Tutorial 2

Question 1

In the Irish national income accounts
(a) the expenditure and income methods are the main two approaches used to calculate GDP;
(b) GNP is greater than GDP by an amount equal to net factor income from the rest of the world;
(c) the difference between GNI and GNDI is net current transfers from abroad;
(d) both (a) and (c) above;
(e) both (b) and (c) above

Answer 1

(d) both (a) and (c) above;
(a)
- 3 Basic Approaches to Measuring the Nation’s Economic Activity
1. Adding up expenditure
2. Add up income
3. Add up all of output
- should yield the same total because every euro spent by a person or firm on Irish goods and services becomes income to an Irish resident
(c)
GNDI (gross national disposable income)- total income available to residents for final consumption or saving
- it is got by net current transfers received from abroad (TR) current transfers inlude immigrants, funds. grants not the exchange of goods and services to Gross National income (GNI)
- GNDI=GNI+TR or GNI=GNDI-TR

Question 2

GDP
GNP
GNI

Answer 2

GDP:
- gross domestic product
- net factor income from the rest of the world
GNP:
- gross natural product
- EU subsidies and taxes
GNI:
- gross national income
- minus provision for depreciation

Question 3

According to the Classical school of economics
(a) the economy naturally tends towards full employment;
(b) government intervention, in the form of active macro policy, is necessary;
(c) output is determined by the demand for goods and services;
(d) all of the above;
(e) none of the above

Answer 3

(a) the economy naturally tends towards full employment;

Question 4

Keynes disagreed with the Classical school of economics assumption that
(a) output and employment are supply-determined;
(b) prices and wages are rigid;
(c) demand-side factors have a significant role in determining output;
(d) there is, generally, excess capacity in the economy;
(e) both (a) and (d) above

Answer 4

(a) output and employment are supply-determined;

Question 5

The fluctuations in the income level that result from changes in investment spending
(a) tend to be larger with a larger MPS;
(b) tend to be larger if the income tax rate (t) is larger;
(c) tend to be larger with a larger MPC;
(d) depend only on the magnitude of the changes in investment spending but not on the size of the
MPC;
(e) both (a) and (b) above

Answer 5

(c) tend to be larger with a larger MPC;

Question 6

If the marginal propensity to consume increases, we should expect that
(a) the expenditure multiplier will become larger;
(b) for any given change in demand, the change in income is smaller;
(c) for any given change in income, the change in spending is larger;
(d) both (a) and (b) above;
(e) both (a) and (c) above

Answer 6

(a) the expenditure multiplier will become larger;

Question 7

9. Which of the following statements is false?
   (a) The aggregate expenditure function relates planned spending to income;
   (b) The smaller the MPS, the smaller the expenditure multiplier;
   (c) Autonomous expenditure determines the vertical intercept in the Keynesian cross diagram;
   (d) The adjustment mechanism in the Keynesian income-expenditure model is an unplanned rundown
   or accumulation of inventories;
   (e) The Keynesian cross diagram maps planned aggregate demand and national income leve

Answer 7

(b) The smaller the MPS, the smaller the expenditure multiplier; (do the graph for this)

Question 8

When comparing GDP across countries, adjustments should be made for
(a) differences in purchasing power parity;
(b) size of population;
(c) currency;
(d) (b) and (c) above;
(e) (a), (b) and (c) above

Answer 8

(e) a, band c above
(a) differences in purchasing power parity;
(b) size of population;
(c) currency;

Question 9

In the National Accounts, the standard measure of economic activity
(a) omits public spending on goods and services;
(b) omits non-monetary transactions;
(c) captures comprehensively a country’s standard of living and economic well-being;
(d) measures all spending in the economy, on goods, services and transfer payments;
(e) (b) and (d) above.

Answer 9

(b) omits non-monetary transactions;

Question 10

In the Annual Accounts for 2022
(a) GNP exceeded GDP by a net factor income from abroad amount equal to approximately
€143.4bn;
(b) real GNP growth rate was negative;
(c) investment expenditure was less than government consumption expenditure;
(d) GNDI – private household expenditure – government consumption expenditure =
Gross National Savings;
(e) GDP at market prices – net factor income from abroad – depreciation + taxes – subsidies
= National Income

Answer 10

(d) GNDI – private household expenditure – government consumption expenditure =
Gross National Savings;

Question 11

The three ways to measure economic activity are the
(a) income, output and value-added methods;
(b) NNP, GDP and GNP methods;
(c) GDP, output and HDI methods;
(d) AD, AS and GDP methods;
(e) income, expenditure and output methods

Answer 11

(e) income, expenditure and output methods

Question 12

In the circular flow of income model the leakages are
(a) taxes, savings and government spending;
(b) imports, investment and taxes;
(c) exports, taxes and investment;
(d) savings, taxes and imports;
(e) savings, exports and spending.

Answer 12

(d) savings, taxes and imports;

Question 13

Assume you built a new house, bought a used car, and bought some investment shares and
government bonds. Which of the following is true, in terms of the National Accounts?
(a) Consumption and government purchases went up since you bought a used car and government
bonds;
(b) Consumption and investment went up since you bought a used car and investment shares;
(c) Investment and government purchases went up since you built a new house and bought
government bonds;
(d) Consumption went up since you built a new house;
(e) Investment went up since you built a new house

Answer 13

(e) Investment went up since you built a new house

Question 14

The difference between GDP in nominal terms and GDP in real terms is
(a) depreciation;
(b) changes in prices;
(c) net factor income from abroad;
(d) current transfers from the rest of the world;
(e) both (c) and (d) above

Answer 14

(b) changes in prices;

Question 15

In the simple Keynesian income-spending model, when intended spending is greater than output,
the equilibrium mechanism is
(a) a rise in the aggregate price level;
(b) an adjustment in interest rates;
(c) a decrease in planned aggregate expenditure;
(d) an unplanned change in inventories;
(e) both (b) and (d) above

Answer 15

(d) an unplanned change in inventories;

Question 16

The expenditure multiplier is used to calculate the change in
(a) spending caused by a change in income;
(b) disposable income caused by a change in saving;
(c) income caused by a change in autonomous spending;
(d) government expenditure caused by a change in income;
(e) intended spending caused by a change in consumption

Answer 16

(c) income caused by a change in autonomous spending;

Question 17

Which of the following is not an assumption of the Keynesian income-spending model?
(a) output is demand determined;
(b) prices are sticky;
(c) AS line is vertical;
(d) closed economy;
(e) goods market only

Answer 17

(c) AS line is vertical;

Question 18

Which of the following statements is false?
(a) In the circular flow of income model, leakages include taxes, savings and imports;
(b) In the National Accounts, GDP is the value of all goods and services produced at a point in time,
usually at end year;
(c) In the Classical school of economics, markets instantaneously adjust;
(d) In the Keynesian income-expenditure model, prices are constant as it is a short-run model;
(e) In the Irish National Accounts, net exports is positive

Answer 18

(b) In the National Accounts, GDP is the value of all goods and services produced at a point in time,
usually at end year;