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Questions with Answers (Ch2: Lecture 4 , 5 & 6) Quiz 2

1) Is National income accounting is a set of rules and definitions for measuring

economic activity of a country.

Answer: True.

2) Gross Domestic Product (GDP) is the total market value of all final goods
and services produced within a country in a given period of time.

Answer: True.

3) GDP calculation includes intermediate goods and services.

Answer: False.

4) The market value of a good or service is determined by multiplying the

quantity produced by the price at which it is sold.

Answer: True.

5) GDP calculation includes the total market value of all final goods and
services produced in the previous years.

Answer: False.

6) Purchases of used goods included in GDP calculation.

Answer: False.

7) GDP calculation includes sales of financial assets, such as stocks and bonds.

Answer: False.

8) GDP calculation includes final output produced abroad by domestic firms.

Answer: False.

9) GDP is a stock variable.

Answer: False.
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10) GDP calculation includes goods and services that are bought for resale or
further processing

Answer: False.

11) GDP calculation includes government transfer payments, such as social

pensions or unemployment benefits.

Answer: False.

12) GDP calculation includes the value of household work or volunteer work.

Answer: False.

13) GDP is a flow variable.

Answer: True.

14) GDP calculation includes illegal activities, such as drug trafficking.

Answer: False.

15) GDP calculation includes spending on defense and national security.

Answer: True.

16) GDP calculation includes imports.

Answer: Flase.

17) GDP includes the value of intermediate goods and services, which are used
in the production of final goods and services

Answer: False.

18) GDP calculation includes the value of stocks and other financial assets.

Answer: Flase.

19) GDP is a measure of final output in both the private and public sectors.

Answer: True.
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20) GDP calculation includes the value of unpaid work, such as stay-at-home
parenting or volunteer work.

Answer: Flase.

21) GDP calculation includes the value of non-material goods, such as

education or healthcare.

Answer: True.

22) GDP calculation includes the value of used goods that are sold in the
market.

Answer: Flase.

23) GDP calculation includes the value of exports.

Answer: True.

24) GDP calculation includes spending on education.

Answer: True.

25) GDP calculation includes the value of final goods and services that are
produced illegally

Answer: False.

26) GDP calculation includes the value of volunteer work that is performed for
a non-profit organization.

Answer: Flase.

27) There are three alternative approaches to measuring GDP.

Answer: True.

28) All three approaches to measuring GDP will produce the same value of
GDP.

Answer: True.
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29) The value-added approach to measuring GDP defines GDP as the total
spending on final goods and services newly produced within a domestic
economy during a certain time period.

Answer: False.

30) The value-added approach defines GDP as the sum of the value-added at
all stages of production.

Answer: True.

31) Personal consumption spending is the largest component of GDP.

Answer: True.

32) Net investment equals gross investment minus depreciation.

Answer: True.

33) Net exports of goods and services are positive if exports are greater than
imports.

Answer: True.

34) The fundamental identity of national income accounting is Total

Production = Total Income = Total Spending.

Answer: True.

35) Government transfer payments are included in the calculation of GDP.

Answer: False.

36) The value added at each stage of production includes the value of all
intermediate goods used in the production process.

Answer: False.

37) Personal consumption spending includes purchases of new houses by

domestic households.

Answer: False.
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38) Net investment is equal to gross investment minus net exports.

Answer: False.

39) The value-added approach, the spending approach, and the income
approach are three alternative methods for calculating the same GDP.

Answer: True.

40) Capital Consumption Allowance (CCA) is also known as depreciation.

Answer: True.

41) Net exports of goods and services are negative if exports are greater than
imports.

Answer: False.

42) The value-added approach is based on the idea that the value of a product
is equal to the sum of the values added at each stage of production.

Answer: True.

43) The spending approach to measuring GDP includes spending on

intermediate goods and services.

Answer: False.

44) Social security benefits and unemployment insurance are included in the
calculation of GDP.

Answer: False.

45) In the spending approach, net exports are calculated as exports minus
imports.

Answer: True.

46) The value-added approach includes the value of all intermediate goods used
in the production process in the calculation of GDP.

Answer: False.
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47) The spending approach to measuring GDP includes spending on services,

but not spending on goods.

Answer: False.

48) In the value-added approach, GDP can be calculated by adding up the value
added at each stage of production.

Answer: True.

49) In the spending approach, government purchases of goods and services are
included in government spending, but government transfer payments are
not.

Answer: True.

50) Gross private domestic investment equals net investment, plus replacement
investment.

Answer: True

51) The word final in the definition of GDP refers to not counting intermediate
goods or services.

Answer: True

52) Intermediate goods and services are excluded from GDP because their
inclusion would involve double counting.

Answer: True

53) Government Spending does not enter the gross domestic product accounts,
but government transfer payments do.

Answer: False

54) In the national income accounts, personal consumption spending is the

largest component of GDP.

Answer: True

55) Government transfer payments do not enter the gross domestic accounts,
but government spending does.

Answer: True
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56) Both government transfer payments and government spending enter the
gross domestic product accounts.

Answer: False

57) Neither government transfer payments not government spending enter the
gross domestic product accounts.

Answer: False

58) The value of intermediate goods is included in GDP.

Answer: False

59) The value added is calculated by subtracting the cost of materials used in
production from the value of sales.

Answer: True

60) GDP is the value of all goods and services produced in the economy.

Answer: False

61) The purchases of financial assets such as stocks and bonds are not included
in GDP.

Answer: True

62) GDP capture changes in both quantity and prices

Answer: True

63) GDP reflect changes in both the quantity of goods and services produced
and their prices

Answer: True
64) GDP is a
A. stock because it measures income for the entire country.
B. stock because it measures wealth at a point in time.
C. flow because it measures output at a point in time.
D. flow because it measures production over a period of time.

Answer: D
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65) Gross investment equals net investment plus

A. capital.
B. capital gains.
C. depreciation.
D. dividends paid to the owners of the company

Answer: C
66) Depreciation is defined as the
A. decrease in the capital stock because of wear and tear.
B. increase in the capital stock because of investment by firms.
C. Increase in the capital stock because of wear and tear.
D. decrease in the capital stock because of investment by firms.
Answer: A

67) Another name for depreciation is

A. gross investment.
B. net investment.
C. real GDP.
D. capital consumption allowance.

Answer: D
68) Gross investment equals
A. net investment–depreciation+ change in inventories.
B. net investment + change in inventories.
C. net investment + replacement investment.
D. depreciation + change in inventories.

Answer: C
69) Net investment
A. is equivalent to replacement investment minus depreciation.
B. is only measure of investment used to calculate GDP.
C. equals gross investment minus depreciation.
D. is equivalent to the existing capital stock in the economy.
Answer: C
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70) Two approaches of measuring GDP are

A. The income approach and the spending approach.
B. The income approach and receipts approach.
C. The income approach and investment approach.
D. The income approach and the government spendingapproach.
Answer: A

71) The four categories of spending used by the spending approach to calculate
GDP are
A. consumption, taxes, saving, and investment.
B. consumption, investment, net exports and saving.
C. saving, taxes, government spending and investment.
D. consumption spending, investment spending. government spending, and net
exports of goods and services.

Answer: D

72) The components of the spending approach to measuring GDP include

all of the following EXCEPT
A. net exports of goods and services.
B. government spending.
C. investment spending.
D. net interest.

Answer: D

73) Which of the following items is NOT a part of gross private domestic
investment
A. purchase of financial assets.
B. purchase of new homes.
C. net additions to inventory.
D. purchasing new machines.

Answer: A

74) Government transfer payments are not included on GDP because

A. they do generate additional income.
B. they do not generate additional income.
C. they are not purchases of goods or services.
D. their value is included in government spending.

Answer: C
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75) To calculate GDP using the spending approach, in part its necessary to
A. add imports.
B. subtract exports.
C. add imports and exports .
D. add exports and subtract imports.

Answer: D
76) National income accounting
A. is a useful tool for microeconomists.
B. provides a set of rules and definitions for measuring GDP.
C. provides a set of rules for determining macroeconomic policy.
D. can be used to measure a country’s output but not itsconsumption.
Answer: B

77) Which of the following equations is the correct equation for GDP
A. GDP = C + I + G + X + M.
B. GDP = C + I + G - X – M.
C. GDP = C + I + G + X - M.
D. GDP = C + I + G.

Answer: C

78) Gross private investment minus capital consumption allowance equals

A. net exports of goods and services.
B. net depreciation.
C. net national product.
D. net private investment.

Answer: D

79) Using the spending approach, gross domestic product equals

A. gross national product minus net exports.
B. the sum of personal consumption spending, private investment spending,
government spending, and net exports of goods and services.
C. gross national product.
D. the sum of personal consumption spending, private investment spending,
and government spending.

Answer: B
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80) The total market value of final output of goods and services computed at
existing prices is called
A. net national product.
B. national income.
C. nominal GDP.
D. real GDP.

Answer: C
81) Total value added for the domestic economy in a year equals
A. the value of intermediate goods.
B. the value of investment goods.
C. total profits.
D. nominal GDP.

Answer: D
82) Which of the following is counted in GDP
A. The sale of a used machine.
B. The sale of an old home.
C. The sale of stocks and bonds.
D. None of the above answers is correct.
Answer: D

83) GDP is the market value of all ------ goods and servicesproduced within
an economy in a given period of time
A. used.
B. intermediate.
C. consumer.
D. final.
Answer: D

84) What is National income accounting

A. The study of how individuals and businesses make financial decisions
B. A set of rules and definitions for measuring economic activity of a country
C. The calculation of a country's trade balance
D. The process of determining a country's exchange rate

Answer: B
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85) What is Gross Domestic Product

A. The total market value of all intermediate goods and services produced within
a country
B. The total market value of all goods and services produced within a country for
resale
C. The total market value of all final goods and services produced within a
country in a given period of time
D. The total market value of all goods and services produced by domestic firms
in foreign countries

Answer: C

86) What is the meaning of "total market value" in the definition of GDP
A. The sum of all market prices of intermediate goods and services
B. The quantity of final goods and services multiplied by their respective market
prices
C. The total revenue earned by all domestic firms in a given period of time
D. The total value of all assets owned by a country's citizens

Answer: B

87) What are final goods and services

A. Products that are used in the production of a final good
B. Products that are sold for resale or further processing
C. Products that are bought by their ultimate or final users
D. Products that are sold by foreign firms in the domestic economy

Answer: C

88) Why are intermediate goods and services not counted in GDP
A. To avoid double counting
B. Because they are not produced within the borders of the domestic economy
C. Because they are not bought by their ultimate or final users
D. Because they are not newly produced

Answer: A
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89) What is the definition of nominal GDP

A. The total market value of all final goods and services currently produced
within a country in a given period of time
B. The total market value of all final goods and services produced within a
country, adjusted for inflation
C. The total market value of all intermediate goods and services currently
produced within a country in a given period of time
D. The total revenue earned by all domestic firms in a given period of time

Answer: A

90) What is the meaning of "currently produced" in the definition of GDP

A. The total market value of all goods and services produced within a country for
resale
B. The total market value of all goods and services produced within a country in
the current year
C. The total market value of all goods and services produced within a country in
the previous year
D. The total market value of all goods and services produced within a country
since its founding

Answer: B

91) What is the difference between final goods and intermediate goods
A. Final goods are products that are used in the production of a final good, while
intermediate goods are bought by their ultimate or final users.
B. Final goods are products that are sold for resale or further processing, while
intermediate goods are bought by their ultimate or final users.
C. Final goods are products that are bought by their ultimate or final users, while
intermediate goods are products that are used in the production of a final good.
D. Final goods are products that are sold by foreign firms in the domestic
economy, while intermediate goods are produced by domestic firms.

Answer: C

92) What is the meaning of "flow variable" in the definition of GDP

A. A quantity measured at a point in time
B. Expressed per unit of time
C. The sum of all market prices of intermediate goods and services
D. The total revenue earned by all domestic firms in a given period of time

Answer: B
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93) Why are sales of financial assets not included in GDP

A. Because they do not reflect production
B. Because they are not bought by their ultimate or final users
C. Because they are not newly produced
D. Because they are not sold within the borders of the domestic economy

Answer: A

94) What is the purpose of national income accounting

A. To study how individuals and businesses make financial decisions
B. To measure the economic activity of a country
C. To determine a country's trade balance
D. To calculate a country's exchange rate

Answer: B

95) What is the formula for calculating GDP

A. GDP = C + I + G + NX
B. GDP = Y + C + I + NX
C. GDP = Y - C - I - NX
D. GDP = C - I + G + NX

Answer: A

96) What does "NX" stand for in the GDP formula

A. Net exports
B. Net income
C. Net investment
D. Net government spending

Answer: A

97) What are the three approaches to measuring GDP

A. Value Added, Spending, and Income Approaches
B. Output, Consumption, and Investment Approaches
C. Production, Income, and Export Approaches
D. Service, Manufacturing, and Agriculture Approaches

Answer: A
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98) Which approach to measuring GDP defines GDP as the sum of the value-
added at all stages of production
A. Value Added Approach
B. Spending Approach
C. Income Approach
D. Output Approach

Answer: A

99) What is the fundamental identity of national income accounting

A. Total Production = Total Income = Total Spending
B. Total Production = Total Consumption = Total Investment
C. Total Consumption = Total Income = Total Investment
D. Total Consumption = Total Production = Total Exports

Answer: A

100) Which category is excluded from personal consumption spending

calculation
A. Spending by domestic households on used final goods
B. Spending by domestic households on new houses
C. Spending by domestic households on durable goods
D. Spending by domestic households on non-durable goods

Answer: B

101) What is the equation for calculating GDP using the spending approach
A. GDP = C + I + G + NX
B. GDP = VA1 + VA2 + VA3 + ... + VAn
C. GDP = Total Income
D. GDP = Total Production

Answer: A

102) What is the spending approach to measuring GDP

A. Defines GDP as the sum of the value-added at all stages of production.
B. Defines GDP as the total income earned by households and businesses in a
given time period.
C. Defines GDP as the total spending on final goods and services newly produced
within a domestic economy during a certain time period.
D. Defines GDP as the sum of all exports and imports of goods and services.

Answer: C
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103) Which category is included in gross private domestic investment spending

A. Purchases of stocks and bonds and other financial assets
B. Purchases of intermediate goods
C. Purchases of new capital goods
D. Purchases of used capital goods

Answer: C

104) Which of the following is a component of personal consumption spending

A. Purchases of new capital goods
B. Purchases of stocks and bonds
C. Purchases of intermediate goods
D. Purchases of non-durable goods

Answer: D

105) Which equation represents the fundamental identity of national income

accounting
A. GDP = C + I + G + NX
B. Total Production = Total Income = Total Spending
C. GDP = VA1 + VA2 + VA3 + ... + VAn
D. GDP = Total Income

Answer: B

106) What is the value-added approach to measuring GDP

A. Defines GDP as the total income earned by households and businesses in a
given time period.
B. Defines GDP as the total spending on final goods and services newly
produced within a domestic economy during a certain time period.
C. Defines GDP as the sum of the value-added at all stages of production.
D. Defines GDP as the sum of all exports and imports of goods and services.

Answer: C

107) Which of the following is a component of gross private domestic

investment spending
A. Purchases of used capital goods
B. Purchases of intermediate goods
C. Purchases of new houses
D. Purchases of non-durable goods

Answer: C
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108) What is the difference between gross investment and net investment
A. Gross investment includes depreciation while net investment does not.
B. Gross investment does not include depreciation while net investment does.
C. Gross investment includes purchases of used capital goods while net
investment does not.
D. Gross investment does not include purchases of new capital goods while net
investment does.

Answer: A

109) Which of the following is not included in government spending

A. Investment in highways and bridges
B. Wages and salaries of government workers
C. Purchase of weapons for military
D. Government transfer payments

Answer: D

110) Which of the following equations represents the spending approach to

measuring GDP
A. GDP = Total Income
B. GDP = VA1 + VA2 + VA3 + ... + VAn
C. GDP = C + I + G + NX
D. GDP = Total Production

Answer: C

111) What is the formula for calculating net exports of goods and services
A. NX = X - M
B. GDP = C + I + G + NX
C. GDP = VA1 + VA2 + VA3 + ... + VAn
D. In = I - D

Answer: A

112) Which of the following is a component of government spending

A. Purchases of new capital goods
B. Purchases of intermediate goods
C. Investment in highways and bridges
D. Purchases of used final goods

Answer: C
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113) What is the difference between personal consumption spending and gross
private domestic investment spending
A. Personal consumption spending includes purchases of new houses while gross
private domestic investment spending does not.
B. Gross private domestic investment spending includes purchases of
intermediate goods while personal consumption spending does not.
C. Personal consumption spending includes purchases of non-durable goods
while gross private domestic investment spending does not.
D. Gross private domestic investment spending includes purchases of new capital
goods while personal consumption spending does not.

Answer: D

114) What is the fundamental identity of national income accounting

A. Total Production = Total Income = Total Spending
B. GDP = C + I + G + NX
C. GDP = VA1 + VA2 + VA3 + ... + VAn
D. GDP = Total Income

Answer: A

115) Which of the following categories is not included in personal consumption

spending
A. Purchases of durable goods
B. Purchases of non-durable goods
C. Purchases of intermediate goods
D. Purchases of services

Answer: C

116) Which of the following equations represents the value-added approach to

measuring GDP
A. GDP = Total Income
B. GDP = VA1 + VA2 + VA3 + ... + VAn
C. GDP = C + I + G + NX
D. GDP = Total Production

Answer: B
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117) Which of the following categories is included in personal consumption

spending
A. Purchases of new capital goods
B. Purchases of intermediate goods
C. Purchases of durable goods
D. Purchases of exports

Answer: C

118) Which of the following equations represents the spending approach to

measuring GDP
A. GDP = Total Income
B. GDP = VA1 + VA2 + VA3 + ... + VAn
C. GDP = C + I + G + NX
D. GDP = Total Production

Answer: C

119) Which of the following categories is included in gross private domestic

investment spending
A. Purchases of intermediate goods
B. Purchases of used capital goods
C. Purchases of exports
D. Purchases of new houses

Answer: D

120) Which of the following categories is excluded from personal consumption

spending
A. Purchases of services
B. Purchases of exports
C. Purchases of durable goods
D. Purchases of non-durable goods

Answer: B
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121) What is the expenditure approach to measuring GDP

A. Calculating GDP by adding up the incomes of all individuals and businesses
within a country
B. Calculating GDP by adding up the total value of all goods and services
produced within a country
C. Calculating GDP by adding up the total amount of money spent on final goods
and services within a country
D. Calculating GDP by adding up the profits of all businesses within a country

Answer: C

122) What is the production approach to measuring GDP

A. Calculating GDP by adding up the total value of all goods and services
produced within a country
B. Calculating GDP by adding up the total amount of money spent on final
goods and services within a country
C. Calculating GDP by adding up the incomes of all individuals and businesses
within a country
D. Calculating GDP by adding up the profits of all businesses within a country

Answer: A

123) Gross Investment = Net Investment + Capital Consumption Allowance

Answer: True

124) Capital consumption allowance is a component of gross investment.

Answer: True.

125) Net investment represents the total increase in capital stock over a given
period of time.

Answer: True.

126) Gross investment includes all investment expenditures, including those

needed to replace worn-out capital goods.

Answer: True.

127) Gross investment is equal to net investment plus capital consumption

allowance.

Answer: True.
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128) Capital consumption allowance is also known as depreciation.

Answer: True.

129) Gross investment represents the total amount of money spent on acquiring
new capital goods.

Answer: True.

130) If capital consumption allowance is greater than net investment, the

economy is experiencing a decline in its capital stock.

Answer: True.

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