Question 1

Which of the following best describes the fundamental identity in national income accounting?

Accepted Answer

The value of total production equals the value of total expenditure, which equals the value of total income.

Question 2

According to the expenditure approach, which of the following is the correct formula for GDP?

Accepted Answer

$$Y = C + I + G + NX$$

Question 3

In the product approach to GDP, why are intermediate goods excluded from the calculation?

Accepted Answer

To avoid double counting, since their value is already included in the value of final goods.

Question 4

Suppose a Canadian firm earns $$100,000 from exports and pays 20$$,000 to foreign workers. What is the net factor payment from abroad (NFP)?

Accepted Answer

$$NFP = 100,000 - 20,000 = 80,000$$

Question 5

Which of the following is NOT included in government spending ($$G) in $$the expenditure approach to GDP?

Accepted Answer

Government transfers (TR) such as pensions and unemployment benefits

Question 6

If a country’s GDP is $$2,000, net factor payments from abroad (NFP) are 100$$, government transfers (TR) are $$50, interest payments (INT) are 20$$, and taxes (T) are $$400, what is private disposable income (Y_d$)?

Accepted Answer

$$Y_d = 2,000 + 100 + 50 + 20 - 400 = 1,770$$

Question 7

Which of the following best explains why GDP is considered a flow variable, while national wealth is a stock variable?

Accepted Answer

GDP measures production over a period of time, while wealth measures the total value of assets at a point in time.

Question 8

Given the following data for a two-firm economy: Apple Inc. sells $$35,000 of apples (of which 25$$,000 are sold to Juice Inc.), pays $$15,000 in wages, and 5$$,000 in taxes. Juice Inc. sells $$40,000 of juice, pays 10$$,000 in wages, and $2,000 in taxes. What is the total value-added in the economy using the product approach?

Accepted Answer

$$35,000 ($$Apple Inc.) $$+ 15,000 ($$Juice Inc.) $$= 50,000$$

Question 9

If national saving ($$S) is$$ $$500$$, investment ($$I) is$$ $$400$$, and the current account ($$CA) is$$ $$50$$, what is the government saving ($$S_g$$)?

Accepted Answer

$$S_g = S - (I + CA) = 500 - (400 + 50) = 50$$

Question 10

Which of the following statements about the relationship between GDP and GNP is correct?

Accepted Answer

GNP equals GDP plus net factor payments from abroad ($$GNP = Y + NFP).$$

Question 11

Suppose the government collects $$T = 600 in $$taxes, pays $$TR = 100 in $$transfers, and $$INT = 50 in $$interest payments, and spends $$G = 400 on $$goods and services. What is government saving ($$S_g$$)?

Accepted Answer

$$S_g = T - TR - INT - G = 600 - 100 - 50 - 400 = 50$$

Question 12

If the household saving rate in Canada increased sharply during COVID-19, which of the following is the most likely explanation?

Accepted Answer

Households reduced consumption due to uncertainty, increasing the proportion of disposable income saved.

Question 13

Which of the following is the correct formula for national saving ($$S$$)?

Accepted Answer

$$S = Y + NFP - C - G$$

Question 14

A country has $$Y = 3,000$$, $$NFP = 200$$, $$C = 2,000$$, $$G = 500. $$What is national saving ($$S$$)?

Accepted Answer

$$S = 3,000 + 200 - 2,000 - 500 = 700$$

Question 15

If private saving ($$S_p) is$$ $$300$$, government saving ($$S_g) is$$ $$-50$$, and investment ($$I) is$$ $$200$$, what is the current account ($$CA$$)?

Accepted Answer

$$S = S_p + S_g = 300 + (-50) = 250$$, so $$CA = S - I = 250 - 200 = 50$$

Question 16

Which of the following is a correct interpretation of the current account ($$CA) in $$the context of national saving?

Accepted Answer

The current account equals the difference between national saving and investment: $$CA = S - I$$

Question 17

If a country’s national wealth increases, which of the following is most likely to have occurred?

Accepted Answer

The country has saved and invested more, increasing its domestic capital stock and/or foreign assets.

Question 18

Which of the following is NOT a use of private saving in the national accounts framework?

Accepted Answer

To pay for government transfers

Question 19

If the national saving rate as a percentage of national income shows no obvious trend over several decades, what does this suggest about the economy?

Accepted Answer

The proportion of income saved at the national level has remained relatively stable over time.

National Income Accounts: Approaches, Savings, and Wealth

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