Conceptual Foundations
Which of the following is the most comprehensive measure of a nation's economic activity?
(a) Gross Domestic Product (GDP)
(b) Net Domestic Product (NDP)
(c) National Income (NI)
(d) Personal Income (PI)
The difference between GDP and GNP is:
(a) Indirect taxes less subsidies.
(b) Depreciation.
(c) Net factor income from abroad.
(d) Transfer payments.
Which of the following is NOT included in the calculation of GDP?
(a) Government purchases of goods and services
(b) Consumer spending
(c) Intermediate goods
(d) Investment spending
Which of the following would be classified as a final good?
(a) Steel used to build cars
(b) Flour used by a baker
(c) A new car purchased by a household
(d) Lumber purchased by a construction company to build a house
The expenditure approach to calculating GDP sums up:
(a) Wages, rent, interest, and profit.
(b) Consumption, investment, government purchases, and net exports.
(c) Value added at each stage of production.
(d) Income earned by all factors of production.
The income approach to calculating GDP sums up:
(a) Wages, rent, interest, and profit.
(b) Consumption, investment, government purchases, and net exports.
(c) Value added at each stage of production.
(d) Expenditures on all final goods and services.
"Value added" is best defined as:
(a) The total sales revenue of a firm.
(b) The cost of inputs used in production.
(c) The difference between the value of a firm's output and the cost of its intermediate goods.
(d) A firm's profit.
Which of the following is an example of a non-market transaction?
(a) Buying a haircut
(b) Providing unpaid childcare for a relative
(c) Purchasing groceries at a supermarket
(d) Selling a used car
What is the primary difference between nominal GDP and real GDP?
(a) Nominal GDP includes government spending, while real GDP does not.
(b) Real GDP is adjusted for inflation, while nominal GDP is not.
(c) Nominal GDP is always higher than real GDP.
(d) Real GDP includes exports, while nominal GDP does not.
Which of the following would cause nominal GDP to increase, but real GDP to remain unchanged?
(a) An increase in the quantity of goods and services produced.
(b) A decrease in the general price level.
(c) An increase in the general price level.
(d) A decrease in the quantity of goods and services produced.
Specific Components and Calculations
Net exports are calculated as:
(a) Exports + Imports
(b) Exports - Imports
(c) Imports - Exports
(d) Total trade
Gross Private Domestic Investment includes:
(a) Government spending on infrastructure.
(b) Purchases of stocks and bonds.
(c) Changes in business inventories.
(d) All investments, including those by foreign entities.
Depreciation is:
(a) An increase in the value of capital goods over time.
(b) The decrease in the value of capital goods due to wear and tear or obsolescence.
(c) The cost of raw materials used in production.
(d) The cost of labor.
National Income (NI) is equal to:
(a) GDP plus depreciation.
(b) GDP minus depreciation.
(c) NDP plus net factor income from abroad.
(d) NDP minus net factor income from abroad.
Personal Income (PI) is calculated by:
(a) Adding all income earned by individuals.
(b) Subtracting corporate profits and social security contributions from National Income, then adding transfer payments.
(c) Summing all wages and salaries.
(d) Adding all investment income.
Disposable Personal Income (DPI) is:
(a) Personal Income plus taxes.
(b) Personal Income minus taxes.
(c) National Income minus taxes.
(d) National Income plus taxes.
If nominal GDP increases by 5% and the price level increases by 2%, then real GDP has:
(a) Increased by 7%.
(b) Increased by 3%.
(c) Decreased by 3%.
(d) Remained constant.
If a country's GDP is $10 trillion and its population is 100 million, then its GDP per capita is:
(a) $10,000
(b) $100,000
(c) $1,000
(d) $1 million
Which of the following is most likely to be categorized as a consumer durable good?
(a) Gasoline
(b) A new car
(c) A haircut
(d) Food
Imputed rent refers to:
(a) The rent paid by tenants.
(b) The estimated rental value of owner-occupied housing.
(c) Rent paid by businesses for office space.
(d) Rent subsidies provided by the government.
Advanced Concepts and Considerations
The GDP deflator is a measure of:
* (a) The quantity of goods and services produced in an economy.
* (b) The average price level of all goods and services in an economy.
* (c) The real GDP divided by the nominal GDP.
* (d) The rate of inflation.
Which of the following is a limitation of using GDP as a measure of economic well-being?
* (a) It does not account for the distribution of income.
* (b) It does not include government spending.
* (c) It overestimates the value of environmental resources.
* (d) It excludes investment.
Green GDP attempts to adjust GDP for:
* (a) Inflation.
* (b) Population growth.
* (c) Environmental degradation and resource depletion.
* (d) Income inequality.
The System of National Accounts (SNA) is:
* (a) A set of accounting rules used by businesses.
* (b) An internationally agreed standard set of recommendations on how to compile measures of economic activity.
* (c) A government agency that collects economic data.
* (d) A measure of national debt.
A significant increase in inventories suggests that:
* (a) The economy is expanding rapidly.
* (b) Aggregate demand is exceeding aggregate supply.
* (c) Businesses are expecting future sales to decline.
* (d) Aggregate supply is exceeding aggregate demand.
Which of the following is most likely to be included in the "underground economy"?
* (a) Legal business activities that are not reported to avoid taxes.
* (b) Income from illegal activities.
* (c) Unpaid housework.
* (d) All of the above.
The "capital consumption adjustment" is used to:
* (a) Account for the depreciation of capital goods.
* (b) Adjust for changes in the price level.
* (c) Correct for errors in data collection.
* (d) Adjust for inflation.
Household production, such as cleaning and cooking done by family members, is generally:
* (a) Included in GDP.
* (b) Excluded from GDP due to measurement difficulties.
* (c) Only included in GDP if the household hires someone to do the work.
* (d) Included in nominal GDP but not in real GDP.
Net factor income from abroad represents:
* (a) Income earned by domestic residents from abroad minus income earned by foreign residents domestically.
* (b) Income earned by domestic residents from abroad plus income earned by foreign residents domestically.
* (c) Exports minus imports.
* (d) The total value of foreign investment.
Which of the following is NOT a component of the expenditure approach to GDP?
* (a) Government Purchases
* (b) Net Exports
* (c) Investment
* (d) Indirect Business Taxes
Application and Interpretation
Suppose a country's GDP is growing at 3% per year, and its population is growing at 1% per year. What is the approximate growth rate of GDP per capita?
* (a) 4%
* (b) 2%
* (c) 3%
* (d) 1%
An increase in government spending, all other things being equal, will typically lead to:
(a) A decrease in GDP.
(b) An increase in GDP.
(c) No change in GDP.
(d) A decrease in the price level.
If a country experiences a trade surplus, it means that:
* (a) Its exports are greater than its imports.
* (b) Its imports are greater than its exports.
* (c) Its exports equal its imports.
* (d) It is experiencing a recession.
If the GDP deflator is 120 in year 2 and 100 in year 1, the inflation rate between year 1 and year 2 is:
* (a) 120%
* (b) 20%
* (c) 80%
* (d) -20%
Which of the following is most likely to increase a country's potential GDP?
(a) A decrease in the labor force
(b) An increase in the price level
(c) Technological innovation
(d) A decrease in government spending
Which of the following is most likely to be included in the calculation of GDP?
* (a) The sale of a used car
* (b) Unpaid volunteer work
* (c) The purchase of a new computer by a business
* (d) Social Security payments
If a country has a large underground economy, its official GDP figures are likely to:
* (a) Overestimate the true size of the economy.
* (b) Underestimate the true size of the economy.
* (c) Accurately reflect the true size of the economy.
* (d) Have no relation to the true size of the economy.
A decrease in business inventories suggests that:
* (a) Businesses are expecting future sales to increase.
* (b) Aggregate demand is exceeding aggregate supply.
* (c) The economy is slowing down.
* (d) Businesses are overproducing.
If a country's saving rate increases, this will likely lead to:
* (a) A decrease in investment.
* (b) An increase in investment.
* (c) No change in investment.
* (d) A decrease in GDP.
Which of the following would NOT be included in gross private domestic investment?
* (a) The purchase of a new factory
* (b) An increase in business inventories
* (c) The purchase of a new house
* (d) The purchase of government bonds
Advanced Applications and Global Comparisons
Using Purchasing Power Parity (PPP) to compare GDP across countries is useful because it accounts for:
* (a) Differences in exchange rates.
* (b) Differences in the cost of living.
* (c) Differences in population size.
* (d) All of the above.
Which of the following scenarios would lead to an increase in National Income?
(a) A company repurchases its own stock.
(b) An individual receives unemployment benefits.
(c) A business expands its production capacity by investing in new equipment.
(d) An individual sells stock on the stock market.
How does an increase in the price of imported goods affect a country's GDP?
(a) It increases GDP directly.
(b) It decreases GDP directly.
(c) It has no direct effect on GDP, but can impact Net Exports.
(d) It always increases nominal GDP.
If a significant portion of a country's workforce is employed in the informal sector (unregulated and untaxed), how would this affect the accuracy of GDP calculations?
(a) GDP would be overstated.
(b) GDP would be understated.
(c) GDP would be accurately measured despite the informal sector.
(d) Only nominal GDP would be affected, not real GDP.
What is the relationship between Net National Product (NNP) and National Income (NI)?
(a) NNP is always greater than NI.
(b) NI is always greater than NNP.
(c) NNP and NI are theoretically equal.
(d) NNP includes transfer payments, while NI does not.
How would the discovery of vast new oil reserves impact a country's GDP?
(a) It would have no impact on GDP.
(b) It would immediately increase GDP as the oil is extracted and sold.
(c) It would increase GDP only if the country exports the oil.
(d) It could increase GDP, but only if the country has the infrastructure to extract and refine the oil.
Which of the following factors contributes to the difference between GDP and measures of social welfare (e.g., happiness index)?
(a) GDP accounts for income inequality.
(b) GDP includes the value of leisure time.
(c) GDP captures non-market activities such as household production.
(d) GDP does not reflect environmental quality or social cohesion.
How do government subsidies to businesses affect GDP calculations?
(a) Subsidies are added directly to GDP.
(b) Subsidies are subtracted from GDP.
(c) Subsidies are included in government spending, which is part of GDP.
(d) Subsidies have no effect on GDP.
Which of the following would lead to a divergence between GDP and Gross Domestic Income (GDI)?
(a) An increase in consumer spending.
(b) Errors in data collection.
(c) A decrease in government spending.
(d) An increase in exports.
A country's current account deficit implies that:
* (a) Its exports are greater than its imports.
* (b) Its imports are greater than its exports.
* (c) Its government is running a budget surplus.
* (d) Its national saving is greater than its domestic investment.
Answer Key
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I hope these MCQs are helpful for your learning or assessment purposes! Let me know if you need any adjustments or more questions on specific topics within National Income Accounting.
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