Chapter 5âMeasuring a Nation's Income
Chapter 5—Measuring a Nation's Income
Problem set
1. Which of the following headlines would be most closely related to what macroeconomists study? a. Unemployment rate rises from 5 percent to 5.5 percent. b. The price of gold grows by 3.1 percent in the third quarter. c. The number of tourists visiting Canadian national parks has declined. d. The price of oranges rises after an early frost. 2. Which of the following topics are studied in macroeconomics? a. national output, the inflation rate, and the trade deficit b. the price of Cisco stock, wage differences between genders, and antitrust laws c. differences in market structure and how consumers maximize utility d. the effect of trade tariffs on prices and patterns of international trade 3. Which of the following statistics is the best single measure of an economy's well-being? a. the unemployment rate b. the inflation rate c. GDP d. the trade deficit 4. If GDP rises, what happens? a. Income and expenditure must both rise. b. Income and expenditure must both fall. c. Income must rise, but expenditure may rise or fall. d. Expenditure must rise, but income may rise or fall. 5. In a simple circular-flow diagram, how are total income and total expenditure interrelated? a. They are seldom equal because of the dynamic changes that occur in an economy. b. They are equal only when all goods and services produced are sold. c. They are always equal because every transaction has a buyer and a seller. d. They are always equal because of accounting rules. 6. In an economy consisting of only households and firms, how can GDP be computed? a. by adding up the total expenditures of households and subtracting savings b. by adding up the income paid by firms only in exchange for labour c. by adding up either total income paid by firms, or total expenditures of households, but not both d. by adding up both the total expenditures of households and total income paid by firms 7.
Which of the following is the correct definition of GDP? a. the market value of all goods produced within a country b. the market value of all final goods and services produced by the citizens of a country c. the market value of all final goods and services consumed within a country over a number of years d. the market value of all final goods and services produced within a country in a given period of time
8. In order to include many different products in an aggregate measure, how is GDP computed? a. using values of goods based on surveys of consumers b. using primarily costs of production c. using primarily market prices d. using weights that are computed by how much of a particular good is produced relative to total output 9. How is the value of housing service provided by the economy's stock of houses included in GDP? a. It is not included in GDP since it is not sold on the market. b. It is counted and is valued as the mortgage payment made on the house. c. It is counted and uses only the purchase price of the house in the year it is sold. d. It is counted and is based on an estimate of its rental value. 10. Suppose that an apartment complex converts to a condominium where the renters are now owners of their former apartments. What is included in GDP? a. The rent was included in GDP; the purchases of the condominiums are not. b. The rent was included in GDP, and so is the purchase of the condominiums. c. The rent was not included in GDP; the purchases of the condominiums are. d. The rent was not included in GDP; the purchases are not included either. 11. Suppose that an apartment complex converts to a condominium where the renters are now owners of their former apartments. Suppose that an estimate of the value of the condominium owners' housing services is now the same as their former rent. What happens to GDP? a. GDP necessarily increases. b. GDP necessarily decreases. c. GDP is unaffected because neither the rent nor the estimate of the value of housing services is included in GDP. d. GDP is unaffected because previously rent was included in GDP, and now it is replaced by the estimate of the value of housing services. 12. Over the past few decades Canadians have chosen to cook less at home and eat more at restaurants. What effect has this practice had on GDP? a. It has increased measured GDP. b. It has reduced measured GDP. c. It has not affected measured GDP. d. It has had an ambiguous effect on GDP. 13. How are intermediate goods accounted for when calculating GDP? a. The value of all intermediate goods is included in GDP. b. The value of intermediate goods is included in GDP only if they were produced in the previous year. c. The value of intermediate goods is included in GDP only if they are purchased by firms rather than households. d. The value of intermediate goods is not included in GDP unless they are part of inventory. 14. How are grapes treated in GDP terms? a. They are always counted as intermediate goods b. They are counted as intermediate goods only if they are used to produce another good like wine. c. They are counted as intermediate goods only if they are consumed. d. They are counted as intermediate goods whether they are used to produce other goods or consumed.
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15. How are goods that go into inventory and are not sold during the current period treated in GDP terms? a. They are counted as intermediate goods and so are not included in current-period GDP. b. They are counted in current GDP only if the firm that produced them sells them to another firm. c. They are included in current-period GDP as inventory investment. d. They are included in current-period GDP as consumption. 16. The local Chevrolet dealership has an increase in inventory of 25 cars in 2009. How will the sale of all 25 cars, in 2010, affect the GDP? a. The value of the cars will be counted as part of GDP in 2009, but not in 2010. b. The value of the cars will not affect the 2009 GDP, but will be included in 2010 GDP. c. The value of the cars will be included both in 2009 and 2010 GDP. d. The value of the cars will not be included in GDP in 2009 or 2010. 17. Darla, a U.S. citizen, only works in Canada. How does the value added to production from her employment impact GDP and GNP? a. It is included in both Canadian GDP and Canadian GNP. b. It is included only in Canadian GDP. c. It is included only in Canadian GNP. d. It is not included in either Canadian GDP or Canadian GNP. 18. How is Canadian GNP calculated from Canadian GDP? a. by including income earned by foreigners in Canada and excluding income earned by Canadian citizens abroad b. by including income earned by Canadian citizens abroad and excluding income earned by foreigners in Canada c. by including income earned by foreigners in Canada d. by excluding income earned by Canadian citizens abroad 19. In the national income accounts, what is depreciation called? a. "total tax depreciation" b. "capital consumption allowance" c. "consumption of circulating capital" d. "loss due to wear" 20. National income differs from net national product in that it includes business subsidies. Which of the following does national income exclude, as opposed to net national product? a. profits of corporations b. indirect business taxes c. retained earnings of corporations d. depreciation 21 What is the income that households and non-corporate businesses receive called? a. disposable personal income b. proprietors' income c. national income d. personal income
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Use the following table to answer the following questions. Table 5-1 GDP Income Earned by Citizens Abroad Income Foreigners Earned Here Depreciation Indirect Business Taxes Business Subsidies Statistical Discrepancy Retained Earnings Corporate Income Taxes Social Insurance Contributions Interest Paid to Households by Government Transfer Payments to Households from Government Personal Taxes Nontax Payments to Government
$200 15 25 7 12 4 0 8 10 14 6 20 35 10
22. Refer to Table 5-1. What is the GNP for this economy? a. $190 b. $193 c. $207 d. $215 23. Refer to Table 5-1. What is the NNP for this economy? a. $164 b. $170 c. $178 d. $183 24. Refer to Table 5-1. What is the national income for this economy? a. $170 b. $185 c. $175 d. $215 25. Refer to Table 5-1. What is the personal income for this economy? a. $154 b. $164 c. $170 d. $178
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5-4
Statistics Canada provides the following data on domestic expenditure. Fill in the missing data in the table. Gross domestic product, expenditure-based ($millions, at market prices) Year 2005 2006 2007 2008
2009
Gross domestic product Personal expenditure on consumer goods and services
758 966
801 742
851 603
890 351
898 728
Government current expenditure on goods and services
259 857
277 608
293 608
314 329
333 942
37 067 27
41 151 -41
45 321 15
50 955 29
59 078 -3
255 596
283 382
301 885
313 574
269 394
10 587 519 435
9 403 524 075
8 251 534 718
5 443 563 948
-8,177 438 553
468 270
487 674
505 055
539 012
464 722
Government gross fixed capital formation Government inventories Business gross fixed capital formation Business investment in inventories Exports of goods and services Deduct: Imports of goods and services
ANS: GDP is the sum of all expenditure items in the table except imports, which is subtracted. Expenditure-based GDP
1 373 265
Copyright © 2012 Nelson Education Limited
1 449 646
1 530 346
1 599 617
1 526 793
5-5
Problem set
1. Which of the following headlines would be most closely related to what macroeconomists study? a. Unemployment rate rises from 5 percent to 5.5 percent. b. The price of gold grows by 3.1 percent in the third quarter. c. The number of tourists visiting Canadian national parks has declined. d. The price of oranges rises after an early frost. 2. Which of the following topics are studied in macroeconomics? a. national output, the inflation rate, and the trade deficit b. the price of Cisco stock, wage differences between genders, and antitrust laws c. differences in market structure and how consumers maximize utility d. the effect of trade tariffs on prices and patterns of international trade 3. Which of the following statistics is the best single measure of an economy's well-being? a. the unemployment rate b. the inflation rate c. GDP d. the trade deficit 4. If GDP rises, what happens? a. Income and expenditure must both rise. b. Income and expenditure must both fall. c. Income must rise, but expenditure may rise or fall. d. Expenditure must rise, but income may rise or fall. 5. In a simple circular-flow diagram, how are total income and total expenditure interrelated? a. They are seldom equal because of the dynamic changes that occur in an economy. b. They are equal only when all goods and services produced are sold. c. They are always equal because every transaction has a buyer and a seller. d. They are always equal because of accounting rules. 6. In an economy consisting of only households and firms, how can GDP be computed? a. by adding up the total expenditures of households and subtracting savings b. by adding up the income paid by firms only in exchange for labour c. by adding up either total income paid by firms, or total expenditures of households, but not both d. by adding up both the total expenditures of households and total income paid by firms 7.
Which of the following is the correct definition of GDP? a. the market value of all goods produced within a country b. the market value of all final goods and services produced by the citizens of a country c. the market value of all final goods and services consumed within a country over a number of years d. the market value of all final goods and services produced within a country in a given period of time
8. In order to include many different products in an aggregate measure, how is GDP computed? a. using values of goods based on surveys of consumers b. using primarily costs of production c. using primarily market prices d. using weights that are computed by how much of a particular good is produced relative to total output 9. How is the value of housing service provided by the economy's stock of houses included in GDP? a. It is not included in GDP since it is not sold on the market. b. It is counted and is valued as the mortgage payment made on the house. c. It is counted and uses only the purchase price of the house in the year it is sold. d. It is counted and is based on an estimate of its rental value. 10. Suppose that an apartment complex converts to a condominium where the renters are now owners of their former apartments. What is included in GDP? a. The rent was included in GDP; the purchases of the condominiums are not. b. The rent was included in GDP, and so is the purchase of the condominiums. c. The rent was not included in GDP; the purchases of the condominiums are. d. The rent was not included in GDP; the purchases are not included either. 11. Suppose that an apartment complex converts to a condominium where the renters are now owners of their former apartments. Suppose that an estimate of the value of the condominium owners' housing services is now the same as their former rent. What happens to GDP? a. GDP necessarily increases. b. GDP necessarily decreases. c. GDP is unaffected because neither the rent nor the estimate of the value of housing services is included in GDP. d. GDP is unaffected because previously rent was included in GDP, and now it is replaced by the estimate of the value of housing services. 12. Over the past few decades Canadians have chosen to cook less at home and eat more at restaurants. What effect has this practice had on GDP? a. It has increased measured GDP. b. It has reduced measured GDP. c. It has not affected measured GDP. d. It has had an ambiguous effect on GDP. 13. How are intermediate goods accounted for when calculating GDP? a. The value of all intermediate goods is included in GDP. b. The value of intermediate goods is included in GDP only if they were produced in the previous year. c. The value of intermediate goods is included in GDP only if they are purchased by firms rather than households. d. The value of intermediate goods is not included in GDP unless they are part of inventory. 14. How are grapes treated in GDP terms? a. They are always counted as intermediate goods b. They are counted as intermediate goods only if they are used to produce another good like wine. c. They are counted as intermediate goods only if they are consumed. d. They are counted as intermediate goods whether they are used to produce other goods or consumed.
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5-2
15. How are goods that go into inventory and are not sold during the current period treated in GDP terms? a. They are counted as intermediate goods and so are not included in current-period GDP. b. They are counted in current GDP only if the firm that produced them sells them to another firm. c. They are included in current-period GDP as inventory investment. d. They are included in current-period GDP as consumption. 16. The local Chevrolet dealership has an increase in inventory of 25 cars in 2009. How will the sale of all 25 cars, in 2010, affect the GDP? a. The value of the cars will be counted as part of GDP in 2009, but not in 2010. b. The value of the cars will not affect the 2009 GDP, but will be included in 2010 GDP. c. The value of the cars will be included both in 2009 and 2010 GDP. d. The value of the cars will not be included in GDP in 2009 or 2010. 17. Darla, a U.S. citizen, only works in Canada. How does the value added to production from her employment impact GDP and GNP? a. It is included in both Canadian GDP and Canadian GNP. b. It is included only in Canadian GDP. c. It is included only in Canadian GNP. d. It is not included in either Canadian GDP or Canadian GNP. 18. How is Canadian GNP calculated from Canadian GDP? a. by including income earned by foreigners in Canada and excluding income earned by Canadian citizens abroad b. by including income earned by Canadian citizens abroad and excluding income earned by foreigners in Canada c. by including income earned by foreigners in Canada d. by excluding income earned by Canadian citizens abroad 19. In the national income accounts, what is depreciation called? a. "total tax depreciation" b. "capital consumption allowance" c. "consumption of circulating capital" d. "loss due to wear" 20. National income differs from net national product in that it includes business subsidies. Which of the following does national income exclude, as opposed to net national product? a. profits of corporations b. indirect business taxes c. retained earnings of corporations d. depreciation 21 What is the income that households and non-corporate businesses receive called? a. disposable personal income b. proprietors' income c. national income d. personal income
Copyright © 2012 Nelson Education Limited
5-3
Use the following table to answer the following questions. Table 5-1 GDP Income Earned by Citizens Abroad Income Foreigners Earned Here Depreciation Indirect Business Taxes Business Subsidies Statistical Discrepancy Retained Earnings Corporate Income Taxes Social Insurance Contributions Interest Paid to Households by Government Transfer Payments to Households from Government Personal Taxes Nontax Payments to Government
$200 15 25 7 12 4 0 8 10 14 6 20 35 10
22. Refer to Table 5-1. What is the GNP for this economy? a. $190 b. $193 c. $207 d. $215 23. Refer to Table 5-1. What is the NNP for this economy? a. $164 b. $170 c. $178 d. $183 24. Refer to Table 5-1. What is the national income for this economy? a. $170 b. $185 c. $175 d. $215 25. Refer to Table 5-1. What is the personal income for this economy? a. $154 b. $164 c. $170 d. $178
Copyright © 2012 Nelson Education Limited
5-4
Statistics Canada provides the following data on domestic expenditure. Fill in the missing data in the table. Gross domestic product, expenditure-based ($millions, at market prices) Year 2005 2006 2007 2008
2009
Gross domestic product Personal expenditure on consumer goods and services
758 966
801 742
851 603
890 351
898 728
Government current expenditure on goods and services
259 857
277 608
293 608
314 329
333 942
37 067 27
41 151 -41
45 321 15
50 955 29
59 078 -3
255 596
283 382
301 885
313 574
269 394
10 587 519 435
9 403 524 075
8 251 534 718
5 443 563 948
-8,177 438 553
468 270
487 674
505 055
539 012
464 722
Government gross fixed capital formation Government inventories Business gross fixed capital formation Business investment in inventories Exports of goods and services Deduct: Imports of goods and services
ANS: GDP is the sum of all expenditure items in the table except imports, which is subtracted. Expenditure-based GDP
1 373 265
Copyright © 2012 Nelson Education Limited
1 449 646
1 530 346
1 599 617
1 526 793
5-5
