (among other
things)
1) salaries to the firm's cleaning staff;
2) electricity used in the factory;
3) the wood used for the base of the skateboards.
A) 1 and 2 B) 2 and 3 C) 1 and 3 D) 1 only E) 3 only

12) Consider a firm producing car parts in Oshawa, Ontario. In determining this firm's value added to 12)
national income, we would start with its total revenue and subtract the cost of (among other
things)
1) imported plastic molds;
2) labour costs for sales and marketing;
3) computer-aided design (CAD) equipment.
A) 1 and 2 B) 2 and 3 C) 1 and 3 D) 1 only E) 2 only

13) Consider a firm providing consulting engineering services. In determining this firm's value added 13)
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) 2 and 3 C) 1 and 3 D) 1 only E) 2 only

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14) In Canada, the measurement of national income and national product is conducted by 14)
A) statisticians in universities.
B) the Department of Finance.
C) the Bank of Canada.
D) Statistics Canada.
E) the Treasury Board.

15) Which of the following statements about national-income accounting is correct? 15)
A) GDP on the income side is calculated by adding up total expenditure for each of the main
components of final output.
B) The total value added in the economy is equal to the sum of all components in the circular
flow of expenditure and income.
C) GDP on the expenditure side is calculated by adding up all the income claims generated by
the act of production.
D) GDP from the expenditure side and GDP from the income side differ by the amount of
investment in the economy.
E) The value of the expenditure on a nation's output is equal to the total income claims
generated by producing that output.

16) In Lumberville, the lumberjack cuts trees and sells them to the local mill for $500. The local mill 16)
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; $2700
B) $1400; $1400
C) $4200; $2700
D) $2200; $4200
E) $2700; $1400

17) The "value added" for an individual firm can be calculated by 17)
A) calculating the profit generated by the firm.
B) adding up the payments made to the factors of production used by the firm.
C) adding the cost of the intermediate goods used by the firm.
D) subtracting the payments made to the factors of production used by the firm from the firm's
revenue.
E) calculating the revenue generated by the firm.

18) Jodie's Bakery generates a yearly revenue of $6000. Throughout the year Jodie spends $1500 on 18)
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) $1500 B) $4500 C) $1000 D) $5000 E) $6000

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19) Consider the circular flow of expenditure and income in the Canadian economy. Which of the 19)
following is an injection into the circular flow?
A) consumption
B) investment
C) taxes
D) saving
E) imports

20) Consider the circular flow of expenditure and income in the Canadian economy. Which of the 20)
following is an injection into the circular flow?
A) You make an online purchase from a U.S. retailer.
B) Loblaws pays corporate income tax to the federal government.
C) Bombardier exports subway cars to Mexico.
D) Bombardier imports machine parts from Germany.
E) You put $500 into your TFSA (tax-free savings account).

21) Consider the circular flow of expenditure and income in the Canadian economy. Which of the 21)
following is an injection into the circular flow?
A) A Toyota plant in Canada imports car parts from Japan.
B) Loblaws imports cheese from Switzerland.
C) The Government of Canada purchases new Coast Guard ships made in Halifax.
D) You contribute to your company pension plan.
E) You pay GST on your purchases.

22) Consider the circular flow of income and expenditure in the Canadian economy. Which of the 22)
following is a withdrawal from the circular flow?
A) investment
B) exports
C) government purchases
D) saving
E) consumption

23) Consider the circular flow of income and expenditure in the Canadian economy. Which of the 23)
following is a withdrawal from the circular flow?
A) Bombardier exports subway cars to Mexico.
B) You put $500 into your TFSA (tax-free savings account).
C) The B.C. provincial government builds a new hospital.
D) Canadian farmers sell wheat to China.
E) Your family buys weekly groceries.

24) Consider the circular flow of expenditure and income in the Canadian economy. Which of the 24)
following is a withdrawal from the circular flow?
A) A Toyota plant in Canada exports new vehicles to the United States.
B) Canadian barley is exported to the European Union.
C) The Alberta provincial government purchases water bomber aircraft for fighting forest fires.
D) The Toronto transit authority buys subway cars from Mexico.
E) You spend your savings to pay for university tuition.

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25) In macroeconomics, what is meant by the term "investment"? 25)
A) the production of goods not for immediate consumption use
B) the same thing as profits
C) the total amount of capital goods in the country
D) the production of goods for immediate consumption
E) money spent in markets for financial capital

26) To calculate GDP from the expenditure side, one must add together 26)
A) wages, rent, interest, and profits.
B) consumption, government purchases, and interest.
C) consumption, investment, government purchases, and net exports.
D) wages, profits, government purchases and net exports.
E) consumption, investment, government purchases, and exports.

27) GDP from the expenditure side is equal to the sum of 27)
A) Ca + Ia + Ga + (Xa - IMa ).
B) Ca + Ia + net exports.
C) Ca + Ia + Ga - net exports.
D) Ca + Ia + Ga .
E) Ca + Ia + Ga + (IM a - Xa ).

28) Which of the following purchases by households is considered as consumption expenditure for the 28)
purposes of national-income accounting?
A) a new house
B) legal services
C) the purchase of company stock
D) a Government of Canada Treasury bill
E) tractors for use on a family farm

29) Which of the following would be included in the consumption expenditure component of GDP? 29)
A) a municipal government's purchase of new desks for city council chambers
B) export sales of snowmobiles
C) expenditure by a firm for annual payroll services
D) the increase in inventories at lumber mills
E) government expenditure for highway construction

30) When calculating GDP from the expenditure side, Ga comprises 30)
A) government purchases of goods and services, excluding transfer payments.
B) only expenditures made by provincial and local governments.
C) government expenditures on goods and services, including transfer payments.
D) only expenditures made by the federal government.
E) only purchases of goods and not services.

31) In national-income accounting, a rise in Ga will be recorded (other things being equal) if 31)
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) the government's purchases of office furniture falls.
E) wages in the government sector fall.

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32) In national-income accounting, a fall in Ga (other things being equal) will be recorded if 32)
A) the number of employed civil servants increases, but total government salaries remains
unchanged.
B) the Canadian armed forces reduces the size of the army.
C) the true market value of government-produced goods and services decreases.
D) wages in the government sector rise.
E) labour productivity in the government sector falls.

33) Suppose a government collects $12 billion in various tax revenues, and pays $2.5 billion in debt 33)
interest, $9 billion in social security benefits, and $0.5 billion in government employee wages.
What is the direct contribution to GDP coming from this government's fiscal actions?
A) $3.0 billion
B) $12.0 billion
C) $0.5 billion
D) $11.5 billion
E) $2.5 billion

34) In macroeconomics, the term "capital goods" refers to 34)

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

35) In national-income accounting, "depreciation" refers to 35)

A) the amount by which the capital stock is depleted during the accounting period.
B) the increase in the economy's stock of capital per year.
C) a term used in accounting, not economics.
D) the decrease in the economy's stock of capital per year.
E) net investment.

36) In national-income accounting, a reduction of inventories counts as 36)

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

37) Consider the investment component (I) of GDP. To calculate the change in the value of inventories 37)
for the investment component of GDP, one should use their
A) current market value.
B) market value at the time they were produced.
C) cost of production minus the costs of labour and capital.
D) cost of production at the time they were produced.
E) market value at the time they were added to inventory.

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38) In national-income accounting, replacement investment is the investment that 38)
A) is equal to all existing capital stock in the country.
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) when added to gross investment is equal to total saving.

39) In national-income accounting, the term "fixed investment" refers to 39)

A) investment in stocks and bonds.
B) capital stock that has been repaired.
C) the existing capital stock.
D) the creation of new plant and equipment.
E) total gross investment minus depreciation.

40) With regard to national-income accounting, which of the following statements regarding 40)
investment (Ia ) is correct?
A) Rental payments are included as investment expenditures.
B) Depreciation refers to funds used to increase the existing stock of capital.
C) The capital stock includes investment in stocks and bonds.
D) The accumulation of inventories does not count as current investment.
E) Housing construction is classified as investment expenditure rather than consumption
expenditure.

41) With regard to national-income accounting, which of the following statements about depreciation 41)
is correct?
A) Net investment is equal to gross investment plus depreciation.
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 minus depreciation.
E) Depreciation includes net additions to the economy's total stock of capital.

42) The total investment that occurs in the economy is called gross investment. When calculating GDP 42)
using the expenditure approach, the gross investment component (I a ) is equivalent to
A) net investment plus depreciation.
B) net investment only.
C) fixed investment minus depreciation.
D) gross investment plus depreciation.
E) net investment minus depreciation.

43) Consider the investment component (I a ) of GDP. The change in the country's capital stock during a 43)
year is equal to
A) net change in inventories plus capital consumption allowance.
B) capital consumption allowance.
C) gross investment.
D) gross fixed investment.
E) net investment.

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44) Which of the following statements regarding housing expenditures in the national accounts is 44)
correct?
A) Rental payments for houses are counted as part of consumption.
B) The provision of new public housing by the government is classified as private investment.
C) New residential construction is classified as 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.

45) In national-income accounting, government expenditures on the salaries of civil servants are 45)
included at
A) their pre-tax salaries, or factor incomes.
B) their after-tax salaries.
C) opportunity cost.
D) the market value of the goods and services they produce.
E) their imputed market value.

46) Why are transfer payments excluded from the government component (G a ) in the calculation of 46)
GDP?
A) Because they are not counted as income by any economic agent.
B) Because they do not represent the purchase of a good or a service.
C) Because they do not generate additional income in the economy.
D) Because they are small enough to ignore when computing the national accounts.
E) Because it is difficult to assess the market value of a transfer payment.

47) Consider Canada's national accounts. An example of a transfer payment is 47)

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

48) When calculating GDP from the expenditure side, "actual consumption expenditures" includes 48)
A) the monthly rental of an apartment.
B) the purchase of a new house.
C) increases in automobile inventories.
D) American tourists travelling to and spending in Canada.
E) the construction of an apartment building.

49) When calculating GDP from the expenditure side, "actual consumption expenditures" includes 49)
A) robotic equipment purchased by Bombardier.
B) fees paid by Google Canada to a Toronto law firm.
C) Canadian fashion designs purchased by a Swiss department store.
D) snow-plow equipment purchased by the City of Montreal.
E) a tractor purchased by an Ontario farmer.

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50) Which of the following would be classified as "investment" in the national income and product 50)
accounts?
A) the construction of a new factory
B) the purchase of Telus stock
C) the holding of money
D) the payment of real-estate fees
E) the purchase of a government bond

51) Suppose that in 2018, ABC Corporation produced $6 million worth of natural gas pipes but was 51)
able to sell only $5 million worth. Is the remaining $1 million of unsold pipes part of GDP for 2018?
A) No, since they are part of the economy's output only when sold.
B) No, since changes in inventories are part of actual investment.
C) No, since they are added to existing inventories.
D) Yes, since changes in inventories are part of consumption expenditures.
E) Yes, since they are part of the economy's output in 2018.

52) Suppose that in 2018, Canada Cars Corporation produced $20 million worth of cars and trucks but 52)
was able to sell only $16 million worth. Is the remaining $4 million increase in inventories part of
GDP for 2018?
1. Yes, since changes in inventories are part of consumption expenditures.
2. Yes, since they are part of the economy's output in 2018.
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

53) In national-income accounting, changes in inventories are 53)

A) classified as part of current actual investment.
B) referred to as intermediate goods.
C) described as actual fixed investment.
D) included under actual consumption expenditures.
E) not included in the national accounts.

54) When computing GDP from the expenditure side, which of the following items is excluded from 54)
the government component (G a )?
A) salaries to Canadian Forces officers
B) employment-insurance benefits
C) operating costs of the Canadian Coast Guard
D) costs of Parliamentary Committees
E) rental of office space by the government

55) An example of an item that would be excluded from a measure of GDP from the expenditure side is 55)
A) fertilizer purchased by Farmer Jones to increase crop yields.
B) buying tomato plants for your garden.
C) a new truck purchased by a furniture-delivery company.
D) government pension payments to a retired person.
E) the purchase of windows by an automobile assembly plant.

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56) In national-income accounting, what does the term I a represent? 56)
A) actual net investment minus depreciation
B) actual fixed investment minus depreciation
C) actual net investment
D) actual inventory investment
E) actual gross investment (including depreciation)

57) When calculating GDP from the expenditure side, how do net exports enter the equation? 57)
A) They are included only if it is a positive number.
B) They are included as a separate category.
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 may or may not be included depending on whether they are for final or intermediate
goods.

58) Suppose a Canadian firm imports $1000 worth of bananas and sells them for $2000. The effect on 58)
Canadian GDP would be
A) to increase the value of GDP by $1000.
B) to decrease the value of GDP by $3000.
C) to increase the value of GDP by $2000.
D) to increase the value of GDP by $3000.
E) no effect on GDP since the bananas were produced outside Canada.

59) When calculating GDP from the expenditure side, which of the following is true of the investment 59)
component, Ia ?
A) It includes the transfer of houses between individuals.
B) It excludes expansions of existing factories.
C) It includes changes in inventories.
D) It only includes business fixed investment.
E) It only includes decumulation of inventories.

60) When calculating GDP from the expenditure side, which of the following is true of the government 60)
purchases component, G a ?
A) It excludes transfer payments.
B) It includes employment insurance and employment benefits.
C) It is based on the government's planned spending.
D) It includes government subsidies to private firms.
E) It only includes federal government expenditures.

61) If a firm's depreciation exceeds its gross investment, then its 61)
A) capital stock will be growing.
B) depreciation cannot exceed gross investment.
C) gross investment will be negative.
D) capital stock will be shrinking.
E) net investment will be positive.

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62) In national-income accounting, which of the following transactions by households is considered to 62)
be an investment expenditure?
A) the purchase of an iPhone
B) payment for the construction of a custom-built new home
C) the purchase of an imported car
D) the purchase of a Guaranteed Investment Certificate (GIC)
E) the purchase of a government bond

63) Which one of the following government expenditures is an example of "government purchases"? 63)
A) $100 000 paid as interest on the national debt
B) $1000 paid to a poor person for income support
C) $2000 paid to a retiree
D) $600 paid to an unemployed worker for employment insurance
E) $4000 spent for services provided by a private consultant

64) When measuring actual gross domestic product from the expenditure side, we use the following 64)
simple equation:
A) GDP = C + I + G + (X - IMa ).
B) GNP = C + I + G + X.
C) GDP = Ca + Ia + Ga + (Xa - IMa ).
D) GDP = C + I + (G - transfers) + (X - IM).
E) GNP = Ca + Ia + Ga + (Xa - IMa ).

65) The table below includes data for a one-year period required to calculate GDP from the expenditure side for a 65)
teeny-tiny economy.

Gross investment expenditure $402.00

Wages and salaries $1741.00
Consumption expenditure $1302.40
Interest and investment income $99.40
Business profits $70.40
Depreciation $199.20
Government purchases $486.80
Net exports $94.00

TABLE 20-1

Refer to Table 20-1. What is the value of GDP, as calculated from the expenditure side?
A) $2010.00 B) $2584.40 C) $1986.00 D) $1982.60 E) $2285.20

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66) The table below includes data for a one-year period required to calculate GDP for this economy. All figures 66)
are in billions of dollars.

Wages and salaries 3029

GST remittances 107
Exports 32
Gross investment 537
Depreciation 82
Consumption expenditure 2808
Government subsidies to firms 51
Business profit 423
Imports 35
Interest and investment income 276
Government purchases 524

TABLE 20-2

Refer to Table 20-2. What is the value of GDP (in billions of dollars), as calculated from the
expenditure side?
A) $3866 B) $3784 C) $3904 D) $3936 E) $3708

67) The table below includes data for a one-year period required to calculate GDP for this economy. All figures 67)
are in billions of dollars.

Wages and salaries 6423

GST remittances 613
Exports 954
Gross investment 1850
Consumption expenditure 5107
Depreciation 425
Government subsidies to firms 125
Business profits 1256
Imports 982
Interest and investment income 652
Government purchases 2315

TABLE 20-3

Refer to Table 20-3. What is the value of GDP (in billions of dollars), as calculated from the
expenditure side?
A) $10 605 B) $11 482 C) $11 208 D) $9244 E) $12 134

68) To calculate GDP from the income side, one must add together wages, 68)
A) government income, interest, and profits.
B) investment, rent, depreciation, profits and indirect taxes net of subsidies.
C) consumption and depreciation.
D) interest, rent, depreciation, profits and indirect taxes net of subsidies.
E) net exports, depreciation, and profits.

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69) In national-income accounting, the concept of "net domestic income" is useful because it 69)
A) excludes the value of output that is used as replacement investment.
B) includes all goods produced but not exchanged in markets.
C) does not include inventory investment.
D) represents national income plus depreciation.
E) includes government transfer payments.

70) Gross domestic product is the sum of factor incomes ________ indirect business taxes, ________ 70)
subsidies, ________ depreciation.
A) plus; plus; minus
B) plus; minus; plus
C) minus; plus; plus
D) plus; minus; minus
E) plus; plus; plus

71) How does "net domestic income" differ from gross domestic product? Net domestic income is GDP 71)
minus
A) that part of it not actually paid to households, minus personal income taxes paid by
households.
B) the sum of corporate, personal and sales taxes paid to the government.
C) replacement investment.
D) that part of it not actually paid to households, plus transfer payments to households.
E) that part of it not actually paid to households, plus transfer payments to households, minus
personal taxes paid by households.

72) When calculating GDP from the income side, which of the following is included in non -factor 72)
payments?
A) GST
B) wages and salaries
C) income tax
D) bond interest
E) business profits

73) The table below includes data for a one-year period required to calculate GDP from the income side for a 73)
teeny-tiny economy.

Gross investment expenditure $402.00

Wages and salaries $1741.00
Consumption expenditure $1302.40
Interest and investment income $99.40
Business profits $70.40
Depreciation $199.20
Indirect taxes less subsidies $175.20
Net exports $94.00

TABLE 20-4

Refer to Table 20-4. What is the value of GDP, as calculated from the income side?
A) $2010.00 B) $2285.20 C) $2584.40 D) $1982.60 E) $1986.00

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74) The table below includes data for a one-year period required to calculate GDP from the income side for a 74)
teeny-tiny economy.

Gross investment expenditure $402.00

Wages and salaries $1741.00
Consumption expenditure $1302.40
Interest and investment income $99.40
Business profits $70.40
Depreciation $199.20
Indirect taxes less subsidies $175.20
Net exports $94.00

TABLE 20-4

Refer to Table 20-4. When calculating GDP from the income side, we need to add together the
following items from the data provided:
A) investment expenditure, consumption expenditure, net exports.
B) wages and salaries, business profits, indirect taxes less subsidies.
C) wages and salaries, interest and investment income, business profits, depreciation, indirect
taxes less subsidies.
D) interest and investment income, business profits, depreciation, indirect taxes less subsidies.
E) interest and investment income, business profits, depreciation.

75) The table below includes data for a one-year period required to calculate GDP from the income side for a 75)
teeny-tiny economy.

Gross investment expenditure $402.00

Wages and salaries $1741.00
Consumption expenditure $1302.40
Interest and investment income $99.40
Business profits $70.40
Depreciation $199.20
Indirect taxes less subsidies $175.20
Net exports $94.00

TABLE 20-4

Refer to Table 20-4. What is the value of net domestic income at factor cost?
A) $2004.80 B) $1910.80 C) $1840.40 D) $1711.60 E) $1811.40

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76) The table below includes data for a one-year period required to calculate GDP for this economy. All figures 76)
are in billions of dollars.

Wages and salaries 3029

GST remittances 107
Exports 32
Gross investment 537
Depreciation 82
Consumption expenditure 2808
Government subsidies to firms 51
Business profit 423
Imports 35
Interest and investment income 276
Government purchases 524

TABLE 20-2

Refer to Table 20-2. What is the value of GDP (in billions of dollars), as calculated from the income
side?
A) $3866 B) $3968 C) $3590 D) $3708 E) $3784

77) The table below includes data for a one-year period required to calculate GDP for this economy. All figures 77)
are in billions of dollars.

Wages and salaries 3029

GST remittances 107
Exports 32
Gross investment 537
Depreciation 82
Consumption expenditure 2808
Government subsidies to firms 51
Business profit 423
Imports 35
Interest and investment income 276
Government purchases 524

TABLE 20-2

Refer to Table 20-2. What is the value of net domestic income at factor cost?
A) $3869 B) $3936 C) $3728 D) $3626 E) $3904

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78) The table below includes data for a one-year period required to calculate GDP for this economy. All figures 78)
are in billions of dollars.

Wages and salaries 6423

GST remittances 613
Exports 954
Gross investment 1850
Consumption expenditure 5107
Depreciation 425
Government subsidies to firms 125
Business profits 1256
Imports 982
Interest and investment income 652
Government purchases 2315

TABLE 20-3

Refer to Table 20-3. What is the value of GDP (in billions of dollars), as calculated from the income
side?
A) $10 606 B) $11 094 C) $8819 D) $9244 E) $9494

79) The table below includes data for a one-year period required to calculate GDP for this economy. All figures 79)
are in billions of dollars.

Wages and salaries 6423

GST remittances 613
Exports 954
Gross investment 1850
Consumption expenditure 5107
Depreciation 425
Government subsidies to firms 125
Business profits 1256
Imports 982
Interest and investment income 652
Government purchases 2315

TABLE 20-3

Refer to Table 20-3. What is the value of net domestic income at factor cost?
A) $8292 B) $8331 C) $8167 D) $9494 E) $9244

80) Historically, nominal GDP has increased faster than real GDP because 80)
A) exports have risen more rapidly than imports.
B) the general price level has increased.
C) improvements in product quality have not been reflected in prices.
D) imports have risen more rapidly than exports.
E) the general price level has fallen.

16
81) Which of the following is equivalent to real GDP? 81)
A) the money value of all goods and services produced in an economy per year plus imports
B) the value added of all goods and services produced in an economy per year adjusted for
price changes
C) the market value of all goods and services produced in an economy per year
D) personal disposable income plus depreciation
E) the nominal value of all goods and services in an economy per year

82) Suppose nominal national income in some country fell from $100 billion to $95 billion during the 82)
year. Over the same period, inflation was 5%. In this case, the real national income in this country
A) fell by 5%.
B) was unaffected.
C) rose by 5%.
D) fell by 10%.
E) rose by 10%.

83) Suppose nominal national income in some country increased by 10% during the year, when 83)
inflation was 5%. In this case, the real national income
A) fell by 10%.
B) rose by 5%.
C) was unaffected.
D) fell by 5%.
E) rose by 10%.

84) The table below shows total output for an economy over 2 years. 84)

2018 Price Quantity

Good A $1.00 100 units
Good B $2.00 200 units
Good C $5.00 100 units

2019 Price Quantity

Good A $2.00 120 units
Good B $3.00 200 units
Good C $10.00 98 units

TABLE 20-5

Refer to Table 20-5. The nominal Gross Domestic Product in 2019 was
A) $980. B) $1820. C) $840. D) $700. E) $1740.

17
85) The table below shows total output for an economy over 2 years. 85)

2018 Price Quantity

Good A $1.00 100 units
Good B $2.00 200 units
Good C $5.00 100 units

2019 Price Quantity

Good A $2.00 120 units
Good B $3.00 200 units
Good C $10.00 98 units

TABLE 20-5

Refer to Table 20-5. The real GDP in 2019, expressed in 2018 prices, was
A) $1010. B) $1740. C) $840. D) $700. E) $970.

86) The table below shows total output for an economy over 2 years. 86)

2018 Price Quantity

Good A $1.00 100 units
Good B $2.00 200 units
Good C $5.00 100 units

2019 Price Quantity

Good A $2.00 120 units
Good B $3.00 200 units
Good C $10.00 98 units

TABLE 20-5

Refer to Table 20-5. The implicit GDP deflator in 2019, when 2018 is used as the base year, was
approximately
A) 180. B) 203. C) 160. D) 105. E) 193.

18
87) The table below shows total output for an economy over 2 years. 87)

2018 Price Quantity

Good A $1.00 100 units
Good B $2.00 200 units
Good C $5.00 100 units

2019 Price Quantity

Good A $2.00 120 units
Good B $3.00 200 units
Good C $10.00 98 units

TABLE 20-5

Refer to Table 20-5. Assume the output of all three goods is consumed in the country, and there are
no imported goods and services. If 2018 is used as the base year, then the consumer price index
(CPI) in 2019 was approximately
A) 193. B) 418. C) 102. D) 180. E) 179.

88) The table below shows total output for an economy over 2 years. 88)

2018 Price Quantity

Good A $1.00 100 units
Good B $2.00 200 units
Good C $5.00 100 units

2019 Price Quantity

Good A $2.00 120 units
Good B $3.00 200 units
Good C $10.00 98 units

TABLE 20-5

Refer to Table 20-5. If 2018 is the base year, the GDP deflator in 2018 was
A) 180. B) 102. C) 193. D) 1000. E) 100.

89) The table below shows the total output and prices for an economy that produces only two goods, potatoes and 89)
oil. Data is provided for the years 2008 and 2018.

Quantities Produced Prices

Potatoes Oil Potatoes Oil
(kilograms) (barrels) ($/kilogram) ($/barrel)
2008 1000 50 4 55
2018 1100 65 6 60

TABLE 20-6

Refer to Table 20-6. What is the real GDP for 2018 if 2008 is the base year?
A) $9000 B) $10 500 C) $20 100 D) $6750 E) $7975

19
90) The table below shows the total output and prices for an economy that produces only two goods, potatoes and 90)
oil. Data is provided for the years 2008 and 2018.

Quantities Produced Prices

Potatoes Oil Potatoes Oil
(kilograms) (barrels) ($/kilogram) ($/barrel)
2008 1000 50 4 55
2018 1100 65 6 60

TABLE 20-6

Refer to Table 20-6. What is the real GDP for 2008 if 2018 is the base year?
A) $7975 B) $9000 C) $6750 D) $10 500 E) $20 100

91) The table below shows the total output and prices for an economy that produces only two goods, potatoes and 91)
oil. Data is provided for the years 2008 and 2018.

Quantities Produced Prices

Potatoes Oil Potatoes Oil
(kilograms) (barrels) ($/kilogram) ($/barrel)
2008 1000 50 4 55
2018 1100 65 6 60

TABLE 20-6

Refer to Table 20-6. If 2008 is the base year, the GDP deflator in 2018 was
A) 85.7. B) 159.1. C) 59.1. D) 100. E) 131.67.

92) The table below shows total output for an economy over 3 years. 92)

Year Money GDP* Deflator Real GDP**

2016 $ ________ 105 $760 000
2017 $820 000 106 $________
2018 $855 000 ________ $800 000

* millions of dollars
** real GDP measured in millions of 2010 dollars

TABLE 20-7

Refer to Table 20-7. The nominal Gross Domestic Product in 2016 was
A) $820 000. B) $724 000. C) $700 000. D) $774 000. E) $798 000.

20
93) The table below shows total output for an economy over 3 years. 93)

Year Money GDP* Deflator Real GDP**

2016 $ ________ 105 $760 000
2017 $820 000 106 $________
2018 $855 000 ________ $800 000

* millions of dollars
** real GDP measured in millions of 2010 dollars

TABLE 20-7

Refer to Table 20-7. The real GDP in 2017, expressed in 2010 prices, was
A) $869 200. B) $900 000. C) $773 585. D) $798 000. E) $800 000.

94) The table below shows total output for an economy over 3 years. 94)

Year Money GDP* Deflator Real GDP**

2016 $ ________ 105 $760 000
2017 $820 000 106 $________
2018 $855 000 ________ $800 000

* millions of dollars
** real GDP measured in millions of 2010 dollars

TABLE 20-7

Refer to Table 20-7. The implicit GDP deflator for 2018 is approximately
A) 94. B) 109. C) 108. D) 110. E) 107.

95) The table below shows total output for an economy over 3 years. 95)

Year Money GDP* Deflator Real GDP**

2016 $ ________ 105 $760 000
2017 $820 000 106 $________
2018 $855 000 ________ $800 000

* millions of dollars
** real GDP measured in millions of 2010 dollars

TABLE 20-7

Refer to Table 20-7. The growth rate of nominal output from 2016 to 2017 is
A) 5.00%. B) 2.76%. C) 4.27%. D) 4.09%. E) 3.36%.

21
96) The table below shows total output for an economy over 3 years. 96)

Year Money GDP* Deflator Real GDP**

2016 $ ________ 105 $760 000
2017 $820 000 106 $________
2018 $855 000 ________ $800 000

* millions of dollars
** real GDP measured in millions of 2010 dollars

TABLE 20-7

Refer to Table 20-7. The growth rate of real output from 2017 to 2018 is
A) 1.03%. B) 3.41%. C) 1.84%. D) 4.27%. E) 3.25%.

97) The table below shows total output for an economy over 2 years. 97)

2017 Price Quantity

coconuts $1.00 100 units
bananas $3.00 200 units
pineapples $6.00 100 units

2018 Price Quantity

coconuts $2.00 120
bananas $4.00 200
pineapples $8.00 90

TABLE 20-8

Refer to Table 20-8. The nominal Gross Domestic Product in 2018 was
A) $1760. B) $1260. C) $410. D) $1500. E) $1300.

98) The table below shows total output for an economy over 2 years. 98)

2017 Price Quantity

coconuts $1.00 100 units
bananas $3.00 200 units
pineapples $6.00 100 units

2018 Price Quantity

coconuts $2.00 120
bananas $4.00 200
pineapples $8.00 90

TABLE 20-8

Refer to Table 20-8. The real GDP in 2018, expressed in 2017 prices, was
A) $1260. B) $1500. C) $1300. D) $410. E) $1760.

22
 99) The table below shows total output for an economy over 2 years. 99)

2017 Price Quantity

coconuts $1.00 100 units
bananas $3.00 200 units
pineapples $6.00 100 units

2018 Price Quantity

coconuts $2.00 120
bananas $4.00 200
pineapples $8.00 90

TABLE 20-8

Refer to Table 20-8. The implicit GDP deflator in 2018 (using 2017 as the base year) is
A) 114.6. B) 139.7. C) 71.59. D) 100. E) 103.4.

100) The table below shows total output for an economy over 2 years. 100)

2017 Price Quantity

coconuts $1.00 100 units
bananas $3.00 200 units
pineapples $6.00 100 units

2018 Price Quantity

coconuts $2.00 120
bananas $4.00 200
pineapples $8.00 90

TABLE 20-8

Refer to Table 20-8. The implicit GDP deflator in 2018 (using 2018 as the base year) is
A) 114.6. B) 103.4. C) 139.7. D) 100. E) 71.59.

23
101) 101)

FIGURE 20-1

Refer to Figure 20-1. Which of the following years was used as the base year for constructing real
GDP?
A) 1995 B) 2000 C) 2003 D) 2005 E) 2010

24
102) 102)

FIGURE 20-1

Refer to Figure 20-1. Nominal GDP increased by approximately ________% between 2000 and
2005.
A) 85 B) 100 C) 20 D) 45 E) 65

25
103) 103)

FIGURE 20-1

Refer to Figure 20-1. Real GDP increased by approximately ________% between 1995 and 2010.
A) 75 B) 17 C) 9 D) 35 E) 52

104) If nominal GDP in some year is $3800 and the GDP deflator for the same year is 152, then the real 104)
GDP for that year is
A) $3800. B) $3500. C) $5776. D) $2280. E) $2500.

105) A country's computed GDP deflator 105)

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

106) Consider Canada's GDP deflator and Consumer Price Index (CPI). Now suppose the prices of the 106)
following goods and services increased. Which is likely to have a larger effect on the GDP deflator
than the CPI?
A) bananas
B) consumer electronics
C) Hollywood movies
D) forest products
E) chocolate

26
107) Consider Canada's GDP deflator and Consumer Price Index (CPI). Now suppose the prices of the 107)
following goods and services increased. Which is likely to have a larger direct effect on the CPI
than the GDP deflator?
A) aircraft engines
B) engineering services
C) consumer electronics
D) lumber
E) car parts

108) One major reason that GDP is an inaccurate measure of the true level of economic activity is that 108)
A) it includes net exports.
B) it does not include non-market activities.
C) it is statistically very inaccurate.
D) people frequently buy things they do not want.
E) it cannot be adjusted for changes in prices.

109) One major reason that GDP is an inaccurate measure of the "quality of life" is that 109)
A) it includes net exports.
B) it cannot be adjusted for changes in prices.
C) people frequently buy things they do not want.
D) it is statistically very inaccurate.
E) it does not include the value of leisure.

110) One reason that real GDP tends to overstate the economic well-being of the country's residents is 110)
that it ignores
A) illegal activities, such as the drug trade.
B) the market-based activity done from the home.
C) non-market activities, such as teenaged-babysitting services.
D) the economic "bads" associated with production, such as pollution.
E) the costs of increased leisure time.

111) Measures of GDP may understate the economic well-being of people in developing countries if 111)
those countries tend to
A) have very high rates of pollution.
B) import much more than they export.
C) emphasize agricultural and resource-based production.
D) have a large share of nonmarket activities.
E) have a high degree of foreign direct investment.

112) Which of the following statements about the underground economy and how it relates to GDP is 112)
correct?
A) Activity in the underground economy is illegal and therefore should not be included in any
measure of legitimate economic activity.
B) Transactions in the underground economy are legal and therefore an estimate of their total
value is included in GDP.
C) Transactions in the underground economy are not legal, are not reported for tax purposes,
and therefore not included in GDP.
D) Transactions in the underground economy are legal but are not reported for tax purposes,
and therefore not included in GDP.
E) Activity in the underground economy in Canada is estimated at over 25% of the value of
GDP, which therefore significantly understates total output.

27
113) Which of the following is included in current calculations of GDP? 113)
A) computers produced here and exported to Europe
B) the value of vegetables consumed by the home gardener
C) the value of a vintage automobile purchased from the previous owner
D) volunteer work
E) welfare payments

114) Statistics Canada excludes from GDP the value of goods and services exchanged "under the 114)
counter" because
A) these goods do not contribute to well-being.
B) Statistics Canada is responsible for making an ethical decision about which activities to
exclude from national income measures.
C) their production has zero opportunity cost.
D) satisfactory methods for their measurement have not been developed.
E) these goods are all intermediate goods.

115) Why are illegal activities, unreported activities, and non-market activities excluded from GDP? 115)
A) They are morally repugnant.
B) They are difficult to measure.
C) They do not contribute to human welfare.
D) They do not have an opportunity cost.
E) The do not contribute to the true national output of goods and services.

116) Which of the following is excluded from GDP? 116)

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

117) Using GDP as a measure of the economic well-being of a country can be criticized for ignoring 117)
non-market and other activities. However, it remains useful because
A) it provides a good indication of household income distribution when measured from the
income side.
B) GDP is the best measure we have of the effects of economic "bads" on the well-being of the
country.
C) the change in GDP from one year to the next is a good indication of what rates of inflation
and unemployment will be.
D) the change that is measured in GDP from one year to the next is a good indication of the
change in economic activity.
E) it is simply not possible to reform the current measure of GDP.

28
118) Researchers have been developing broad indexes of "social well -being" as an alternative to 118)
measures of per capita GDP. What are they trying to capture with such a measure?
A) Variations in the true purchasing power of income, especially as influenced by changes in
interaction between prices and the exchange rate.
B) Movement in variables that are important to people's well-being, such as environment,
education, and leisure, that are not captured in current measures of per capita income.
C) Detailed measures of the various components of GDP that have meaningful impact on the
social well-being of individuals and households.
D) The variation in aggregate consumption because consumption is a better measure of
individual well-being than income.
E) Variation in aggregate income adjusted for variations in the country's net foreign asset
position.

119) Consider the following statement: "An increase in per capita income guarantees an increase in 119)
living standards." Is this statement true or false, and why?
A) False. Living standards have no statistical correlation with per capita income, and so such a
guarantee is not possible.
B) True. Per capita income is the most important contributor to living standards.
C) True. The measure of living standards is a subset of per capita income, so when one measure
increases, the other measure must also increase.
D) False. Per capita income could be increasing while at the same time living standards are
deteriorating due to, for example, environmental degradation or a decline in social cohesion.
E) Impossible to determine because "living standards" is a subjective concept that cannot be
measured.

120) Country X is highly ranked in terms of social well-being but is much lower ranked in terms of per 120)
capita GDP. A possible explanation is
A) Country X has high levels of social cohesion, income security and environmental protection.
B) Country X has high GDP growth but low population growth.
C) Country X has a high level of income inequality.
D) Country X has a higher than average rate of real economic growth.
E) Country X has average performance in terms of non -income-related determinants of
well-being.

29
Answer Key
Testname: UNTITLED6

1) B
2) D
3) B
4) B
5) D
6) C
7) C
8) E
9) B
10) C
11) B
12) C
13) D
14) D
15) E
16) E
17) B
18) A
19) B
20) C
21) C
22) D
23) B
24) D
25) A
26) C
27) A
28) B
29) C
30) A
31) A
32) B
33) C
34) A
35) A
36) D
37) A
38) C
39) D
40) E
41) D
42) A
43) E
44) A
45) A
46) B
47) A
48) A
49) B
50) A
30
Answer Key
Testname: UNTITLED6

51) E
52) E
53) A
54) B
55) D
56) E
57) B
58) A
59) C
60) A
61) D
62) B
63) E
64) C
65) E
66) A
67) D
68) D
69) A
70) B
71) C
72) A
73) B
74) C
75) B
76) A
77) C
78) D
79) B
80) B
81) B
82) D
83) B
84) B
85) A
86) A
87) D
88) E
89) E
90) B
91) E
92) E
93) C
94) E
95) B
96) B
97) A
98) A
99) B
100) D
31
Answer Key
Testname: UNTITLED6

101) C
102) C
103) D
104) E
105) D
106) D
107) C
108) B
109) E
110) D
111) D
112) D
113) A
114) D
115) B
116) C
117) D
118) B
119) D
120) A

32