Chapter 6A MCQ

Question 1

In 1935, Canada’s nominal GDP was about $5 billion. In 2013, it was about $1800 billion. Thatmeans that the average Canadian was about 360 times better off in 2013 compared to 1935. T  F

Answer 1

False. Part of the increase in nominal GDP is due to inflation.

Question 2

In 1935, Canada’s real GDP was about $70 billion. In 2013, it was about $1400 billion. That means that the average Canadian was about 20 times better off in 2013 compared to 1935. T  F

Answer 2

False. The increase in real GDP was accompanied by population growth, so real GDP per person is not 20 times higher.

Question 3

In 1935, Canada’s real GDP per person was about $7000. In 2013, it was about $40 000. That means that the average Canadian was about 6 times better off in 2013 compared to 1935. T  F

Answer 3

True. Real GDP per person is the best measure of material living standards.

Question 4

During the 1990s, real GDP rose faster than nominal GDP. T  F

Answer 4

False. According to Figure 6.1, since the 1960s, nominal GDP has risen faster than real GDP.

Question 5

Back in 2012, I contributed to nominal GDP by selling my used 2009 Ford truck to my friend. T  F

Answer 5

False. Only new production or value added in 2012 adds to 2012 GDP.

Question 6

My rich neighbour, Pablo, purchased a new Ferrari made in Italy, increasing Canadian GDP. T  F

Answer 6

False. Consumption increases but net exports decrease by the same amount since Ferraris are imports.

Question 7

Gross Domestic Product (GDP) is the value of all products and services

that are gross-looking.

produced in domestic households.

produced in a country, including gross-looking products and services.

produced in a country, excluding gross-looking products and services.

Answer 7

c) Looks don’t count, only production!

Question 8

To calculate nominal GDP for 1935, we use the prices in

1935 and quantities in 1935.

1935 and quantities in 2002.

2002 and quantities in 1935.

2002 and quantities in 2002.

Answer 8

a) Current prices and current quantities.

Question 9

You observe that nominal GDP increases between 2019 and 2020, and the population also increases. If the entire increase in nominal GDP was due to rising prices, then

nominal GDP remains unchanged.

real GDP remains unchanged.

real GDP per person remains unchanged.

living standards remain unchanged.

Answer 9

b) Real GDP is constant, but real GDP per person and living standard decrease.

Question 10

GDP equals the value of

spending on final products and services.

business’s outputs minus the value of intermediate products and services bought from other businesses.

incomes earned by owners of inputs.

all of the above.

Answer 10

d) All definitions of GDP.

Question 11

In the “mantra” for calculating GDP, imports are subtracted because

some consumption spending is on imports.
some business investment spending is on imports.
some government spending is on imports.
all of the above.

Answer 11

d) Must subtract all spending on imports by any domestic macroeconomic players.

Question 12

Which of the following increases investment spending (I ) by $200?

You are hired by the government to shuffle paper uselessly for $200.

You are hired by Dunder-Mifflin, the business on the television show The Office, to shuffle paper uselessly for $200.

You hire your significant other to shuffle paper uselessly for $200.

You lose your job because your employer replaces you with a paper shuffler machine that costs $200.

Answer 12

d) Business investment spending is on factories and machines.

Question 13

Gross domestic product measures
A.
material standard of living of a country.
B.
the total market value of final products and services produced annually within a​ country’s borders.
C.
the total income received by residents of a country.
D.
the total worth of all products consumed within the borders of a country.

Answer 13

b. the total market value of final products and services produced annually within a​ country’s borders.

Question 14

Assuming a standard year of​ 2002, to calculate real GDP for 2002​, we use the prices in

Answer 14

2002 and quantities in 2002.

Real GDP is calculated using quantities for the year in which the calculation occurs comma but prices for the standard year.
Since the standard year is 2002 comma to calculate real GDP for 2002​, we use the prices in 2002 and quantities in 2002.

Question 15

Nominal GDP
A.
is greater than real GDP.
B.
can only be compared to real GDP using a per person comparison.
C.
is equal to real GDP in the year used as a standard for constant prices.
D.
is a better measure than real GDP for judging living standards.

Answer 15

C. is equal to real GDP in the year used as a standard for constant prices.

Question 16

What is the best GDP measure for judging living​ standards?
A.output gap
B.
real GDP per person
C.
nominal GDP
D.
nominal GDP per person

Answer 16

B.
real GDP per person

Real GDP per person gives the best measure of a​ country’s ability to meet the material needs of its citizens.

Question 17

Which statement about nominal and real GDP is incorrect​?
A.
Nominal GDP includes products or services produced within a​ country’s borders, no matter what the nationality of the business doing the producing.
B.
Real GDP is a better measure of standard of living than nominal GDP.
C.
To calculate nominal GDP for​ 2013, we use the prices in 2013 and quantities in 2010.
D.
Nominal GDP is measured as a flow.

Answer 17

C.
To calculate nominal GDP for​ 2013, we use the prices in 2013 and quantities in 2010.

To calculate nominal GDP for​ 2013, we use the prices in 2013 and quantities in 2013.

Question 18

Assuming a standard year of​ 2002, to calculate real GDP for 2008​, we use the prices in
A.
2002 and quantities in 2008.
B.
2008 and quantities in 2008.
C.
2002 and quantities in 2002.
D.
2008 and quantities in 2002.

Answer 18

A.
2002 and quantities in 2008.

Question 19

How much does the production of a kayak add to GDP if the shell costs ​$200​, the paint costs ​$20​, the finisher costs ​$35​, the manufacturer sold it to the dealer for ​$600​, and the dealer sold it to her customer for ​$850​?
A.
​$850
B.
​$1,450
C.
​$1,705
D.
​$600

Answer 19

A.
​$850

GDP is calculated by adding up the value of all final products and services produced annually in a country. It includes only final products and services​ – consumed directly by consumers​ – and excludes intermediate products and services to avoid double counting. In this​ case, the dealer sold the kayak to her customer for ​$850. ​Thus, the production of a kayak adds ​$850 to GDP .

Question 20

In the simple circular​ flow, which of the following is true about input ​markets?
A.
Products and services flow from households to businesses.
B.
Inputs flow from businesses to households.
C.
Inputs flow from households to businesses.
D.
Products and services flow from businesses to households.

Answer 20

C.
Inputs flow from households to businesses.

Question 21

A business sells its output for ​$2,500. It pays ​$1,200 in​ wages, ​$500 for material bought from other​ businesses, and has profits of ​$800. Its value added is
A.
​$1,700.
B.
​$2,000.
C.
​$1,200.
D.
​$800.

Answer 21

B.
​$2,000.

Value added is the value of a​ business’s outputs minus the value of intermediate products and services bought from other businesses.​ Thus, the​ business’s value added here is ​($2,500 ​- ​$500​) ​= ​$2,000.

Question 22

The​ “mantra” for calculating GDP is
A.
Y​ = C​ + I​ + G​ + X - IM.
B.
Y = D +I + G +X - IM.
C.
C =Y + I +G + X - IM.
D.
Y = C + I + G + X + IM.

Answer 22

A.
Y​ = C​ + I​ + G​ + X - IM.

The​ “mantra” for calculating GDP is Y​ (GDP) = C​ (consumption) + I​ (business investment)​ + G​ (government spending)​ + X​ (exports) - IM ​(imports).

Question 23

Value added solves the problem of
A.
evaluating the labour force.
B.
double counting.
C.
distinguishing between products and services.
D.
all of the above.

Answer 23

B.
double counting.

Value added solves the problems of double counting and of distinguishing between final and intermediate products and services.

Question 24

In the simple circular​ flow, which of the following is true about output ​markets?
A.
Inputs flow from businesses to households.
B.
Inputs flow from households to businesses.
C.
Products and services flow from households to businesses.
D.
Products and services flow from businesses to households.

Answer 24

D. Products and services flow from businesses to households.