Sheet 1

MCQ Question
1. The two approaches that economists use to measure GDP are:

A) the goods flow and investment flow.

B) current surveys and historical data.

C) the product flow and spending flow.

D) household tax returns and corporate tax returns.

E) the Expenditure flow and the income flow.

2. The expenditure and income flows:

A) provide a check for each other.

B) measure GDP two different ways.

C) would be identical in a world of complete information and perfect measurement.

D) all of the above.

E) A and B only.

3. What is the name we give to the total market value of the final goods and services produced
within a nation during a given year?

A) Gross Domestic Product.

B) Gross Domestic Consumption.

C) Total Value.

D) Total National Product.

E) none of the above.

4. "Double counting" in the calculation of GDP occurs when:

A) the cost of intermediate inputs-such as flour for baking pastries-is included.

B) gross investment is not adjusted for losses due to depreciation.

C) the flow-of-expenditure approach equals the flow-of-income approach.

D) economists play hopscotch.

 E) none of the above.

5 . The result of subtracting a depreciation from GDP is:

A) disposable income.

B) personal income.

C) net domestic product.

D) yearly capital expenditure.

E) adjusted gross domestic

6 . If an economy consumes more than it produces, then:

A) imports must exceed exports.

B) depreciation must exceed consumption.

C) government spending must exceed government tax revenues.

D) exports must exceed imports.

E) no economy can be consuming more than it is producing.

7 . The gross domestic product (GDP) of an economy is:

A) the sum in market value of all goods consumed within a stated period.

B) the sum in market value of all intermediate goods produced in the economy.

C) the sum in market value of all final goods and services produced in an economy during a
stated period.

D) the sum in market value of all consumption goods, along with purchases by the
government.

E) the sum in market value of all wages and profits related to the production of final goods.

8 .The circular flow model of the economy:

A) cannot handle leakages from the spending flow.
B) is useful only when the economy is at full employment.
C) compares spending on goods and services with payments to factors of production.

D) compares consumer spending with corporate investment.

E)is useful in market economies, but not in planned economies.

9.Value added is measured as the:

A) difference between a firm's sales and its purchases of materials and services from other firms.
B) difference between net and gross investment.
C) additional output the economy produces when it is at full employment.
D) additional consumer goods produced when the economy moves from war-time to peace-time.
E) increase in corporate profits from one year to the next.

10.When economists measure variables in "real" terms it means that:

A) physical goods are separated from intangible services.
B) data are collected from at least two sources before final measurements are made.
C) consumption spending is separated from financial investment.
D) in GDP a distinction is made between financial capital and physical capital.
E) the data are adjusted to account for changes in prices from one period to the next.

11.Real GDP is computed by:

A) subtracting depreciation costs from nominal GDP.
B) multiplying Nominal GDP by a cost-of-living increase.
C) adding the dollar value of services to Nominal GDP.
D) dividing Nominal GDP by the GDP price deflator.
E) none of the above.

12. If nominal GDP for 1970 totaled $750 billion, what was GDP in terms of 1960 prices? (price index =
100 for 1960, and 120 for 1970)
A) $900 billion.
B) $1650 billion.
C) $600 billion.
D) $730 billion.
E) $625 billion.

State whether the following statements are true or false & justify your answers

1 .The "double counting" problem occurs when intermediate goods are included in GDP.
2. The gross domestic product is the most comprehensive measure of a nation’s total output of goods
and services.

3. The flow-of expenditure approach is a better measurement than the income approach.

4.In recent years, total exports have exceeded total imports, causing the investment component of GDP
to grow .

5. Government transfer payments are government payments to individuals that are not made in exchange
for goods of services supplied.