Unit 4: National Income - Practice Quiz

1 What does national income generally measure?

2 What does GDP stand for?

3 Which item is a final good?

4 What is depreciation in national income accounting?

5 Which method adds the value of final goods and services produced?

6 Which method totals wages, rent, interest, and profit?

7 Which item is included in the expenditure method?

8 Why are intermediate goods excluded from national income calculations?

9 Which is a use of national income statistics?

10 Which activity is usually difficult to include in national income statistics?

11 Why may national income per person not fully show living standards?

12 Which factor can make comparisons of national income between countries difficult?

13 Which two sectors are included in a basic two-sector economy?

14 What do households provide to firms in the circular flow?

15 What do firms pay households for the use of factors of production?

16 Which sector is added to the two-sector model to create a three-sector economy?

17 Which is an injection into the circular flow from the government?

18 Which sector is added in a four-sector economy?

19 What is an export in the circular flow model?

20 Which indicator measures the percentage of the labor force without jobs?

21 A country's GDP at market prices is $5,000 million, net factor income from abroad is $120 million, depreciation is $400 million, and net indirect taxes are $300 million. What is its national income?

22 Which transaction should be excluded when estimating current-year GDP to avoid double counting?

23 If nominal GDP increases by 8% while the GDP deflator increases by 5%, real GDP has approximately:

24 Under the income method, which item is included in national income?

25 An economy records household consumption of $800 billion, investment of $250 billion, government spending of $300 billion, exports of $150 billion, and imports of $200 billion. GDP by the expenditure method is:

26 The value-added method prevents double counting mainly by:

27 Why is GDP per capita an imperfect measure of average economic well-being?

28 A country reports rising GDP while pollution and traffic congestion worsen substantially. This illustrates that GDP:

29 Which use of national income statistics is most relevant when a government compares economic performance over several years?

30 In a two-sector economy with households and firms, households provide factors of production mainly in exchange for:

31 If households save part of their income in a simple two-sector model, saving is treated as a:

32 In a two-sector economy, planned investment increases by $40 million while planned saving remains unchanged. In the short run, this change is most likely to cause:

33 In a three-sector economy, taxes collected by the government are classified as:

34 Suppose government spending rises by $100 million while taxes remain unchanged. The immediate effect in a three-sector economy is likely to be:

35 If government expenditure is $600 billion and tax revenue is $500 billion, the government sector has a:

36 In a four-sector economy, exports are classified as an injection because they:

37 If imports increase while exports remain unchanged, the most direct effect on the circular flow is:

38 An open economy has saving of $80 billion, taxes of $60 billion, imports of $40 billion, investment of $90 billion, government spending of $50 billion, and exports of $40 billion. Which statement is correct?

39 Which indicator is most directly used to measure the general rate at which prices of goods and services are rising?

40 A country's unemployment rate falls because many discouraged workers stop searching for jobs. What is the best interpretation?

41 An economy has GDP at market prices of billion, net factor income from abroad of billion, depreciation of billion, and net indirect taxes of billion. What is national income, conventionally measured as net national product at factor cost?

42 Which transaction increases measured GDP but does not necessarily increase current economic welfare by the same amount?

43 A domestic-owned factory operating abroad earns profits, while a foreign-owned factory operating domestically earns an equal amount. Holding all else constant, which change occurs?

44 In an economy, employee compensation is billion, rent is billion, interest is billion, profits are billion, mixed income is billion, depreciation is billion, and net indirect taxes are billion. What is GDP at market prices by the income method?

45 Suppose final consumption is billion, gross private investment is billion, government consumption is billion, exports are billion, and imports are billion. If inventories unexpectedly rise by billion and are not included in reported investment, measured GDP based on the expenditure method is:

46 A country reports nominal GDP of billion in year 2 and a GDP deflator of with year 1 as the base. What is real GDP in year 2 at year-1 prices?

47 A firm produces a machine worth million, sells it to another firm for million after adding processing worth million, and the buyer sells the final product to households for million after adding services worth million. What value should the production approach add to GDP?

48 Country A has higher GDP per capita than Country B, but also substantially greater income inequality, pollution, commuting time, and unpaid household production. Which conclusion is most defensible?

49 If a country changes its statistical base year and discovers previously omitted digital services, which interpretation is correct?

50 Why can comparing GDP across countries using market exchange rates produce a misleading comparison of living standards?

51 In a two-sector economy with households and firms, households save billion and firms plan investment of billion. If there is no government or foreign sector, what adjustment is required for equilibrium income?

52 In a two-sector Keynesian model, consumption is and planned investment is . What is equilibrium income?

53 For an economy with households, firms, and government, disposable income is , consumption is , taxes are , investment is , and government spending is . What is equilibrium income?

54 In a three-sector economy, the marginal propensity to consume out of disposable income is and the proportional tax rate is . Ignoring imports, what is the government expenditure multiplier?

55 An open economy has , , planned investment , government spending , exports , and imports . What is equilibrium income?

56 In a four-sector economy, the marginal propensity to save is , the tax rate is , and the marginal propensity to import is $0.15. What is the simple expenditure multiplier?

57 Nominal GDP grows by , the GDP deflator rises by , and population grows by . Approximately how much does real GDP per capita grow?

58 The unemployment rate falls while the employment-to-population ratio also falls. Which development can reconcile both observations?

59 The consumer price index rises from to , while nominal wages rise from to . What happens approximately to the real wage measured in base-period purchasing power?

60 A firm observes strong GDP growth, falling inflation, rising real interest rates, and a depreciating currency. Which combined interpretation is most appropriate for strategic analysis?