Quiz 1 (Chapter 4 and 5)

4.1 Key Term Quiz (Static)

1. Gross Domestic Product (GDP) is the market value of all the ___ goods and services produced ___ a country in a given time period.

a)  Final; within

b)   Intermediate; within

c)   Final; outside

d)   Intermediate; out Answer: a)

2. Which of the following is an example of a final good or service?

a)  GM buys Firestone tires

b)  Dell buys Intel chips

c)   Dan bought a Toyota Camry

d)  PCL construction company buys Lafarge cement Answer: c)

3. Which of the following is an example of an intermediate good or service?

a)  Sarah bought a Sony HDTV

b)  Air Canada buys Boeing aircrafts

c)   Samsung buys compressors for manufacturing refrigerators

d)  Mike bought Puma shoes Answer: c)

4. Which of the following is an example of consumption expenditure?

a)  Rachel buying a TV

b)  Mary buying a house

c)  Air Canada buying Dell PCs

d)  Peter buying stocks Answer: a)

5. Which of the following is an example of investment?

a)  Randy buying a BMW

b)  Mike buying an Apple iPad

c)   Ron buying stocks and bonds

d)  WestJet buying Airbus planes Answer: d)

6. Which of the following is an example of government expenditure on goods and services?

a.  Apple outsourcing the manufacture of iPhones

b.  The Prime Minister’s Office buying internet services

c.   The Indian government lowering import tariffs

d.  The government of Canada lowering the interest rate Answer: b)

7. Exports of goods and services are items that firms in ___ produce and sell to

___ .

a.  Any other country; Canada

b.   Canada; other firms within the country

c.   Canada; the government of Canada

d.   Canada; any other country Answer: d)

8. Imports of goods and services are items that ___ in Canada ___ the rest of the world.

a.   Households and governments, but not firms; sell to

b.   Households, firms, but not governments; buy from

c.   Firms and governments, but not households; sell to

d.   Households, firms, and governments; buy from Answer: d)

9. Net exports of goods and services is the value of ___ of goods and services ___ the value of ___ of goods and services.

a.   Exports; minus; imports

b.   Exports; times; imports

c.   Exports; plus; imports

d.   Imports; minus; exports Answer: a)

10. Depreciation is the ___ in the value of ___ that results from its use and from obsolescence.

a.   Decrease; capital

b.   Increase; land

c.   Decrease; residual assets

d.   Decrease; the dollar Answer: a)

11. The total amount spent ___ is called gross investment

a.   Buying goods and services

b.   Replacing depreciated capital

c.   Both buying new capital and replacing depreciated capital

d.   Buying new capital Answer: c)

12. The amount by which ___ is called net investment

a.  The value of capital decreases

b.   Firms’ profits increase

c.   Firms’ costs decrease

d.  The value of capital increases Answer: d)

4.1 Review Quiz 1 (Static)

Define GDP and distinguish between a final good and an intermediate good. Provide examples.

1. Gross Domestic Product is ___

a.  The factor cost of all the final goods and services produced by all citizens of a country in a given time period

b.  The factor cost of all the consumption goods and services produced by all citizens of a country in a given time period

c.   The market value of all the consumption goods and services produced within a country in a given time period

d.  The market value of all the final goods and services produced within a country in a given time period

Answer: d)

2. An intermediate good is ___. An example of an intermediate good is ___.

a.  An item that is produced by one firm, bought by another firm, and used as a component of a final good or service; wheat sold to a baker to make bread

b.  An item that is used for a given period of time and then must be replaced; winter boots

c.   A good that is used for only part of the year; snow tires

d.  An item that is produced by one firm, bought by another firm, and used as a component of a final good or service; a used car

Answer: a)

3. A final good is ____. An example of a final good is ___.

a.  An item that is bought by its final user or an item that is a component of a final good’ tires

b.  The last item of a given type that a consumer will buy; a house that is purchased by a retired couple

c.   An item that is bought by its final user during a specified time period; bread sold to a consumer

d.  An item that is bought by its final user during a specified time period; the ice cream that an ice cream parlor buys to make milkshakes

Answer: c)

4.1 Review Quiz 2 (Static)

Why does GDP equal aggregate income and also equals aggregate expenditures?

1. GDP equals aggregate income and also equals aggregate expenditures because ___?

a.   Labour produces final goods and all purchases in the economy are purchases of final goods

b.  Aggregate income measures profit as net profit and aggregate expenditure measures investment as net investment

c.   Firms pay out as incomes (aggregate income) everything they receive from the sale of their output (aggregate expenditure)

d.   Statistics Canada has defined GDP in such a way that it can be calculated by either summing total income or by summing total expenditures

Answer: c)

4.1 Study Plan Problem 1 (algo)

Classify each of the following items as a final good or service or an intermediate good or service and identify which is a component of consumption expenditure, investment, or government expenditure on goods and services:

Item 1: The purchase of a new security system for Parliament

Item 2: Aluminum cans bought by CocaCola

Item 3: A textbook bought by a student

Item 4: A new bridge across the creek in the Glen Abbey Golf Club

1. Item 1 is ____ and item 2 is ___.

a.  A final good which is government expenditure; a final good that is an investment

b.  A final good that is investment; an intermediate good

c.   A final good that is investment; a final good that is investment

d.  A final good which is government expenditure; an intermediate good Answer: d)

2. Item 3 is ____ and item 4 is ___.

a.  A final good that is consumption expenditure; a final good that is an investment

b.  An intermediate good; a final good that is a consumption expenditure

c.   An intermediate good; a final good that is investment

d.  A final good that is consumption expenditure; a final good that is consumption expenditure

Answer: a)

4.1 Study Plan Problem 3 (algo)

Use the data in the table to calculate aggregate expenditure and imports of goods and services.

1. Aggregate expenditure is $ 120 billion Aggregate Expenditure = Aggregate Income

2. Imports of goods and services is $ 25 billion Aggregate Expenditure = C + I + G + X - M

120 = 75 + 20 + 15 + 35 - M

M = 75 + 20 + 15 + 35 - 120

M = 25

4.1 Study Plan Problem 4 (Static)

1. The Figure shows the flows of expenditure and income

a.   Business investment is included in flow D

b.   Imports are included in flow E

c.   Exports are included in flow E

2. Is it possible for GDP to rise by only 0.9 percent given increases of more than 0.9 percent in business investment and imports because ___.

a.  The growth in imports decreases real GDP, and the growth of consumption expenditure and government expenditure was less than 0.9 percent

b.  The amount of GDP attributable to business investment and imports decreased

c.   Consumption expenditure must have increased by more than 0.9 percent

d.   Of a large statistical discrepancy

Answer: a)

The firm that printed your textbook bought the paper from XYZ Paper Mills

Was this purchase of paper part of GDP? If not, how does the value of the paper get counted in GDP?

1. This purchase of paper ___ part of GDP because the paper is ___ good.

a.   Is; a final

b.   Is not; an intermediate

c.   Is; an intermediate

d.   Is not; a final Answer: b)

2. The value of the paper is counted in GDP as ___.

a.  An intermediate good

b.   Part of the value of the textbook

c.   An import because most paper is imported into Canada

d.   investment Answer: b)

4.2 Key Term Quiz (Static)

1. Real GDP is the value of the ___ goods and services produced in a given year expressed in terms of the prices in ___ year.

Nominal GDP is the value of the ___ goods and services produced in a given year expressed in terms of the prices of ___ year.

a.   Final; that same; intermediate; a base

b.   Final; that same; final; a base

c.   Intermediate; a base; final; that same

d.   Final; a base; final; that same Answer: d)

4.2 Review Quiz 1 (Static)

What is the expenditure approach to measuring GDP?

1. The expenditure approach to measuring GDP sums together ___, and the largest component is ___.

a.  Wages, salaries, and supplementary labour income and other factor incomes; wages, salaries, and supplementary labour income

b.   Net domestic income at factor cost, indirect taxes less subsidies, and depreciation; net domestic income at factor cost

c.   Consumption expenditure, investment, government expenditure on goods and services, and net exports; government expenditure on goods and services

d.   Consumption expenditure, investment, government expenditure on goods and services, and net exports; consumption expenditure

Answer: d)

What is the income approach to measuring GDP?

1. The income approach to measuring GDP sums together ___. The largest component is ___.

a.  Wages, salaries, and supplementary labour income, other factor incomes, indirect taxes less subsidies, and depreciation; wages, salaries, and         supplementary labour income

b.   Consumption expenditure, investment, government expenditure on goods and services, and net exports; government expenditure on goods and services

c.   Consumption expenditure, investment, government expenditure on goods and services, and net exports; consumption expenditure

d.  Wages, salaries, and supplementary labour income, other factor incomes, indirect taxes less subsidies, and depreciation; other factor incomes Answer: a)

4.2 Review Quiz 3 (Static)

What adjustments must be made to total income to make it equal GDP?

1. To make total income equal to GDP we ___ indirect taxes less subsidies and ___ depreciation

a.  Add; subtract

b.   Subtract; add

c.   Add; add

d.   Subtract; subtract Answer: c)

4.2 Review Quiz 4 (algo)

What is the distinction between nominal GDP and real GDP?

1. Nominal GDP is ___. Real GDP is ___.

a.  The value of the final goods and services produced in a given year valued at the prices of that year; the value of final goods and services produced in a    given year when valued at the prices of reference base year

b.  The value of final goods and services produced in a given year when valued at the prices of reference base year; calculated as the quantity produced in a given year multiplied by the prices that prevailed in that year

c.   The value of final goods and services produced in a given year when valued at the prices of a reference base year; calculated as the quantity produced in the base year multiplied by the prices that prevailed in the given year

d.  The value of the final goods and services produced in a given year valued at the prices of that year; a more precise name for GDP

Answer: a)

1. Real GDP is calculated by ___.

a.   Summing together the value of the year’s production using the prices of the year in which the production occurred

b.   Dividing the value of the year’s production at reference base year prices by the value of the year’s production at the prices of the year in which the       production occurred

c.   Summing together the value of the year’s production using the prices of the reference base year

d.   Dividing the value of the year’s production at the prices of the year in which the production occurred by the value of the year’s production at reference  base year prices

Answer: c)

2. An economy produces only digital cameras, chocolate bars, and watches.

The table gives the quantity produced and prices in 2015 and 2016. The reference base year is 2015.

What is the real GDP in 2016 in terms of the reference base-year prices? Real GDP in 2016 in terms of reference base-year prices is $___

Digital Camera: 9 x $1 = $9

Chocolate Bars: 3 x $1 = $3

Watches: 2 x $3 = $6

Real GDP in 2016 = Total = $18

1. The table shows items of income and expenditure in an economy in 2016. Calculate this economy’s GDP in 2016

GDP in this economy in 2016 equals $___ billion

GDP = Consumption Expenditure + Investment + Government Expenditure + (Exports - Imports)

= 793 + 162 + 229 - 35

= 1149

4.2 Study Plan Problem 7 (algo)

1. Tropical Republic produces only bananas and coconuts.

The base year is 2016, and the tables give the quantities produced and the prices.

Calculate nominal GDP in 2016 and 2017.

Nominal GDP in 2016 is $___

Nominal GDP in 2017 is $___

2016: (1200 x 2) + (700 x 6) = $6600

2017: (1100 x 3) + (650 x 5) = $6550

1. Tropical Republic produces only bananas and coconuts. The base year is 2016, and the tables give the quantities produced and the prices. Calculate real GDP in 2017 expressed in base-year prices.

Real GDP in 2017 expressed in base-year prices is $____

2017: (800 x 2) + (575 x 6) = $5050

4.2 Extra Problem 1 (algo)

The national accounts of Parchment Paradise are kept on parchment. A fire destroys the statistics office. The accounts are now incomplete but they contain the data in the table. Calculate GDP (expenditure approach) and depreciation.

1. GDP (expenditure approach) is $___

GDP (expenditure approach) = C + I + G +(X - M)

= 2000 + 800 + 400 + (-200)

= $3000

2. Depreciation is $___

Depreciation = GDP (income approach) - (Net Domestic Income + Indirect Taxes Less Subsidies)

= 2900 - (2500 +100)

= 2900 - 2600

= $300

1. Assuming that Toyota previously built its sport utility vehicle outside of Canada, Canada’s GDP ___ when Toyota builds the RAV4 in Canada because

___ .

a.   Increases; government expenditure increases

b.   Decreases; Toyota is a Japanese firm so all of Toyota’s production is part of Japan’s GDP

c.   Increases; net exports increase

d.   Decreases; imports decrease Answer: c)

4.2 Extra Problem 4 (Static)

1. Toyota’s decision to build the RAV4 in Canada influences the factor incomes that make up Canada’s GDP by increasing ___.

a.  Japan’s wages, salaries, and supplementary labour income, and other factor incomes

b.   Canada’s wages, salaries, and supplementary labour income and also increasing Japan’s other factor incomes

c.   Consumption expenditures and investment

d.   Canada’s wages, salaries, and supplementary labour income, and other

factor incomes

Answer: d)

4.3 Key Term Quiz (Static)

1. Real GDP per person is real GDP ___.

a.   Divided by the total labour hours

b.   Divided by the population

c.   Multiplied by the population

d.   Divided by aggregate demand Answer: b)

2. Potential GDP is the value of real GDP when all the economy’s factors of production - ___, ____, ____, and ___ - are fully ____.

a.  Average costs; marginal costs; variable costs; fixed costs ; minimized

b.   Labour; capital; land; entrepreneurial ability; employed

c.   Wages; rent; interest profits; optimized

d.   Labour; capital; stocks; bonds; employed

Answer: b)

3. The business cycle is a ___ but ___ up-and-down movement of total ___ and other measures of economic activity

a.   Periodic; irregular; production

b.   Occasional; regular; production

c.   Occasional; regular; consumption

d.   Periodic; irregular; consumption Answer: a)

4. An expansion is a period during which ___.

a.  The economy faces hyperinflation

b.   Unemployment increases

c.   Real GDP increases

d.   Interest rate rises Answer: c)

5. Which of the following countries is facing a recession?

a.  Japan’s real GDP of 3.8 percent in the first quarter decreased by 0.3 and 0.4 percent respectively in the second and third quarter of 2012

b.  The Bank of England raised the country’s interest rate from 0.5 percent in the first quarter to 0.9 percent in the second quarter of 2013

c.   India’s real GDP of 5.3 percent in the second quarter increased by 0.4 percent in the third quarter of 2012

d.   Canada faced a change in the inflation rate from 2.2 percent in 2012 to 1.7 percent in 2013.

Answer: a)

4.3 Review Quiz 2 (Static)

How does the growth rate of real GDP contribute to an improved standard of living?

1. The growth rate of real GDP contributes to an improved standard of living because ___.

a.   More resources are devoted to household production, underground economic activity, and leisure time

b.   Prices fall and the average person can afford to buy more consumption goods and services

c.   A higher real GDP increases potential GDP, which increases employment of labour, land, capital, and entrepreneurship

d.  The average person enjoys more consumption goods and services and more resources are devoted to health care, research, and environmental protection Answer: d)

4.3 Review Quiz 3 (algo)

What is a business cycle and what are its phases and turning points?

1. A business cycle is ___.

a.  A regular, predictable cycle of total production and other measures of economic activity

b.  A periodic but irregular up-and-down movement of total production and other measures of economic activity

c.   The regular, predictable cycle of potential GDP

d.  The periodic growth cycle of potential GDP Answer: b)

2. The phases of the business cycle are ___. The turning points of the business cycle are ___.

a.   Peak and trough; expansion and recession

b.   Expansion and recession; direct and indirect

c.   Expansion and recession; peak and trough

d.   Positive and negative; minimum and maximum Answer: c)

4.3 Review Quiz 4 (Static)

What is PPP and how does it help us to make valid international comparisons of real GDP?

1. PPP is ___.

a.   Price point parity

b.   Preferred purchasing prices

c.   Parallel purchasing power

d.   Purchasing power parity Answer: d)

2. When we use PPP we can make valid international comparisons of real GDP because we ___.

a.   Calculate the value of goods and services produced in two countries using the same quantities

b.   Use data that is calculated at the market exchange rate

c.   Calculate the value of goods and services produced in two countries using the same prices

d.   Use the price date provided by the two countries but not the quantities Answer: c)