$$\text{Net Investment} = \text{Gross Investment} - \text{Depreciation}$$

Question 1

Which of the following transactions would be included in the calculation of GDP for 2023?

Accepted Answer

The purchase of a new BMW sportscar from a dealership

Question 2

Which equation correctly represents the expenditure approach to calculating GDP?

Accepted Answer

$$Y = C + I + G + (X - M)$$

Question 3

Why are intermediate goods excluded from GDP calculations?

Accepted Answer

Including them would result in double counting

Question 4

If a country has a trade deficit, which of the following is true?

Accepted Answer

Imports exceed exports

Question 5

Which of the following best describes the difference between a stock and a flow?

Accepted Answer

A flow is measured per unit of time, while a stock is measured at a point in time

Question 6

Which formula represents private saving in the economy?

Accepted Answer

$$Sp = Y - T - C$$

Question 7

If government purchases exceed net taxes, what is the government’s budget situation?

Accepted Answer

The government is running a budget deficit

Question 8

Which of the following is a flow variable?

Accepted Answer

A person’s annual saving

Question 9

Gross investment is defined as:

Accepted Answer

The total amount spent on purchases of new capital and on replacing depreciated capital

Question 10

Net investment is calculated as:

Accepted Answer

$$	ext{Net Investment} = 	ext{Gross Investment} - 	ext{Depreciation}$$

Question 11

Which of the following would NOT be counted in GDP?

Accepted Answer

A used car sold between private individuals

Question 12

If $$Y = C + I + G + (X - M)$$ and $$C = 8000$$, $$I = 2000$$, $$G = 1500$$, $$X = 1000$$, $$M = 500$$, what is GDP?

Accepted Answer

$$Y = 8000 + 2000 + 1500 + (1000 - 500) = 12000$$

Question 13

Which of the following is true about the circular flow of income and expenditure?

Accepted Answer

Aggregate expenditure equals aggregate income

Question 14

If a country’s imports exceed its exports, what is the implication for its financial position?

Accepted Answer

The country is a borrower in global financial markets

Question 15

Which formula represents government savings?

Accepted Answer

$$Sg = T - G$$

Question 16

Investment in an economy is financed by which of the following?

Accepted Answer

Private saving, government saving, and borrowing from the rest of the world

Question 17

If $$Sp = 3000$$, $$Sg = -2000$$, and $$M - X = 1000$$, what is the total investment in the economy?

Accepted Answer

$$I = 3000 + (-2000) + 1000 = 2000$$

Question 18

Which of the following is an example of a stock variable?

Accepted Answer

Capital stock

Question 19

Depreciation in the context of national income accounting refers to:

Accepted Answer

The decrease in the capital stock due to wear and tear and obsolescence

National Income Accounting and Gross Domestic Product (GDP): Principles of Macroeconomics Study Notes

Study Guide - Practice Questions