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Department
Administrative Studies
Course
ADMS 2400
Professor
Paul Favaro
Semester
Fall

Description
Economics: Canada in the Global Environment, 7e (Parkin) Chapter 20 Measuring GDP and Economic Growth 20.1 Gross Domestic Product 1) Gross domestic product is A) the final value of all goods produced in a country in a given time period. B) the market value of all goods and services produced in a country during a given time period. C) the market value of all the final goods and services produced in a country during a given time period. D) the average value of output produced in a country in a given time period. E) the market value of all the intermediate goods and services produced in a country during a given time period. Answer: C Diff: 3 Topic: Gross Domestic Product 2) In calculating GDP, economists use the value of final goods and services because A) by using final goods and services, they avoid double counting. B) final goods can be exported to other countries. C) intermediate goods are imported from other countries. D) GDP is underestimated if intermediate goods are used instead. E) none of the above. Answer: A Diff: 3 Topic: Gross Domestic Product 3) Which of the following statements is true? A) Final goods and services produced abroad by Canadians are part of Canadian GDP. B) Final goods and services produced in Canada by foreigners are part of the foreign country's GDP. C) Final goods and services produced in Canada by foreigners are part of Canada's GDP. D) Final goods and services produced in Canada by foreigners are imports. E) Final goods and services produced in Canada by foreigners are exports. Answer: C Diff: 3 Topic: Gross Domestic Product 4) The circular flow diagram illustrates the expenditures made by A) households only. B) households and firms only. C) households and investors only. D) firms, households, and governments only. E) households, firms, governments, and the rest of the world. Answer: E Diff: 1 Topic: Gross Domestic Product 1 © 2010 Pearson Education Canada 5) In the circular flow model, A) households are sellers of factor services in goods markets. B) households are buyers of goods and services in the factor markets. C) firms are sellers of the factors in factor markets. D) firms are sellers of goods and services in goods markets. E) firms are buyers of goods and services in final markets. Answer: D Diff: 1 Topic: Gross Domestic Product 6) The circular flow model is used to A) show how nominal GDP is distinct from real GDP. B) explain how the prices of factors are determined. C) show the effects of inflation in a simple economy. D) show the real flows and money flows between different sectors of the economy. E) show the stocks of various sectors of the economy. Answer: D Diff: 1 Topic: Gross Domestic Product 7) The purchasers in the goods and services market are A) households and government only. B) households and firms only. C) households and net exporters only. D) households, firms, and government only. E) households, firms, government, and those who import our goods. Answer: E Diff: 1 Topic: Gross Domestic Product 8) Of the following items, which one would be considered as investment in the National Income and Expenditure Accounts? A) The purchase of a new van by a potter who packs it with his wares and travels to art shows on weekends. B) The purchase of 100 shares of Bell Canada stock on the Toronto Stock Exchange. C) The purchase of a 100-year-old house that was put on the protected historic sites list. D) The purchase of a Canadian government bond. E) All of the above. Answer: A Diff: 1 Topic: Gross Domestic Product 2 © 2010 Pearson Education Canada 9) Complete the following sentence. Net exports equals A) exports divided by imports. B) exports plus imports. C) exports minus imports. D) imports minus exports. E) foreign borrowing by residents of Canada minus domestic borrowing by nonresidents of Canada. Answer: C Diff: 1 Topic: Gross Domestic Product 10) In the National Income and Expenditure Accounts, government expenditure refers to spending on goods and services by A) federal and provincial governments only. B) the federal government only. Provincial and local government expenditures are included in provincial GDP calculations. C) provincial and local governments only. D) federal, provincial, and local governments. E) the federal government and local governments only. Provincial government expenditures are included in provincial GDP calculations. Answer: D Diff: 1 Topic: Gross Domestic Product 11) Which one of the following is an expenditure flow from households to firms? A) Goods and services. B) Factor services. C) Payments for goods and services. D) Payments for factor services. E) Loans. Answer: C Diff: 1 Topic: Gross Domestic Product 12) Which one of the following is an income flow from firms to households? A) Goods and services. B) Factor services. C) Payments for goods and services. D) Payments for factor services. E) Loans. Answer: D Diff: 1 Topic: Gross Domestic Product 3 © 2010 Pearson Education Canada 13) Which one of the following flows from firms to households? A) Goods and services. B) Factor services. C) Payments for goods and services. D) Payments for loans. E) Loans. Answer: A Diff: 1 Topic: Gross Domestic Product 14) For the aggregate economy, income equals A) expenditure, but these are not generally equal to GDP. B) GDP, but expenditure is generally less than these. C) expenditure equals GDP. D) expenditure equals GDP only if there is no government or foreign sectors. E) expenditure equals GDP only if there is no depreciation. Answer: C Diff: 2 Topic: Gross Domestic Product Source: Study Guide 15) Which one of the following is false? A) Y = C + I + G + M - X B) Y - C - I - G - X + M = 0 C) X - M = Y - C - I - G D) Y + M = C + I + G + X E) Y = C + I + G + X - M Answer: A Diff: 3 Topic: Gross Domestic Product 16) Which one of the following is true? A) Y = C + I + G + M - X B) I + G + X = Y + I + M C) Y = C + S + I D) Y + M = C + I + G E) Y = C + I + G + X - M Answer: E Diff: 3 Topic: Gross Domestic Product 4 © 2010 Pearson Education Canada 17) Which of the following is not correct? A) Investment is the purchase of plant, equipment, and buildings and the additions to inventories. B) Net investment equals gross investment minus depreciation. C) Depreciation decreases the value of a firm's capital. D) Gross investment is the amount by which the value of capital increases. E) Gross investment is the total amount spent buying new capital and replacing depreciated capital. Answer: D Diff: 2 Topic: Gross Domestic Product 18) Suppose the economy's capital increases over the year. It must be true that A) net investment was greater than gross investment. B) net investment was positive. C) depreciation was greater than net investment. D) depreciation was greater than gross investment. E) depreciation is less than zero. Answer: B Diff: 2 Topic: Gross Domestic Product 19) SaskWidget produces plastic parts. At the beginning of the year, they held $24 million worth of capital. At the end of the year, they held $20 million worth of capital. One can conclude that A) net investment increased by $4 million. B) gross investment decreased by $4 million. C) gross investment increased by $4 million. D) depreciation exceeded gross investment by $4 million. E) depreciation equals $4 million. Answer: D Diff: 2 Topic: Gross Domestic Product 20) One of the reasons why real GDP grows is that A) prices increase. B) governments collect more taxes. C) capital grows as a result of investment. D) imports increase. E) people have more income. Answer: C Diff: 2 Topic: Gross Domestic Product 5 © 2010 Pearson Education Canada 21) Which of the following would be an example of a consumption expenditure? A) More spending by the government on children's programs. B) An increase in welfare payments to single mothers. C) The purchase of a new car by the IPSCO steel company. D) The purchase of a new car by the Singh household. E) All of the above. Answer: D Diff: 2 Topic: Gross Domestic Product Source: Study Guide 22) The change in capital from year to year is equal to A) gross investment. B) gross investment minus net investment. C) savings. D) net investment minus depreciation E) gross investment minus depreciation. Answer: E Diff: 2 Topic: Gross Domestic Product 23) Capital in year 2010 equals capital in year 2009 A) minus depreciation. B) plus net investment plus depreciation. C) plus gross investment. D) plus net investment. E) plus net investment minus depreciation. Answer: D Diff: 2 Topic: Gross Domestic Product Source: Study Guide 6 © 2010 Pearson Education Canada Use the figure below to answer the following questions. Figure 20.1.1 24) Refer to Figure 20.1.1, which shows the circular flow of expenditure and income for Venus. During 2008, A was $100, B was $50, C was $30 and D was $10. How much is GDP? A) $75. B) $50. C) $90. D) $100. E) None of the above. Answer: D Diff: 2 Topic: Gross Domestic Product 25) Refer to Figure 20.1.1, which shows the circular flow of expenditure and income for Venus. During 2008, A was $100, B was $50, C was $30 and D was $10. How much is net exports? A) $10. B) $25. C) $30. D) $50. E) None of the above. Answer: A Diff: 2 Topic: Gross Domestic Product 7 © 2010 Pearson Education Canada 26) Refer to Figure 20.1.1, which shows the circular flow of expenditure and income for Venus. During 2008, A was $100, B was $50, C was $30 and D was $10. How much is aggregate expenditure? A) $50. B) $75. C) $90. D) $100. E) None of the above. Answer: D Diff: 3 Topic: Gross Domestic Product 27) Refer to Figure 20.1.1, which shows the circular flow of expenditure and income for Venus. During 2008, A was $100, B was $50, C was $30 and D was $10. What is aggregate income? A) $25. B) $50. C) $75. D) $90. E) $100. Answer: E Diff: 2 Topic: Gross Domestic Product Use the information below to answer the following questions. Fact 20.1.1 At the beginning of 2008, Peter's Perfectly Prickly Piercing Parlour had $5,000 worth of bellybutton and eyebrow rings on hand, 2 computers (each worth $1,000), 1 cash register worth $100, paper supplies worth $500, and one piercing needle worth $500. At the end of 2008, they had $5,000 worth of bellybutton and eyebrow rings, a new high speed computer worth $3,000 (they had to throw out the old ones), the same cash register, which was now worthless, paper supplies worth $600, and they had upgraded the needle at a cost of $700 which was valued at $1,000. 28) Refer to Fact 20.1.1. Peter's capital at the beginning of 2008 is A) $8,100. B) $7,000. C) $3,100. D) $7,600. E) $5,000. Answer: A Diff: 2 Topic: Gross Domestic Product 8 © 2010 Pearson Education Canada 29) Refer to Fact 20.1.1. Peter's capital at the end of 2008 is A) $7,000. B) $9,600. C) $4,400. D) $7,600. E) $4,000. Answer: B Diff: 2 Topic: Gross Domestic Product 30) Refer to Fact 20.1.1. Peter's gross investment in 2008 is A) $2,800. B) $3,800. C) $1,800. D) $7,800. E) $5,800. Answer: B Diff: 3 Topic: Gross Domestic Product 31) Refer to Fact 20.1.1. Peter's depreciation in 2008 is A) $2,300. B) $800. C) zero. D) $1,000. E) $3,000. Answer: A Diff: 2 Topic: Gross Domestic Product 32) Refer to Fact 20.1.1. Peter's net investment in 2008 is A) $2,000. B) $3,800. C) $1,800. D) $7,800. E) $1,500. Answer: E Diff: 2 Topic: Gross Domestic Product 9 © 2010 Pearson Education Canada 33) The value of intermediate goods is not counted in GDP A) to keep from including goods that reduce society's welfare. B) because of the tremendous difficulty in keeping track of all the intermediate goods produced in an economy as large as that of Canada. C) because they are only sold in factor markets. D) to avoid counting their value twice and overstating the value of GDP. E) because they are not consumed in the current year. Answer: D Diff: 2 Topic: Gross Domestic Product 34) Intermediate goods are A) sold to their ultimate user. B) produced by one firm, bought by another firm, and used as a component of a final good or service. C) included directly in the measure of GDP. D) capital. E) purchased this year but consumed in future years. Answer: B Diff: 1 Topic: Gross Domestic Product 35) An art collector recently sold a piece of pottery for $300. He had purchased it for $200 two years earlier. How will the most recent sale affect GDP? A) GDP will increase by $100. B) GDP will not change. C) GDP will increase by $300. D) GDP will increase by $200. E) GDP 2 years ago must be adjusted downwards by $200, and current GDP will rise by $300. Answer: B Diff: 2 Topic: Gross Domestic Product 36) Which of the following would not be included in GDP for 2009? A) A car produced in 2009 and held in inventory until 2010. B) A car produced in 2009 and sold in 2010. C) The value of all cars produced in 2009. D) A car produced in January of 2009 and sold in November of 2009. E) A car produced in 2008 and sold in 2009. Answer: E Diff: 2 Topic: Gross Domestic Product 10 © 2010 Pearson Education Canada 37) Stock and bond sales are not included in GDP because they A) do not occur in the year in which the production represented by them takes place. B) represent corporate production. C) represent indebtedness. D) are not goods and services. E) are not sold in the country in which they are produced. Answer: D Diff: 2 Topic: Gross Domestic Product 38) In calculating GDP, all of the following are excluded except A) the value of intermediate goods. B) the value of all homes built in the year in question. C) the value of used goods. D) purchases of stocks and bonds. E) subsidies from the government. Answer: B Diff: 2 Topic: Gross Domestic Product 39) From the following list, choose the item that would be included in a current measure of GDP. A) the purchase of a previously owned house that was built last year B) a social security cheque for $500 C) the purchase of 10 litres of gasoline for your car D) a $2,000 cheque from your aunt Grace E) income from the sale of your Canadian Snowfun stocks Answer: C Diff: 1 Topic: Gross Domestic Product 40) Which one of the following would not be counted as part of this year's GDP? A) The lumber you purchase when building bookshelves for your room. B) The government bond you buy for your newborn niece. C) The purchase of a new personal computer that was produced in the current year. D) The purchase of wheat that was produced in the current year by a Saskatchewan farmer. E) The purchase of a house that was produced in the current year. Answer: B Diff: 1 Topic: Gross Domestic Product 11 © 2010 Pearson Education Canada 41) How much would the production of a kayak add to GDP if the shell costs $250, the paint costs $20, the finisher costs $35, the manufacturer sold it to the dealer for $500, and the dealer sold it to his customer for $800? A) $1,605. B) $1,300. C) $500. D) $305. E) $800. Answer: E Diff: 2 Topic: Gross Domestic Product 42) Which of the following adds to Canadian GDP? A) I shovel my own driveway. B) I sell my used Honda. C) The production and sale of flour to a bakery. D) The purchase of a CD made in China. E) The ice cream I buy from my grocery store. Answer: E Topic: Gross Domestic Product Source: Study Guide 43) A bakery uses flour to produce bread. When calculating GDP, we include ________, because when we add the value of the flour to the value of the loaf of bread to calculate GDP, the result is ________. A) only the value of the bread sold in a store; double counting B) only the value of the flour used to produce the bread; double counting C) both the value of the bread sold in a store and the value of the flour used to produce the bread; double counting D) both the value of the bread sold in a store and the value of the flour used to produce the bread; the true value of the economy's output E) none of the above Answer: A Topic: Gross Domestic Product Source: MyEconLab 44) The firm that printed your textbook bought the paper from XYZ Paper Mills. This purchase of paper ________ part of GDP because the paper is ________ good. A) is not; a final B) is not; an intermediate C) is; an intermediate D) is; a final E) is; a nonrenewable Answer: B Topic: Gross Domestic Product Source: MyEconLab 12 © 2010 Pearson Education Canada 20.2 Measuring Canada's GDP 1) To measure GDP, Statistics Canada uses A) the expenditure approach. B) the income approach. C) the value-added approach. D) only A and B. E) A, B and C. Answer: D Diff: 2 Topic: Measuring Canada's GDP 2) A hypothetical economy produced four final goods during the year: plates, TVs, bicycles, and computers. Forty plates were produced and sold for $10 each. Five TVs were produced and sold for $300 each. Fifty bicycles were produced and sold for $100 each. Three computers were produced and sold for $750 each. With this information, one could determine A) gross investment for this economy. B) net investment for this economy. C) indirect taxes less subsidies for this economy. D) whether factors had been fully employed in this economy. E) total income for this economy. Answer: E Diff: 2 Topic: Measuring Canada's GDP 3) Suppose the economy of Econoworld produces only two goods, kayaks and birdseed. In one year 20 kayaks are produced and sold for $1,000 each and 10 bags of birdseed are produced and sold for $30 each. The value of nominal GDP for this year is A) $20,000. B) $300. C) $20,300. D) $23,000. E) 20 kayaks plus 10 bags of birdseed. Answer: C Diff: 1 Topic: Measuring Canada's GDP 13 © 2010 Pearson Education Canada 4) The expenditure approach measures GDP by adding together A) wages, salaries and supplementary labour income, corporate profits, interest and miscellaneous investment income, farmers' income, and income of nonfarm unincorporated businesses. B) wages, salaries and supplementary labour income, corporate profits, interest and miscellaneous investment income, farmers' income, subsidies paid by the government, indirect taxes paid, and income of nonfarm unincorporated businesses. C) compensation of employees, rental income, corporate profits, net interest, proprietors' income, indirect taxes paid, and capital consumption expenditures, and by subtracting subsidies paid by the government. D) the total expenditures of consumers, firms, net exporters, and by governments at all levels. E) the total expenditures of consumers and firms. Answer: D Diff: 2 Topic: Measuring Canada's GDP 14 © 2010 Pearson Education Canada Use the table below to answer the following questions. Table 20.2.1 Data From Eastland Wages, salaries, and supplementary labour income 800 Farmers' income 80 Government expenditures on goods and services 240 Depreciation 240 Business investment 400 Personal income taxes net of transfer payments 140 Corporate profits 80 Indirect taxes 120 Net exports 80 Consumption expenditure 640 Interest and miscellaneous investment income 100 5) Refer to Table 20.2.1. From the information given in the table, the value of gross domestic product is A) $1,280. B) $1,290. C) $1,360. D) $1,120. E) $1,100. Answer: C Diff: 2 Topic: Measuring Canada's GDP 6) Refer to Table 20.2.1. From the information given in the table, the value of net domestic income at factor prices is A) $1,280. B) $1,290. C) $1,360. D) $1,120. E) $1,100. Answer: D Diff: 3 Topic: Measuring Canada's GDP 15 © 2010 Pearson Education Canada 7) Refer to Table 20.2.1. From the data in the table, what is the net investment in Eastland? A) -$160. B) $160. C) $240. D) $400. E) $500. Answer: B Diff: 1 Topic: Measuring Canada's GDP Source: Study Guide 8) Refer to Table 20.2.1. From the data in the table, what additional data are needed to compute net domestic income at factor cost? A) Income of non-farm unincorporated businesses. B) Transfer payments. C) Subsidies. D) Depreciation. E) Net taxes. Answer: A Diff: 2 Topic: Measuring Canada's GDP Source: Study Guide 9) Refer to Table 20.2.1. From the data in the table, what is total income in Eastland? A) $1,120. B) $1,180. C) $1,360. D) $1,420. E) $1,280. Answer: C Diff: 2 Topic: Measuring Canada's GDP 10) The largest component of GDP using the expenditure approach is A) investment. B) consumption expenditure. C) exports. D) government expenditure. E) imports. Answer: B Diff: 1 Topic: Measuring Canada's GDP 16 © 2010 Pearson Education Canada 11) Which one of the following would be included in the calculation of GDP by the expenditure approach? A) the purchase of 20 shares of a new issue of IBM stock B) the purchase of an original eighteenth century work of art C) the value of your brother's services when he mows the lawn for the family D) the cost of adding a new kitchen to your house E) the income you pay to your gardener Answer: D Diff: 2 Topic: Measuring Canada's GDP Use the table below to answer the following questions. Table 20.2.2 Government expenditures on goods and services $ 500 Wages, salaries, and supplementary labour income 2,000 Depreciation 400 Investment 400 Consumption expenditure 2,200 Net exports -50 Indirect taxes 150 Statistical discrepancy 0 12) Refer to Table 20.2.2. Gross domestic product equals A) $3,050. B) $3,150. C) $3,400. D) $5,600. E) $5,050. Answer: A Diff: 1 Topic: Measuring Canada's GDP 13) Refer to Table 20.2.2. Net domestic income at market prices equals A) $3,050. B) $3,150. C) $3,400. D) $4,650. E) $2,650. Answer: E Diff: 2 Topic: Measuring Canada's GDP 17 © 2010 Pearson Education Canada 14) Which one of the following is not an example of investment in the expenditure approach to measuring GDP? General Motors A) buys a new auto stamping machine. B) adds 500 new cars to inventories. C) buys shares in another company. D) builds another assembly plant. E) replaces some worn-out stamping machines. Answer: C Diff: 1 Topic: Measuring Canada's GDP Use the table below to answer the following questions. Table 20.2.3 15) Refer to Table 20.2.3. Consider the economy represented in the table. GDP in this economy, in millions of dollars, is A) $1,150,000 B) $850,000. C) $1,350,000. D) $1,050,000. E) none of the above. Answer: D Diff: 2 Topic: Measuring Canada's GDP 18 © 2010 Pearson Education Canada 16) Refer to Table 20.2.3. Consider the economy represented in the table. Total income, in millions of dollars, is A) $800,000. B) $850,000. C) $1,350,000. D) $1,050,000. E) none of the above. Answer: D Diff: 2 Topic: Measuring Canada's GDP 17) The income approach to measuring GDP is derived by adding together A) wages, salaries and supplementary labour income, corporate profits, interest and miscellaneous investment income, farmers' income, subsidies paid by the government, indirect taxes paid, and income of non-farm unincorporated businesses. B) wages, salaries and supplementary labour income, corporate profits, interest and miscellaneous investment income, farmers' income, and income of non-farm unincorporated businesses, plus indirect taxes less subsidies, plus depreciation. C) the value added of each firm in the economy. D) the value added of each firm in the economy, indirect business taxes, depreciation, and by subtracting subsidies paid by the government. E) the total expenditures of consumers, investors, net exporters, and purchases of all levels of government. Answer: B Diff: 2 Topic: Measuring Canada's GDP 18) Net domestic income at market prices can be derived by which one of the following? GDP (income approach) minus A) taxes. B) corporate profits. C) subsidies. D) consumption expenditure. E) depreciation. Answer: E Diff: 1 Topic: Measuring Canada's GDP 19) The largest component of GDP from the income approach is A) wages, salaries, and supplementary labour income. B) interest and miscellaneous investment income. C) corporate profits. D) farmers' income. E) income of non-farm unincorporated businesses. Answer: A Diff: 1 Topic: Measuring Canada's GDP 19 © 2010 Pearson Education Canada 20) The sum of wages, salaries and supplementary labour income, corporate profits, interest and miscellaneous investment income, farmers' income, and income of non-farm unincorporated businesses, is A) gross domestic product. B) gross domestic income. C) net domestic income at factor cost. D) net domestic product. E) total output of the economy. Answer: C Diff: 2 Topic: Measuring Canada's GDP 21) In the Canadian economy, market prices and factor costs would be the same except for A) depreciation. B) exports. C) personal taxes. D) indirect taxes and subsidies. E) capital consumption. Answer: D Diff: 2 Topic: Measuring Canada's GDP 22) Net domestic income at market prices equals A) consumption expenditure plus government expenditure plus net exports plus investment. B) consumption expenditure plus governm
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