Question 1

Which of the following activities is NOT included in the calculation of a country's GDP?

Accepted Answer

A homeowner mowing their own lawn

Question 2

Suppose a country has a large informal sector. Which of the following is a likely consequence for its official GDP figures?

Accepted Answer

GDP figures will understate the country's total economic activity.

Question 3

Which of the following best explains why GDP is considered a poor proxy for well-being in countries with high income inequality?

Accepted Answer

GDP per capita is an average and does not reflect how income is distributed among individuals.

Question 4

If a country experiences a significant increase in crime-related spending, what is the likely effect on its GDP and actual welfare?

Accepted Answer

GDP increases, but actual welfare may decrease.

Question 5

Which of the following is an example of an externality that is NOT subtracted from GDP calculations?

Accepted Answer

Environmental damage from oil extraction

Question 6

A country has a mean (average) income of $$55,000 and a median income of 38$$,000. What does this suggest about the country's income distribution?

Accepted Answer

Income distribution is right-skewed, with a long tail of high earners.

Question 7

Which of the following best describes the shadow (informal) economy?

Accepted Answer

It consists of transactions that are not reported to authorities and are excluded from official GDP.

Question 8

Why did measured GDP increase when women entered paid employment in large numbers, even if total economic output did not change significantly?

Accepted Answer

Because more market wages were recorded, replacing unpaid household labor.

Question 9

Which of the following is a reason why the informal sector tends to be larger in low-income countries?

Accepted Answer

Economic necessity due to fewer formal job opportunities

Question 10

Suppose a country wants to adjust its GDP to better reflect well-being. Which of the following methods would help achieve this?

Accepted Answer

Adding estimates of household production using opportunity-cost methods

Question 11

If the Gini coefficient in a country rises from $$0.41 to$$ $$0.48$$, what does this indicate?

Accepted Answer

Income inequality has increased.

Question 12

Which of the following is NOT a reason why the informal sector grows?

Accepted Answer

Strong enforcement of labor regulations

Question 13

A country has a GDP per capita of $$40,000$$ and a population of $$10$$ million. What is its total GDP?

Accepted Answer

$$400$$ billion

Question 14

Which of the following is an example of a market transaction that WOULD be included in GDP?

Accepted Answer

A professional cleaning service paid by a business

Question 15

GDP's 'blind spot' refers to its failure to account for which of the following?

Accepted Answer

Leisure time and non-market values

Question 16

If pollution clean-up costs are included in GDP, but the environmental damage itself is not subtracted, what is the likely effect on GDP and welfare?

Accepted Answer

GDP increases, but welfare may decrease.

Question 17

Which formula correctly calculates GDP per capita?

Accepted Answer

$$ 	ext{GDP per capita} = \frac{	ext{Total GDP}}{	ext{Population}} $$

Question 18

Which of the following is a limitation of using GDP as a measure of national welfare?

Accepted Answer

GDP does not account for the distribution of income among citizens.

Question 19

If a country has a high mean income but a much lower median income, what does this suggest about its income distribution?

Accepted Answer

A small number of high earners are pulling up the average.

Question 20

Which of the following would NOT be counted in GDP, and why?

Accepted Answer

A volunteer teaching free classes, because there is no market price.

Limitations of GDP: Household Production, Informal Economy, and Non-Market Values

Study Guide - Practice Questions