Question 1

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

Accepted Answer

Goods and services flow from businesses to households, while money payments flow from households to businesses.

Question 2

Which of the following transactions would NOT be included in the calculation of a country's GDP?

Accepted Answer

A person sells their used bicycle to a friend.

Question 3

Suppose nominal GDP in 2022 is $2,000 billion, and the price index (base year = 2017) is 125. What is the real GDP for 2022 in 2017 dollars?

Accepted Answer

$$1,600 	ext{ billion}$$

Question 4

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

Accepted Answer

A loaf of bread sold to a consumer at a grocery store.

Question 5

If nominal GDP increases but real GDP remains unchanged, what does this most likely indicate?

Accepted Answer

There has been inflation in the economy.

Question 6

Which of the following is excluded from GDP because it does not represent current production?

Accepted Answer

A retired person receiving a pension.

Question 7

Which formula correctly represents the expenditure approach to calculating GDP?

Accepted Answer

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

Question 8

A Canadian company sells $$10 million worth of goods to the United States and imports 7 $$million worth of goods from Mexico. What is the value of net exports (X) for Canada in this scenario?

Accepted Answer

$$3 	ext{ million}$$

Question 9

Which of the following best explains why government transfer payments, such as employment insurance, are excluded from GDP calculations?

Accepted Answer

They do not involve the production of new goods or services.

Question 10

If the value added at each stage of donut production is as follows: Farmer ($$0.17), Miller (0.13$$), Baker ($$0.10), Retailer (0.50$$), what is the total value added for one donut?

Accepted Answer

$$1.00$$

Question 11

Which of the following is a limitation of using GDP as a measure of economic well-being?

Accepted Answer

GDP does not account for nonmarket production or the distribution of income.

Question 12

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

Accepted Answer

Nominal GDP is measured in current dollars, while real GDP is measured in constant dollars.

Question 13

A country has a real GDP of $$500 	ext{ billion}$$ and a population of $$25 	ext{ million}. $$What is its per capita real GDP?

Accepted Answer

$$20,000$$

Question 14

Why are financial transactions, such as the buying and selling of stocks and bonds, excluded from GDP calculations?

Accepted Answer

They represent a transfer of ownership, not the production of new goods or services.

Question 15

Which of the following best explains the concept of value added in the context of GDP calculation?

Accepted Answer

The difference between a firm's sales and the value of its intermediate goods.

Question 16

If a country’s GDP is $$1,000 	ext{ billion}$$, depreciation is $$100 	ext{ billion}$$, and indirect business taxes less subsidies are $$50 	ext{ billion}$$, what is the Net National Income (NNI) if net income earned abroad is $$20 	ext{ billion}$$?

Accepted Answer

$$870 	ext{ billion}$$

Question 17

When comparing GDP across countries, why is purchasing power parity (PPP) used?

Accepted Answer

To adjust GDP for differences in cost of living between countries.

Question 18

Which of the following would cause measured GDP to increase, even if actual production in the economy does not change?

Accepted Answer

A rise in the general price level (inflation).

Question 19

If the price index in a given year is below 100, what does this imply about real GDP compared to nominal GDP?

Accepted Answer

Real GDP is higher than nominal GDP.

Question 20

Which of the following is a component of gross private domestic investment (I) in the expenditure approach to GDP?

Accepted Answer

Purchases of new residential structures.

Measuring the Economy: Circular Flow and National Income Accounting

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