Bk5 Ch1 - Ans

NSS Exploring Economics 5 (3rd Edition)
Consolidation Worksheets
Chapter 1 Measurement of economic performance (I)—GDP and GNI
Test Yourself
1.1
Are the following regarded as resident producing units of Hong Kong? Complete the table
below.
Producing unit Has Hong Kong Hong Kong’s
or not? residence status? RPU?
a. The Bank of East Asia
(China) Limited in the
mainland
b. A British manager of the
Bank of East Asia in
Hong Kong who has
signed a one-year contract
c. A self-employed delivery
driver in Hong Kong
1.2
Should the following items be deducted from the sales revenue of a coffee shop to obtain the
value-added of the coffee shop? Put a  in the correct box.
Deducted Not deducted
a. Shop rent paid to a property developer
b. Wage payments
c. Electricity and water charges
d. Cost of coffee beans
e. Profit of entrepreneurs
f. Depreciation of coffee machines
g. Expenditure on the purchase of furniture
NSS Exploring Economics 5 (3rd Edition) 1 © Pearson Education Asia Limited 2019
Consolidation Worksheets (Chapter 1)
1.3
Study the following production chain.
Calculate the contribution of the above production chain to Country B’s GDP at market
prices.
Answer:
Value added of Factory X at market prices =
Value added of Retailer Y at market prices =
Country B’s GDP at market prices =
1.4
Calculate the gross investment expenditure if
a. the gross domestic fixed capital formation, changes in inventories and depreciation are
$500, $50 and $20, respectively.
b. the net investment expenditure, changes in inventories and depreciation are $430, –$30
and $40, respectively.
Answer:
a. Gross investment expenditure
= Gross domestic fixed capital formation +
=
b. Gross investment expenditure
=
=
1.5
Are the following items counted in the GDP calculated by the expenditure approach? If yes,
indicate the expenditure component(s) being affected by the item with a .
Counted in
C I G X
GDP?
a. Commission paid by a household for the
Yes / No
purchase of a second-hand private car
b. A household’s expenditure on the purchase of
Yes / No
shares
c. Value of a shirt produced last year but sold to
Yes / No
a household this year
d. A firm’s expenditure on an imported sewing
Yes / No
machine
e. Compensation paid to a traffic accident
Yes / No
victim
f. Foreign expenditure on toys produced by a
Yes / No
domestic firm
g. Government investment in infrastructure Yes / No
1.6
Are the following items included in Hong Kong’s GDP and/or GNI? Are they external factor
income flows?
Included in GDP?
Does the income Included in
(Does it involve Is it a
cross an economic GNI? (Is it an
production of factor
territory? Is it an income of
resident producing income?
inflow or outflow? residents?)
units?)
a. Dividends from
US shares held
by Hong Kong
residents
b. Salary of a
Filipino maid
working in Hong
Kong for three
years
c. Payment to a US
consultant hired
by the MTR
Corporation
Limited on a
three-month
contract
d. Expenditure on
exported goods
produced by an
RPU of Hong
Kong
1.7
The following chain shows all of the production in Country X.
a. Calculate Country X’s GDP at factor cost by the value-added approach.

b. Calculate Country X’s GDP at market prices by the expenditure approach.
c. Suppose local factories employ foreign workers for half a year for $5,000, while residents
of Country X receive $1,500 in dividends from their investments in foreign countries.
Calculate Country X’s GNI at market prices.
Answer:
a. GDP at factor cost
=
b. GDP at market prices

=
c. GNI at market prices

=
Short questions
1.
The sales revenues of a toy factory are $1 million this year. Suggest TWO reasons to explain
why it is possible for its contribution to GDP to be less than $1 million. (4 marks)
Answer:
●
(2 marks)
●
(2 marks)
2.
The following diagram shows the production stages of a shirt.
Find the value-added at market prices of each firm. Then use the results to find the market
value of the final product. (6 marks)
Answer:
Value-added of Firm A at market prices = (1 mark)
Value-added of Firm B at market prices = (1 mark)
Value-added of Firm C at market prices = (1 mark)
Value-added of Firm D at market prices = (1 mark)
Value-added of Firm E at market prices = (1 mark)
Market value of the final product = (1 mark)
3.
Study the following production chain.
a. Use the production approach to calculate the above production chain’s contribution to
Economy B’s GDP at market prices. (4 marks)
b. Calculate the above production chain’s contribution to Economy B’s GDP at factor cost
from your answer in (a). (3 marks)
Answer:
a. The seafood wholesaler’s value-added at market prices
= (1 mark)
The restaurant’s value-added at market prices
= (1 mark)
The retailers’ value-added at market prices
= (1 mark)
Hence, the production chain’s contribution to Economy B’s GDP at market prices
= (1 mark)
b. GDP at factor cost
= GDP at market prices – + (1 mark)
= (2 marks)
4.
In the expenditure approach, which expenditure component(s) of the current year would be
affected by the following hypothetical transactions? Explain your answer.
a. A Japanese tourist bought a souvenir at Ocean Park Hong Kong which was imported from
the mainland last year. (4 marks)
b. The Social Welfare Department spent $10 million on compensation for employees, $1
million on an upgrade of its computer system and $18,000 million on Comprehensive
Social Security Assistance. (6 marks)
Answer:
a. The souvenir was sold to a Japanese tourist this year. Hence,
would increase. (2 marks)
Since the souvenir, which was imported last year and held as ,
was sold this year, this would lower the value of this year.
(2 marks)
b. The compensation for employees of $10 million is counted in
. (2 marks)
The expenditure on the $1 million upgrade of the computer system is counted in
, because it is a final expenditure of a public
enterprise on a . (2 marks)
Comprehensive Social Security Assistance (is / is not) counted in any expenditure
components, because it is a . Production (is / is not)
involved. (2 marks)
5.
State whether each of the following statements is true or false. Briefly explain your answer.
a. Under the expenditure approach, the values of all transactions are counted in GDP.
(5 marks)
b. When net factor income from abroad increases, GNI would be larger than GDP. (4 marks)
Answer:
a. (True / False). (1 mark)
Under the expenditure approach, GDP is measured by the total expenditures on
(final / intermediate) products produced by all
in the specified period. (2 marks)
The values of the following items are not counted in GDP:
● Items not produced in (e.g., past inventories)
● Items not produced by (e.g., imports)
● Items not involving (e.g., transfer payments,
capital gain, financial assets and second-hand goods)
(Any TWO of the above or other reasonable examples. 1 mark × 2 = 2 marks)
b. (True / False). (1 mark)
GNI = (1 mark)
Only when net factor income from abroad is (positive / negative) will GNI be larger than
GDP. (2 marks)
(No marks will be given to answers without explanations.)
6.
Christopher is the owner of a French restaurant in Hong Kong. In 2019, he employed a chef
from France as his consultant for three months for $180,000. All of the ingredients used by
the restaurant were from overseas and Christopher spent $5 million on them. The total
revenue of the restaurant in 2019 was $6 million.
Explain how Christopher’s restaurant affected Hong Kong’s
a. GDP (2 marks)
b. GNI (3 marks)
Answer:
a. Contribution to GDP
= (2 marks)
This means that Hong Kong’s GDP (increased / decreased) by $ million.
b. As the French chef (is / is not) a Hong Kong resident, his salary will be counted as a
factor income (inflow / outflow). (1 mark)
Contribution to GNI
= (2 marks)
This means that Hong Kong’s GNI (increased / decreased) by $ .
7.
a. How can we find GNI from GDP? Under what conditions would they be equal in value in
an open economy (i.e., there are transactions between the economy and the rest of the
world)? (3 marks)
*b. Suppose a toy factory (a resident producing unit of Hong Kong) imports workers on a
six-month contract from the mainland without affecting the production and income of
domestic workers. As a result, the profit of the factory’s sole proprietor (a Hong Kong
resident) increases substantially. How does this affect Hong Kong’s GDP and GNI?
Explain. (6 marks)
Answer:
a. GNI = GDP + (1 mark)
GNI equals GDP if .
(1 mark)
This happens in an open economy when its factor income from abroad
(is greater than / equals / is smaller than) its factor income paid abroad. (1 mark)
b. Given that the toy factory is a resident producing unit of Hong Kong and the imported
workers engage in production without affecting the production of local workers, the
value of the toy factory’s production (increases / decreases). Hence, GDP
(increases / decreases). (3 marks)
Since the imported workers are on a six-month contract, they (are / are not) Hong Kong
residents. Their incomes (are / are not) counted in Hong Kong’s GNI. Since the incomes
of local workers remain unchanged while the profit of the sole proprietor (a Hong Kong
resident) (increases / decreases), the total income of residents (increases / decreases).
Hence, GNI (increases / decreases). (3 marks)
8.
The following table shows Hong Kong’s GDP data in 2000.
Expenditure expressed as a
Expenditure components
percentage of GDP (%)
Private consumption expenditure 59.0
Government consumption expenditure 9.1
Gross domestic fixed capital formation A
Changes in inventories 1.1
Domestic exports of goods 13.7
Re-exports of goods 105.9
Net imports of goods 4.9
Exports of services 23.9
Imports of services 14.6
Net income from abroad 0.7
Source: Census and Statistics Department
a. Name the method of GDP measurement used in the above table. (1 mark)
b. Find the value of A. (2 marks)
c. Calculate GNI if GDP in 2000 was $1,318 billion. (2 marks)
Answer:
a. (1 mark)
b. GDP =
100% =
A= (2 marks)
c. GNI = (2 marks)
Suggested answers
Test yourself
1.1
Producing unit Has Hong Kong Hong Kong’s
or not? residence status? RPU?
a. The Bank of East Asia (China)
Yes No No
Limited in the mainland
b. A British manager of the Bank
of East Asia in Hong Kong
No Yes No
who has signed a one-year
contract
c. A self-employed delivery
Yes Yes Yes
driver in Hong Kong
1.2
Deducted Not deducted
a. Shop rent paid to a property developer ✓
b. Wage payments ✓
c. Electricity and water charges ✓
d. Cost of coffee beans ✓
e. Profit of entrepreneurs ✓
f. Depreciation of coffee machines ✓
g. Expenditure on the purchase of furniture ✓
1.3
Value added of Factory X at market prices = ($20,000 + $15,000) – $20,000 = $15,000
Value added of Retailer Y at market prices = $30,000 – $20,000 = $10,000
Country B’s GDP at market prices = $15,000 + $10,000 = $25,000
1.4
a. Gross investment expenditure
= Gross domestic fixed capital formation + Changes in inventories
= $500 + $50 = $550
b. Gross investment expenditure
= Net investment expenditure + Depreciation
= $430 + $40 = $470
1.5
Counted in C I G X
GDP?
a. Commission paid by a household for the
Yes / No ✓
purchase of a second-hand private car
b. A household’s expenditure on the
Yes / No
purchase of shares
c. Value of a shirt produced last year but
Yes / No
sold to a household this year
d. A firm’s expenditure on an imported
Yes / No
sewing machine
e. Compensation paid to a traffic accident
Yes / No
victim
f. Foreign expenditure on toys produced by
Yes / No ✓
a domestic firm
g. Government investment in infrastructure Yes / No ✓
Explanation:
b. Only a minor portion (the commission, transaction levies and stamp duty involved) is
included in C.
c. The shirt is not currently produced but its value is counted in C. So, its value should be
deducted from I (as a decrease in inventory). Thus, it is not counted in GDP.
d. The value of the machine will be first added to investment expenditure, then deducted (as
an import). Thus, it is not counted in GDP but included in the calculation of GDP. (Note:
In public examinations, the question usually asks if an item is included in the calculation
of GDP.)
e. This is a transfer payment and is not counted in GDP.
g. Government investment expenditure is a component of gross investment expenditure.
1.6
Included in GDP?
Does the income Included in
(Does it involve Is it a
cross an economic GNI? (Is it an
production of factor
territory? Is it an income of
resident income?
inflow or outflow? residents?)
producing units?)
a. Dividends from ✘ ✓ ✓ ✓
US shares held (dividends paid (factor inflow (paid to an HK
by Hong Kong by a US income of resident)
residents producing unit) capital)
b. Salary of a ✓ ✓ ✘ ✓
Filipino maid (services provided (factor (paid to an HK
working in Hong by an HK income of resident—the
Kong for three RPU—the labour) Filipino
years Filipino maid) maid)
c. Payment to a US ✓ ✓ ✓ ✘
consultant hired (salary paid by an (factor outflow (paid to a US
by the MTR HK RPU—the income of resident—the
Corporation MTR labour) consultant)
Limited on a Corporation)
three-month
contract
d. Expenditure on ✓ ✘ not applicable not applicable
exported goods (exports produced
produced by an by an HK RPU)
RPU of Hong
Kong
1.7
a. GDP at factor cost
= Valued added of local factories at market prices
+ Value added of local wholesalers at market prices – Indirect taxes + Subsidies
= ($25,000 – $10,000) + [($36,000 + $22,000) – $25,000] – $2,000 + $0 = $46,000
b. GDP at market prices = C + I + G + X – M
= $36,000 + $0 +$0 + $22,000 – $10,000 = $48,000
c. GNI at market prices = GDP at market prices + Net factor income from abroad
= $48,000 + ($1,500 – $5,000) = $44,500
Short questions
1.
● Intermediate consumption is involved, e.g., the toy factory uses inputs purchased
from other producing units, such as electricity and transport services;
● Some of the products sold are not produced this year;
● Some of its products are imported, e.g., toys produced by resident producing units of
another economy.
(Any TWO of the above or other reasonable answers. 2 marks × 2 = 4 marks)
2.
Value-added of Firm A at market prices = $3 – $0 = $3 (1 mark)
Value-added of Firm B at market prices = $10 – $3 = $7 (1 mark)
Value-added of Firm C at market prices = $20 – $10 = $10 (1 mark)
Value-added of Firm D at market prices = $60 – $20 = $40 (1 mark)
Value-added of Firm E at market prices = $125 – $60 = $65 (1 mark)
Market value of the final product = Sum of value-added at market prices
= $3 + $7 + $10 + $40 + $65 = $125 (1 mark)
3.
a. The seafood wholesaler’s value-added at market prices
= $60,000 + $80,000 – $100,000 = $40,000 (1 mark)
The restaurant’s value-added at market prices
= $200,000 – $60,000 = $140,000 (1 mark)
The retailers’ value-added at market prices
= $100,000 – $80,000 = $20,000 (1 mark)
Hence, the production chain’s contribution to Economy B’s GDP at market prices
= $40,000 + $140,000 + $20,000 = $200,000 (1 mark)
b. GDP at factor cost
= GDP at market prices – Indirect taxes + Subsidies (1 mark)
= $200,000 – $10,000 – $5,000 = $185,000 (2 marks)
4.
a. The souvenir was sold to a Japanese tourist this year. Hence, the value of exports (of
services) would increase. (2 marks)
Since the souvenir, which was imported last year and held as inventories, was sold this
year, this would lower the value of changes in inventories (of gross investment
expenditure) this year. (2 marks)
b. The compensation for employees of $10 million is counted in government consumption
expenditure. (2 marks)
The expenditure on the $1 million upgrade of the computer system is counted in gross
investment expenditure, because it is a final expenditure of a public enterprise on a
fixed investment. (2 marks)
Comprehensive Social Security Assistance is not counted in any expenditure components,
because it is a transfer payment. Production is not involved. (2 marks)
5.
a. False. (1 mark)
Under the expenditure approach, GDP is measured by the total expenditures on final
products produced by all resident producing units in the specified period. (2 marks)
The values of the following items are not counted in GDP:
● Items not produced in the specified period (e.g., past inventories)
● Items not produced by resident producing units (e.g., imports)
● Items not involving production (e.g., transfer payments, capital gain, financial assets
and second-hand goods)
(Any TWO of the above or other reasonable examples. 1 mark × 2 = 2 marks)
b. False. (1 mark)
GNI = GDP + Net factor income from abroad (1 mark)
Only when net factor income from abroad is positive will GNI be larger than GDP.
(2 marks)
6.
a. Contribution to GDP
= $6 million – $5 million = $1 million (2 marks)
This means that Hong Kong’s GDP increased by $1 million.
b. As the French chef is not a Hong Kong resident, his salary will be counted as a factor
income outflow. (1 mark)
Contribution to GNI
= Contribution to GDP + Net factor income from abroad
= $1 million – $180,000 = $820,000 (2 marks)
This means that Hong Kong’s GNI increased by $820,000.
7.
a. GNI = GDP + Net factor income from abroad (1 mark)
GNI equals GDP if net factor income from abroad is equal to zero. (1 mark)
This happens in an open economy when its factor income from abroad equals its factor
income paid abroad. (1 mark)
b. Given that the toy factory is a resident producing unit of Hong Kong and the imported
workers engage in production without affecting the production of local workers, the value
of the toy factory’s production increases. Hence, GDP increases. (3 marks)
Since the imported workers are on a six-month contract, they are not Hong Kong
residents. Their incomes are not counted in Hong Kong’s GNI. Since the incomes of
local workers remain unchanged while the profit of the sole proprietor (a Hong Kong
resident) increases, the total income of residents increases. Hence, GNI increases.
(3 marks)
8.
a. Expenditure approach (1 mark)
b. GDP = C + I + G + NX of goods + NX of services
100% = 59.0% + (A% + 1.1%) + 9.1% + (–4.9%) + (23.9% – 14.6%) = 73.6% + A%
A = 100 – 73.6 = 26.4 (2 marks)
c. GNI = GDP + Net factor income from abroad
= $1,318 billion + $1,318 billion × 0.7%
= $1,327.2 billion (2 marks)

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Bk5 Ch1 - Ans

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NSS Exploring Economics 5 (3rd Edition)

Chapter 1 Measurement of economic performance (I)—GDP and GNI

g. Government investment in infrastructure Yes / No

a. Calculate Country X’s GDP at factor cost by the value-added approach.

b. GDP at market prices

c. GNI at market prices

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