BR13A: Bridge: National Income Accounting
Question 1
Which of the following characteristics about Econoville could be determined based on its GDP?
A. The fact that incomes are very equally distributed in Econoville.
B. The fact that there is virtually no pollution in Econoville.
C. The fact that there are no underground or informal markets in Econoville.
D. None of the above can be determined based on Econoville’s GDP.
Hint
GDP is the value of all final goods and services produced within a nation's borders over a specified time period.Answer
D. None of the above can be determined based on Econoville’s GDP. GDP aggregates the values of consumption, investment, net exports, and government purchases within a country. It does not capture any information regarding income distribution, living standards, and the existence or absence of an underground economy.Question 2
Suppose Jollyland has a population of 1,000 people and a GDP of \$1 million, while Follyland has a population of 8,000 people and a GDP of \$8 million. Which country has a higher GDP per capita?
A. Both countries have the same GDP per capita.
B. There is not enough information to determine GDP per capita.
C. Jollyland
D. Follyland
Hint
GDP per capita is $\frac{GDP}{Population}$.Answer
A. Both countries have the same GDP per capita. GDP per capita is GDP divided by the population. Since Jollyland has a GDP per capita of $\frac{\$1,000,000}{1,000} = \$1{,}000$, and Follyland has a GDP per capita of $\frac{\$8,000,000}{8,000} = \$1{,}000$, both countries have the same GDP per capita.Question 3
Suppose one has data for the following categories: net interest, government spending, corporate profits, net exports, gross private domestic investment, rental income, and personal consumption expenditures. Which measure of GDP can be calculated?
A. GDP using both approaches.
B. GDP using the expenditures approach.
C. GDP using the income approach.
D. There is not enough information to calculate GDP using either approach.
Hint
The expenditure approach to GDP sums consumption, investment, government spending, and net exports to quantify the size of an economy. The income approach to GDP sums earnings from various sources (income, rent, profits) to measure an economy's size. The two approaches give the same value due to the circular flow of the economy.Answer
B. GDP using the expenditures approach. The components given in the problems allow one to measure GDP using the expenditure approach (Y = C + I + G + NX). Values for net interest, corporate profits and rental income will not be used in this calculation.Question 4
Suppose that GDP is \$50 million in 2015 but falls to \$48 million in 2016, and that no changes in personal consumption expenditures, gross private domestic investment, and government spending are recorded. What must have happened to net exports to cause this change?
A. From 2015 to 2016, the difference between exports and imports must have risen by \$2 million.
B. From 2015 to 2016, both imports and exports must have fallen by \$2 million.
C. From 2015 to 2016, both imports and exports must have risen by \$2 million.
D. From 2015 to 2016, the difference between exports and imports must have fallen by \$2 million.
Hint
The equation for GDP is Y = C + I + G + (X - M).Answer
D. From 2015 to 2016, the difference between exports and imports must have fallen by \$2 million. The equation for GDP is Y = C + I + G + (X - M).If the difference between exports and imports decreases by \$2 million, then GDP will decrease by \$2 million as well.
Question 5
If C = \$1,000, I = \$500, G = \$800, X = \$400, and M = \$600, what is the value of GDP?
A. \$2,100
B. \$3,300
C. \$2,300
D. \$2,500