University of Waterloo Econ 102, Section 001 - J-P Lam1 Practice Questions - Lecture 2a 1 These questions are intended for students who are registered in Econ 102. Please do not share these questions with any other sections or groups of students. Do not post these practice questions online. 1. Gross domestic product (GDP) equals the produced within a country during a given period of time. of final A. market value; goods B. market value; services C. market value; goods and services D. quantity; goods E. quantity; goods and services 2. The market value of final goods and services produced within a country during a period of time is called A. guaranteed direct prices. B. general domestic productivity. C. government documented production. D. gross domestic product. E. growth determined profit. 3. When economists use market values to aggregate output, they sum the A. number of items produced. B. quantity of items produced. C. price multiplied by the quantity of items produced. D. social value of items produced. E. amount of each item produced. 4. Suppose that the total production an economy consists of 4 billion oranges and 10 billion candy bars, each orange sells for $0.25, and each candy bar sells for $0.50. What is the market value of production in this economy? A. $0.75 billion. B. $1 billion. C. $4.5 billion. D. $5 billion. E. $6 billion. 5. A drawback of using market values to aggregate the quantities of goods and services produced in an economy is that A. higher-priced items count more. B. GDP increases when not all goods are produced in greater quantities. C. market prices generally reflect the economic benefit consumers expect to receive from an item. D. not all economically valuable goods and services are bought and sold in markets. E. lower-priced items count more. 6. The value of unpaid work by a stay-at-home-parent and value of housekeeping services sold in the market included in GDP included in GDP. A. is; is not B. is; is C. is not; is not D. is not; is E. is sometimes; is production and 7. Final goods and services are in GDP. counted A. the end product of; are B. the end product of; are not C. used up in the process of ; are D. used up in the process of; are not E. transformed in; are not 8. If an automobile manufacturer pays $200 for a car windshield, $400 for four car tires, $100 for a car CD player, and sells cars made with these parts for $20,000, then each car the automobile manufacturer sells contributes how much to GDP? A. $19,300. B. $20,000. C. $20,200. D. $20,400. E. $20,700. 9. If Bountiful Orchard grows $100,000 worth of peaches, sells $50,000 worth of peaches to consumers, and uses the rest to make jam that is sold to consumers for $100,000, Bountiful Orchard’s contribution to GDP is A. $50,000. B. $100,000. C. $150,000. D. $200,000. E. $250,000. Page 2 10. If the Citrus Growers Association grows $1 million worth of oranges, sells $500,000 worth of oranges to consumers, and uses the rest to make orange juice that is sold to consumers for $3 million, the Citrus Growers’ contribution to GDP is A. $500,000. B. $1,000,000. C. $3,500,000. D. $4,000,000. E. $4,500,000. 11. Northern Wheat produces wheat and sells $800,000 worth of wheat to Western Pasta for pasta production and $500,000 worth of wheat to Eastern Flour for flour production. Northern Wheat uses $1,000,000 worth of fertilizers, seeds, water and equipment to grow the wheat. Western Pasta also import $100,000 worth of wheat to make pasta. They sell their pasta to consumers for $1,200,000. Eastern Flour sell their flour to Southern Bakeries for $800,000. In turn, Southern Bakeries sell their bread and pastries to consumers for $1,000,000 for brewing. What is the value of GDP in this economy? A. $1,200,000. B. $1,000,000. C. $1,100,000. D. $1,300,000. E. $900,000. 12. A local Dairy Cooperative produces $1.5 million worth of milk. It sells $600,000 worth of milk directly to consumers and $400,000 worth to a cheese factory. The remaining milk is processed into cream and yogurt, which are sold together for $2 million. Additionally, the Cooperative spends $300,000 on sugar and fruit for yogurt production. The Dairy Cooperative’s total contribution to GDP is A. $2,600,000. B. $2,700,000. C. $3,200,000. D. $3,500,000. E. $3,700,000. 13. The value added by any firm equals the firm’s minus . from selling the product A. revenue; expenses B. revenue; the cost of inputs purchased from other firms C. profits; expenses D. profits; the cost of inputs purchased from other firms Page 3 E. revenue; taxes 14. A firm’s revenue from selling its product minus the cost of inputs purchased from other firms is called A. profit. B. investment. C. value added. D. production costs. E. intermediate costs. Use the following information to answer questions 15-17 A jar of orange marmalade, ultimately sold to a customer at The Corner Store, is produced by the following production process: Name of company Citrus Growers Inc Florida Jam Company The Corner Store Revenue $0.75 $2.00 $2.50 Cost of purchased inputs 0 $0.75 $2.00 15. What is the value added of Citrus Growers Inc.? A. $0.00. B. $0.50. C. $0.75. D. $1.25. E. $2.00. 16. What is the value added of Florida Jam Company? A. $0.00. B. $0.50. C. $0.75. D. $1.25. E. $2.00. 17. What is the value added of The Corner Store? A. $0.00. B. $0.50. C. $0.75. D. $1.25. Page 4 E. $2.00. 18. What is the sum of the value added of all the firms? A. $2.00. B. $2.50. C. $2.75. D. $4.50. E. $5.25. 19. Which of the following transactions would be included in the GDP of Canada? A. Honda produces cars in Ontario. B. Bank of Nova Scotia operates a branch in the Bahamas. C. A Canadian company produces telecommunications equipment in the United States. D. Microsoft Corporation produces Windows 11 in Redmond, Washington. E. Coca-Cola produces soft drinks in England. 20. In the year 2021, Janet sells a five-year-old car to Used Car Inc. for $3000. In the same year, Used Car Inc. resells the car to Bob for $3500. What is the contribution of this transaction to GDP in the year 2021? A. $0. B. $500. C. $3000. D. $3500. E. $6500 21. Goods and services that are consumed by the ultimate user are called goods and services. A. intermediate B. final C. value added D. nominal E. real 22. Goods and services that are used up in the production of other goods and services are called goods and services. A. intermediate B. final C. value added Page 5 D. nominal E. real 23. Which of the following would be included in Canada’s GDP? A. Bombardier builds a plane in Montreal that is sold to American Airlines. B. Daimler-Chrysler produces a car in Germany that is sold in Toronto. C. Nestlé produces a candy bar in Switzerland that is sold in Calgary. D. Royal Bank of Canada operates a branch in Nassau, Bahamas. E. Canada’s Wonderland provides entertainment services in an amusement park in Japan. 24. Three equivalent ways to measure GDP are total , and total . , total A. profits; production; saving B. expenditure; income; profits C. investment; consumption; saving D. output; income; expenditure E. revenue; profits; production 25. GDP can be measured as each of the following EXCEPT A. the market value of production. B. total expenditure on final goods and services. C. incomes of capital and labour. D. total business revenues. E. the sum of value added. 26. Which of the following would be included in the calculation of GDP for 2022? A. The price of a home built in 1991 and sold in 2022. B. The price of 100 shares of Apple stock purchased in 2022. C. The price of a classic 1948 Porsche 356 purchased in 2022. D. The price of a new laptop built and purchased in 2022 to replace a broken laptop. E. The price of a new bicycle purchased at a garage sale in 2018. 27. The market value of all domestically-produced final goods and services is also equal to the total amount spent by , less spending on imported goods and services. A. households and firms B. firms and governments Page 6 C. households, firms, and governments D. households, firms, and the foreign sector E. households, firms, governments, and the foreign sector 28. Consumption expenditures include spending by households on A. exports. B. inventories. C. residential housing. D. services. E. taxes. 29. Government purchases include all of the following EXCEPT A. pension benefits paid by the federal government. B. the construction of a new courthouse built by a local government. C. the salary paid to an elementary school teacher employed by a local public school board. D. the purchase of new military hardware by the Canadian Forces. E. the construction of new highways by provincial governments 30. Net exports equal A. the value added of exports. B. exports minus imports. C. the market value of exports. D. exports plus imports. E. exports minus depreciation 31. Which of the following would increase the consumption component of Canada’s GDP? A. You purchase a bottle of British Columbia wine. B. A person in Paris purchases a bottle of British Columbia wine. C. A restaurant in Montreal purchases a bottle of British Columbia wine to include on its wine list. D. A restaurant in Edmonton purchases a bottle of French wine to include on its wine list. E. The Canadian government buys a bottle of British Columbia wine to serve at a State dinner. 32. Which of the following would increase the private-sector investment component of Canada’s GDP? A. You purchase a new washing machine produced in Canada. Page 7 B. You purchase a new washing machine produced in France. C. A laundry in Calgary purchases a new washing machine produced in Canada. D. A laundry in Mexico purchases a new washing machine produced in Canada. E. The Canadian government purchases a new washing machine produced in Canada for rangers to use in a Canadian national park. 33. Which of the following would increase the net export component of Canada’s GDP? A. A car produced in Japan is purchased in British Columbia. B. A bottle of British Columbia wine is purchased in California. C. A bottle of French wine is purchased in Quebec. D. A car produced in Cambridge, Ontario, is purchased in Winnipeg, Manitoba. E. A bottle of French wine is purchased in London, England. 34. Given the following data for an economy, compute the value of GDP. Consumption expenditures $1000 Imports $600 Government purchases of goods and services $700 Sales of existing homes and apartments $600 Government payment to retirees $200 Household purchases of durable goods $300 Beginning-of-year inventory of stocks $500 End-of-year inventory of stocks $1600 Business fixed investment $300 A. 2400. B. 2500. C. 2600. D. 2700. E. 5600. 35. Compute the private-sector investment component of GDP. A. 300. B. 400. C. 800. D. 1400. E. 1500. 36. Given the following data for an economy, compute the value of GDP. Page 8 Consumption expenditures Imports Government purchases of goods and services Construction of new homes and apartments Sales of existing homes and apartments Exports Government payment to retirees Household purchases of durable goods Beginning-of-year inventory of stocks End-of-year inventory of stocks Business fixed investment $50 $40 $20 $30 $40 $50 $10 $20 $10 $20 $30 A. 130. B. 140. C. 150. D. 160. E. 320. 37. Compute the private-sector investment component of GDP. A. 30. B. 40. C. 60. D. 70. E. 110. 38. An economy produces 5000 computers valued at $1,000 each. Of these, 1,000 are sold to consumers, 1,500 are sold to businesses, 1,500 are sold to the government, and 500 are sold abroad. No computers are imported. The unsold computers at the end of the year are held in inventory by the computer manufacturers. What is the value of inventories and GDP? A. $0; $5,000,000 B. $500,000; $5,000,000 C. $1,000,000; $5,000,000 D. $500,000; $10,000,000 E. $500,000; $7,500,000 39. An economy produces 2,000 tables valued at $200 each. Of these, 400 are sold to consumers, 800 are sold to businesses, 400 are sold to the government, and 200 are sold abroad. No tables are imported. The unsold tables at the end of the year are held in inventory by the table manufacturers. What is the value of the private-sector investment component of GDP? Page 9 A. $160,000. B. $180,000. C. $200,000. D. $240,000. E. $500,000. 40. A small country specializes in the production of bicycles, manufacturing 20,000 units annually, each priced at $150. Out of these, 6,000 are purchased by local consumers, 8,000 are acquired by businesses, 4,000 are bought by the government, and 1,000 are exported. The country imports no bicycles. Any unsold bicycles are stored in warehouses by the manufacturers. What is the value of the government expenditure component in the country’s GDP? A. $200,000. B. $300,000. C. $600,000. D. $800,000. E. $1,000,000. 41. An economy is engaged solely in producing and selling smartphones. In one year, it produces 40,000 smartphones, each with a sale price of $200. Domestic consumers buy 10,000 of these phones, businesses purchase 16,000, the government buys 8,000, and 6,000 are exported. It imports 5,000 at the price of $200. Calculate the value of the net export component of GDP for this economy. A. $200,000. B. $400,000. C. $600,000. D. $800,000. E. $1,200,000. 42. The four components of aggregate expenditures are A. consumption, imports, government purchases, and net exports. B. consumption, interest payments, government purchases, and net exports. C. consumer durables, private-sector investment, government purchases, and net exports. D. consumption, imports, government purchases, and exports. E. consumption, private-sector investment, government purchases, and net exports. 43. Consumption spending includes spending on A. durables, nondurables, and services. Page 10 B. stocks, bonds, and other financial instruments. C. capital goods, residential housing, and changes in inventories. D. goods and services by federal, provincial, and local governments. E. goods and services sold abroad minus goods and services produced abroad. 44. Private-sector investment includes spending on A. durables, nondurables, and services. B. stocks, bonds, and other financial instruments. C. capital goods, residential housing, and changes in inventories. D. goods and services by federal, provincial, and local governments. E. goods and services sold abroad minus goods and services produced abroad. 45. Government purchases include spending by all levels of government on A. consumer durables, nondurables, and services. B. stocks, bonds, and other financial instruments. C. capital goods, residential housing, and changes in inventories. D. final goods and services. E. goods and services sold abroad minus goods and services produced abroad. 46. Net export spending is expenditures on A. consumer durables, nondurables, and services. B. stocks, bonds, and other financial instruments. C. capital goods, residential housing, and changes in inventories. D. goods and services by federal, provincial, and local governments. E. goods and services sold abroad minus goods and services produced abroad. 47. Real GDP measures the of current production. A. change in the volume B. physical volume C. current dollar value D. base-year value E. change in the market value 48. The largest expenditure component of Canada’s GDP is A. consumption. B. private-sector investment. C. government purchases. Page 11 D. exports. E. imports. 49. Consumption expenditure is subdivided into four categories, including A. durables, nondurables, services and new homes. B. durables, nondurables, semi-durables, and new homes. C. durables, nondurables, semi-durables, and services. D. durables, nondurables, exports and imports. E. durables, nondurables, net exports and services. GDP Government purchases Transfer payment Exports Imports Net foreign factor income Millions of dollars 6.0 1.2 0.2 0.4 0.5 0.4 50. Refer to the table above. What is consumption in this economy? A. $4.0 million. B. $4.8 million. C. $4.9 million. D. There is not sufficient information to calculate consumption. E. $5.2 million. 51. Refer to the table above. The sum of private-sector investment and consumption in this economy is A. $4.0 million. B. $4.8 million. C. $4.9 million. D. indeterminate given the above information. E. $5.2 million. 52. If prices in the current year are higher on average than in the base year, then real GDP in the current year nominal GDP in the current year. A. is greater than B. is less than C. is equal to Page 12 D. could be greater or less than E. is one-third of 53. A measure of GDP in which quantities produced are valued at the prices of a fixed base year is called A. real GDP. B. nominal GDP. C. base GDP. D. current GDP. E. production GDP. 54. Real GDP is measured in prices. prices and nominal GDP is measured in A. current; base-year B. base-year; current C. current; current D. base-year; base-year E. current; market 55. Real GDP measures the of production. of production and nominal GDP measures the A. current-dollar value; physical volume B. current-dollar value; current-dollar value C. current-dollar value; market value D. constant-dollar value; current-dollar value E. physical volume; physical volume 56. Bob’s Barber Shop gave 3000 haircuts in the year 2021 and 3100 in the year 2022. The price of a haircut was $7 in 2021 and $8 in 2022. If the year 2021 is the base year, what was Bob’s contribution to real GDP in 2022? A. $21,000. B. $21,700. C. $24,000. D. $24,800. E. $25,000. 57. Peg’s Manicure Manor did 4000 sets of nails in the year 2021 and 4500 sets of nails in the year 2022. The price of a set of nails was $20 in 2021 and $22 in 2022. If the year 2021 is the base year, Peg’s contribution to nominal GDP in 2021 was and in 2022 was . Page 13 A. $80,000; $88,000 B. $80,000; $90,000 C. $80,000; $99,000 D. $88,000; $90,000 E. $90,000; $99,000 58. A measure of the price level of the goods and services included in GDP is A. the GDP deflator. B. the CPI. C. nominal GDP. D. the GDP multiplier. E. real GDP. 59. Real GDP may be calculated by dividing by . A. nominal GDP; the GDP deflator B. the GDP deflator; nominal GDP C. nominal GDP; real GDP D. the price index; nominal GDP E. real GDP; nominal GDP The following table shows the production and prices of an economy’s only two goods, TVs and computers, in 2012 and 2022. Assume that 2012 is the base year. 2012 2022 Qty of TVs 100 200 Price of TVs $100 $150 Qty of computers 10 15 60. What is nominal GDP in 2012? A. $15,000. B. $15,460. C. $27,500. D. $36,750. E. $50,110. 61. What is real GDP in 2012? A. $15,000. B. $15,460. Page 14 Price of computers $500 $450 C. $27,500. D. $36,750. E. $50,110. 62. What is nominal GDP in 2022? A. $15,000. B. $15,460. C. $27,500. D. $36,750. E. $50,110. 63. What is real GDP in 2022? A. $15,000. B. $15,460. C. $27,500. D. $36,750. E. $50,110. 64. What is the growth in real GDP over the period from 2012 to 2022? A. 34%. B. 78%. C. 83%. D. 138%. E. 145%. 65. The GDP deflator for 2012 is A. 100. B. 103. C. 134. D. 178. E. 183. 66. The GDP deflator for 2022 is A. 100. B. 103. C. 134. D. 178. Page 15 E. 183. 67. One shortcoming of using GDP as a central variable for policy objectives is that it fails to measure A. growth in productivity. B. increases in the quantity of goods. C. non-market production. D. changes in the price level. E. increases in the number of imported goods. 68. If substantially more foreign investment income comes into Brazil than leaves Brazil, then it is most likely that A. Brazilian net foreign investment income is negative. B. Brazilian net foreign investment income is zero. C. Brazilian GDP exceeds Brazilian GNP. D. Brazilian GNP exceeds Brazilian GDP. E. Brazilian GNP equals Brazilian GDP. 69. If Turkey has substantially less foreign investment income entering the country than leaving, then we might expect A. Turkish net foreign factor income to be positive. B. Turkish net foreign factor income to be zero. C. Turkish GDP to exceed Turkish GNP. D. Turkish GNP to exceed Turkish GDP. E. Turkish GNP to equal Turkish GDP. 70. Which of the following is NOT a shortcoming of using real GDP as an indicator of well-being? A. The benefits people derive from economic output depend on what is available to them as individuals or households. B. The benefits people derive from economic output depend upon the distribution of income among individuals or households. C. GDP is a measure of goods and services produced by the residents of a country, not a measure of the goods and services produced by factors of production owned by the residents of a country. D. GDP includes the value of investment devoted to replacing capital goods that have worn out or become obsolete. E. GDP includes the effects of inflation. Page 16 71. Which of the following would be included in Canadian gross domestic product, but NOT in Canadian gross national product or income? A. The wages paid to Canadian actors working in the film industry in California. B. The wages paid to Canadian welders working at a Japanese-owned automobile factory in Quebec. C. The profits from a Canadian-owned tourism company located in Nova Scotia. D. The profits from a U.S.-owned automobile factory in Ontario. E. The profits from a Canadian-owned food-processing factory in Michigan. 72. What does GDP per capita measure? A. The total economic output of a country. B. The average economic output per person in a country. C. The total economic output of a country’s manufacturing sector. D. The economic output per square mile of a country. E. The total economic output divided by the number of businesses in a country. 73. Country X has a GDP of $600 billion and a population of 150 million people. What is the GDP per capita of Country X? A. $2,000 B. $4,000 C. $10,000 D. $40,000 E. $400,000 74. Which of the following best describes the difference between GDP and GNP? A. GDP measures the total economic output within a country’s borders, while GNP measures the total economic output of a country’s citizens and businesses, regardless of where they are located. B. GDP and GNP are essentially the same and can be used interchangeably. C. GDP measures the total economic output of a country’s citizens and businesses, regardless of where they are located, while GNP measures the total economic output within a country’s borders. D. GDP includes only goods production, while GNP includes both goods and services. E. GDP measures the economic output in urban areas, while GNP measures the output in rural areas. 75. If a German car company operates a factory in the United States, where is the value of the cars produced counted? Page 17 A. Only in Germany’s GDP. B. Only in the United States’ GDP. C. In the United States’ GDP and Germany’s GNP. D. In both the United States’ GDP and GDP. E. In neither the United States’ GDP nor Germany’s GNP. 76. Which of the following income would be included in the United States’ GNP but not its GDP? A. Income earned by a Canadian company from its operations in the United States. B. Income earned by all companies operating within the United States. C. Salaries of U.S. government employees working in the United States. D. Salaries of foreign diplomats working in the United States. E. Income earned by a U.S. company from its operations in Canada. 77. Using the expenditure method, calculate the GDP given the following detailed economic data: Household Purchases of Durable Goods $500 Household Purchases of Non-Durable Goods $600 Household Purchases of Semi-Durable Goods $300 Business Fixed Investment $700 Beginning-of-year inventory of stocks $500 End-of-year inventory of stocks $1600 Government Purchases of Goods and Services $900 Exports $400 Imports $450 Page 18 78. Consider an economy with three goods where the quantity produced and prices for each good are shown for three years. The base price is set in 2021. Year Price of TVs 2021 500 2022 550 2023 600 Quantity of TVs 200 180 170 Price of Bananas 1 1.1 1.2 Quantity of Bananas 1000 1100 1200 Price Quantity of Jackets of Jackets 50 400 55 420 60 440 (i) Calculate nominal GDP in 2021, 2022, and 2023. (ii) Calculate real GDP in 2021 (iii) Using the chain-weighted method and 2021 as the base year, calculate real GDP in 2022, 2023. Page 19
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