Chapter 15 Measurement of Economic Performance (I)

▍Definition of gross domestic product (GDP)

1. GDP is
A. the total market value of production of all firms of a country or economic territory in a given
period.
B. the total market value of production of all resident producing units of a country or economic
territory in a given period.
C. the total income earned by all households of a country or economic territory in a given period.
D. the total production cost of all resident producing units of a country or economic territory in a
given period.

2. Which of the following should be included in the calculation of Hong Kong’s gross domestic product
in the current year?
A. the spending of a Hong Kong resident on the purchase of inflation-linked retail bonds (iBond)
B. the service charge paid by a Hong Kong resident to a bank on his loan
C. the spending of a Hong Kong resident on the purchase of a second-hand watch
D. the disability allowance received by a Hong Kong resident

3. Which of the following should not be included in the calculation of Hong Kong’s GDP?
(1) the Student Travel Subsidy granted by the government to students
(2) the spending of tourists on the purchase of daily necessities in Hong Kong
(3) the prize money of the Mark Six Lottery won by a Hong Kong resident
A. (3) only
B. (1) and (2) only
C. (1) and (3) only
D. (1), (2) and (3)

4. In 201X, Anna bought some shares of a listed company for $30,000. In the same year, she received
dividends of $200 and later made a capital gain of $5,000 by selling the shares for $35,000. She paid
the broker a commission of $500.
The contribution of the above events to the GDP of 201X is __________.
A. $500
B. $700
C. $35,500
D. $37,000

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HKDSE Economics Exam Kit [Chapter 15 Measurement of Economic Performance (I)]

5. In 201X, a model car company produced model cars that were worth $60,000. Its sales revenue for
that year was $80,000. Assume that the company did not accept pre-orders, which of the following
statements is CORRECT?
A. In 201X, the contribution of the model car company to the GDP was $80,000.
B. In 201X, the contribution of the model car company to the GDP was $140,000.
C. In 201X, the stock of the model car company decreased by $20,000.
D. In 201X, the stock of the model car company decreased by $60,000.

▍Calculation of GDP

6. Refer to the following circular flow diagram of an economy.

Flow X

Real flow
Money flow
Firm Household

Which of the following is included in flow X?

A. cost of production
B. value of factor services
C. expenditure on final goods and services
D. market value of final goods and services

7. Which of the following descriptions about the methods of calculating GDP is CORRECT?
(1) The GDP measured by the production approach reflects the value added of economic activities.
(2) The GDP measured by the expenditure approach reflects the market value of goods and services.
(3) The GDP measured by the income approach reflects consumers’ total expenditure on final goods
and services.
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1), (2) and (3)

8. The following would result in an increase in Hong Kong’s GDP, EXCEPT

A. an increase in the total export value of Hong Kong made garments.
B. the government increasing the air passenger departure tax.
C. more tourists visiting Hong Kong.
D. the MTR Corporation developing the Shatin to Central Link.

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 Chapter 15 Measurement of Economic Performance (I)

9. The following diagram shows a production chain in an economy. The imported blueberries are worth
$3,000.

$5,000 Local consumers

Local
$5,000 supermarkets
$7,000 Foreign tourists
Local
$3,000
blueberries
importers $15,000
$8,000 Local retailers Local consumers

The contribution of the above production chain to the economy’s GDP at market prices is ________.
A. $17,000
B. $24,000
C. $27,000
D. $30,000

10. The following diagram shows a production chain of a good in economy X.

$120 Export to
economy Z
Local raw $100 Local
materials factories
$150 $220 Local
Local retailers consumers

The above production chain has included a subsidy of $20 that is given to the local factories. The
contribution of the local factories to the economy’s GDP at factor cost is __________.
A. 150
B. 190
C. 290
D. 360

11. Which of the following expenditures of a Hong Kong resident is NOT included in the calculation of
private consumption expenditure?
A. the spending on imported foodstuffs
B. the spending on buying newly issued shares
C. the spending on transport
D. travel insurance premium paid to a local insurance company

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HKDSE Economics Exam Kit [Chapter 15 Measurement of Economic Performance (I)]

12. Which of the following items is NOT included in the calculation of gross domestic fixed capital
formation?
A. an office buying $100,000 worth of office equipment
B. a firm paying $100,000 for a van
C. a company purchasing $100,000 worth of shares of a local company
D. the spending of $100,000 on repairing machinery used in a factory

13. The spending of foreign visitors on hotel accommodation service in Hong Kong is a/an
____________ of Hong Kong.
A. consumption expenditure
B. investment expenditure
C. import of service
D. export of service

14. Refer to the following statistics about an economy.

GDP components $ million

Private consumption expenditure 450
Gross domestic fixed capital formation 200
Change in stock −50
Government consumption expenditure 700
Depreciation 70
Total exports of goods and services 250
Total imports of goods and services 90
Re-exports of goods 100

The economy’s GDP at market prices is $________ million.

A. 1,390
B. 1,460
C. 1,510
D. 1,630

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 Chapter 15 Measurement of Economic Performance (I)

15. Consider the following gross domestic product (GDP) data of a country.

Components $ million
GDP at market prices 350
Net domestic fixed capital formation 130
Decrease in inventories 20
Depreciation 10
Government consumption expenditure 50
Total exports of goods 50
Total exports of services 30
Re-exports of goods 40
Total imports of goods 20
Total imports of services 40
Indirect business tax 15
Subsidies 35

The private consumption expenditure for that year is $__________ million.

A. 180
B. 160
C. 150
D. 140

▍GDP at market prices and GDP at factor cost

16. Which of the following statements about GDP at market prices and GDP at factor cost is/are
CORRECT?
(1) The difference between GDP at market prices and GDP at factor cost is the sum of indirect
taxes and subsidies.
(2) GDP at market prices can be calculated by GDP at factor cost plus indirect taxes and minus
subsidies.
(3) GDP at market prices more accurately reflects the expenditure of consumers on final goods and
services while GDP at factor cost more accurately reflects the total income received by the
factor owners.
A. (2) only
B. (1) and (2) only
C. (1) and (3) only
D. (2) and (3) only

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HKDSE Economics Exam Kit [Chapter 15 Measurement of Economic Performance (I)]

17. Consider the following statistical data of an economy in a certain year.

GDP components $ million

Private consumption expenditure 70
Gross domestic fixed capital formation 20
Change in inventories 10
Government consumption expenditure 60
Depreciation 25
Total exports of goods and services 80
Total imports of goods and services 30
Re-exports of goods 40
Indirect business tax 10
Subsidies 35

The GDP at factor cost of the economy for that year is $________ million.
A. 185
B. 210
C. 235
D. 275

1. Amy, an Indonesian, has worked as a foreign domestic helper in Hong Kong for two years. She is
earning an income of $4,410 per month. Is Amy’s income counted in Hong Kong’s GDP? Explain.
(2 marks)

2. Read the following information.

On March 2018, the HKSAR Government

launched the Caring and Sharing Scheme. Each
eligible Hong Kong resident will get up to
HK$4,000.

Mrs. Chan received $4,000 in September 2019.

(a) Should the $4,000 given by the government be included in the calculation of GDP of Hong
Kong in 2019? Explain. (2 marks)
(b) Mrs. Chan spent the $4,000 on a health check. Should the sum of money spent be included in
the calculation of GDP of Hong Kong in 2019? Explain. (2 marks)

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3. Explain whether the following statements are true or false.

(a) The figures of imports, exports and net exports of a country are always positive. (3 marks)
(b) GDP will be understated if the value of intermediate products is included in the calculation of
GDP. (3 marks)
(c) Some housewives make cakes for consumption at home. This activity is excluded from the
calculation of GDP because it does not involve any production. (3 marks)

4. Refer to the following circular flow diagram of economy A.

What do Flow X and Flow Y represent respectively? (4 marks)

5. Study the following table of an economy’s statistical data and answer the questions.

GDP components $ million

Private consumption expenditure 250
Gross domestic fixed capital formation 450
Increase in inventories 90
Government consumption expenditure 300
Depreciation 50
Total exports of goods and services X
Total imports of goods and services 100
Re-exports of goods 70
Indirect taxes 30
Subsidies 10

(a) Suppose the economy’s GDP at market prices is $1,030 million. Calculate the value of X.
(2 marks)
(b) Calculate the GDP at factor cost. (2 marks)
(c) State TWO reasons to explain why the actual total spending of consumers in the economy is
greater than $250 million. (4 marks)

6. Peter runs a garment factory. The factory’s total market value of production is $250,000 this year.
Explain under what situation the factory’s contribution to this year’s GDP is less than $250,000.
(3 marks)

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HKDSE Economics Exam Kit [Chapter 15 Measurement of Economic Performance (I)]

7. The following diagram shows a production chain of shoes.

($5,000 tax
inclusive)

(a) Using the value added approach, calculate the contribution of the shoe wholesaler to Hong
Kong’s GDP at market prices. (2 marks)
(b) Using the value added approach, calculate the contribution of the above production chain to
Hong Kong’s GDP at market prices. (3 marks)
(c) Under the expenditure approach, the contribution of the above production chain should
theoretically be the same as the answer in part (b). Explain whether the above production
chain would contribute to the following five components:
(i) private consumption expenditure (C)
(ii) gross investment (I)
(iii) government consumption expenditure (G)
(iv) exports (X)
(v) imports (M)
(10 marks)

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