Question 1

Which of the following best describes the circular flow of income in a simple economy?

Accepted Answer

Goods and services flow in one direction, and money payments flow in the opposite direction.

Question 2

Which of the following transactions would be included in the calculation of a country's GDP for the current year?

Accepted Answer

A new car produced and sold by a domestic manufacturer.

Question 3

Why are profits considered a cost of production in the context of national income accounting?

Accepted Answer

Profits represent the return to entrepreneurs for the risk they incur in organizing productive activities.

Question 4

Which of the following is an example of a final good in GDP calculations?

Accepted Answer

Bread sold to a consumer at a grocery store.

Question 5

What is the main reason that GDP does not include the value of household production?

Accepted Answer

Household production does not involve market transactions and therefore lacks a market price.

Question 6

Suppose a bakery buys flour for $$10, uses it to bake bread, and sells the bread for 30. $$What is the value added by the bakery?

Accepted Answer

$20

Question 7

Which of the following best explains why the sale of used goods is excluded from GDP?

Accepted Answer

Used goods were already counted in GDP when they were first sold as new.

Question 8

If nominal GDP in a country is $500 billion and the GDP deflator (price index) is 125, what is real GDP?

Accepted Answer

$$400 	ext{ billion}$$

Question 9

Which formula correctly represents the expenditure approach to calculating GDP?

Accepted Answer

$$GDP = C + I + G + X$$

Question 10

A country has the following data: Consumption = $$200$$, Investment = $$50$$, Government Spending = $$100$$, Exports = $$30$$, Imports = $$40. $$What is the country's GDP using the expenditure approach?

Accepted Answer

$$340$$

Question 11

Which of the following is NOT a limitation of GDP as a measure of economic well-being?

Accepted Answer

GDP includes the value of illegal transactions.

Question 12

If depreciation in an economy is $$20$$ and GDP is $$200$$, what is Net Domestic Product (NDP)?

Accepted Answer

$$180$$

Question 13

Which of the following is included in the calculation of gross private domestic investment?

Accepted Answer

Purchases of new capital equipment by businesses.

Question 14

Which of the following best describes the difference between nominal GDP and real GDP?

Accepted Answer

Real GDP is measured in constant dollars, while nominal GDP is measured in current dollars.

Question 15

If a country's real GDP is $$1,000,000$$ and its population is $$50,000$$, what is its per capita real GDP?

Accepted Answer

$$2,000$$

Question 16

Which of the following is a component of national income but not of personal income?

Accepted Answer

Corporate profits retained by firms.

Question 17

Suppose the GDP deflator increases from 100 to 110 while nominal GDP rises from $$1,000 to$$ $$1,050. $$What happens to real GDP?

Accepted Answer

Real GDP decreases.

Question 18

Which of the following best describes purchasing power parity (PPP)?

Accepted Answer

PPP adjusts exchange rates to account for differences in the cost of living between countries.

Question 19

Which of the following is an example of a transaction that would be excluded from GDP calculations?

Accepted Answer

A company purchasing raw materials for production.

Question 20

If a country’s GDP is $$2,000$$ and its depreciation is $$200$$, and net income earned abroad is $$50$$, what is its national income (NI) if statistical discrepancy is $$0$$ and indirect business taxes are $$100$$?

Accepted Answer

$$1,750$$

Measuring the Economy’s Performance: National Income Accounting and GDP

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