Parkin&Bade, Macroeconomics, 2nd edition

Chapter 5: GDP: A Measure of Total Production and Income

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1) Gross domestic product is equal to the market value of all the final goods and services ________ in a given period of time.

A) produced and consumed within a country

B) consumed within a country

C) consumed by the citizens of a country

D) produced within a country

E) produced by the citizens of a country

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

2) Gross domestic product measures the

A) market value of the final goods and services produced in a given year within a country.

B) quantity of the goods and services produced in a given year, listed item by item, within a country.

C) market value of domestic labour in a given year within a country.

D) income of the business sector within a country.

E) market value of the final goods and services consumed by households in a given year within a country.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

3) How are final goods and services valued when measuring nominal GDP?

A) At producer cost

B) At factor market prices

C) At foreign exchange parity

D) At current market prices

E) At base-year prices

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

4) Wobet is a small country that produces only steak and potatoes. Steaks have a price of $10 each and potatoes have a price of $1 each. Suppose that Wobet produces 10 steaks and 20 potatoes in 2010. Using ________, Wobet has GDP equal to ________.

A) a price index; $120

B) market value; $120

C) market value; 30 units

D) real value; $120

E) a market basket; 30 units

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

5) Gross domestic product is defined as the market value of all the final goods and services produced during a given time period

A) within and outside a country by that country's citizens.

B) by citizens of the country, regardless of their place of residence.

C) by only legal residents of the country.

D) within a country.

E) within a county minus the market value of all the final goods and services produced by that country's citizens outside the country.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

6) Which of the following is included in Australia's GDP?

i. The rental value of homes owned by Australian citizens

ii. The production of Cotton On t-shirts by their suppliers in India

iii. Tickets sold by Bruno Mars for concerts held in Sydney

A) i and iii

B) i only

C) i, ii and iii

D) ii and iii

E) ii only

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

7) Which of the following is NOT directly included in Australia's GDP?

A) Sales of sun block at Bondi Beach, Sydney.

B) Ticket sales to the Melbourne Aquarium.

C) Popcorn purchased by a movie theatre chain in Brisbane.

D) Movie tickets purchased by consumers in Perth.

E) Sales of meat pies at an AFL game in Adelaide.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

8) Which of the following is a final good or service?

A) A new replacement muffler installed by Midas Mufflers.

B) The CPUs purchased by Dell to be used in their computers.

C) The fertiliser purchased by farmers to produce wheat.

D) The chicken purchased by Nandos for use in their Peri Peri Chicken.

E) The DVDs purchased by JB Hi Fi for sale to their customers.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

9) A restaurant buys fish to offer as a daily menu special. The purchase of the fish by the restaurant is

A) an investment.

B) a consumption expenditure.

C) part of net exports if the fish were caught beyond Australia's borders.

D) an example of government expenditures on goods and services.

E) an intermediate good.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

10) Consumption expenditure includes spending

A) on office supplies by firms.

B) on intermediate goods and services by firms.

C) by households and spending on office supplies by firms.

D) by households.

E) by governments when they are buying goods and services that consumers also buy.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

11) Investment is the expenditure done by

A) the rest of the world.

B) firms.

C) governments.

D) savers.

E) Both answers A and B are correct.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

12) Which of the following is included as investment in GDP?

i. Cars produced during the year but unsold at the end of the year.

ii New capital equipment produced and purchased during the year.

iii. Purchases of a company's shares and bonds.

A) i and ii

B) i, ii and iii

C) iii only

D) i only

E) ii only

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

13) In measuring GDP, which of the following is included?

A) The value of shares and bonds bought and sold.

B) The value of preparing meals at home.

C) The value of increases in business inventories.

D) The value of used goods when they are sold.

E) The value of durable consumption goods but not the value of nondurable consumption goods.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

14) Kelly's Surf Shop orders 5,000 new surfboards at the beginning of the year but only sells 4,500 by the end of the year. How are the 500 unsold surfboards accounted for in gross domestic product?

A) They will be included in the government spending category of GDP.

B) They will be included in the durable consumption category of GDP.

C) They will be included in the inventory investment category of GDP.

D) They will be included in the nondurable consumption category of GDP.

E) They will be included in the residential investment category of GDP.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

15) When measuring GDP,

A) only the federal government's expenditure on goods and services is included.

B) the government sector is counted, and the value of the government sector in GDP is equal to its tax revenue.

C) the expenditure on goods and services by all levels of government are included.

D) the government sector is not included because it is the public sector not the private sector.

E) the government sector is not counted because it does not produce goods and services.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

16) Government expenditures on goods and services include

i. the local Library's purchase of new books.

ii. ACT's road maintenance.

iii. the State of Victoria's payment of wages to correctional service officers.

A) i and iii

B) i only

C) i, ii and iii

D) i and ii

E) ii and iii

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

17) Net exports of goods and services are defined as the

A) value of exports minus the income we receive from foreigners.

B) income we receive from selling goods to foreigners.

C) value of exports plus the income we receive from foreigners.

D) value of the goods we sell to foreigners.

E) value of exports minus the value of imports.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

18) In calculating GDP, we must

A) add the value of the goods produced outside of Australia by local firms.

B) add the market value of imports and subtract the market value of exports.

C) add the market value of exports and subtract the market value of imports.

D) exclude net exports of goods and services (NX).

E) subtract the market value of imports, because these goods are produced in a country other than Australia, and subtract the market value of exports, because these goods are consumed in a country other than Australia.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

19) If last year net exports of goods and services was negative. This means that

A) there was an error made when calculating net exports of goods and services.

B) consumption expenditure plus investment was less than the value of exports plus the value of imports.

C) consumption expenditure plus investment plus government expenditures on goods and services was less than the value of exports plus the value of imports.

D) the value of exports was less than the value of imports.

E) the value of exports was greater than the value of imports.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

20) Gross domestic product equals

A) Y = C + I + G - NX.

B) Y = C + I + G + NX.

C) Y = C - I + G + NX.

D) Y = C - I - G - NX.

E) Y = C + I - G + NX.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

21) Everything else the same, if government expenditure increases by $400 billion and imports increase by $400 billion, then GDP

A) decreases by $400 billion.

B) decreases by $200 billion.

C) increases by $400 billion.

D) does not change.

E) increases by $200 billion.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

22) Total expenditure equals total income

A) because firms pay out everything they receive as income to the factors of production.

B) only if firms sell all the goods they produce in a given time period.

C) if firms do not save for future investment.

D) only if net taxes equals government expenditures on goods and services.

E) if firms earn zero profit.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

23) Because of the circular flows of expenditure and income in the economy, total ________ equals total ________ equals total ________.

A) investment; income; consumption

B) expenditure; income; value of production

C) expenditure; investment; income

D) consumption; expenditure; value of production

E) consumption; investment; expenditure

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

24) In the circular flow, how are the "value of production", "income", and "expenditures" related?

A) They have no relationship to each other.

B) Expenditures on GDP equal the value of production which equals income.

C) Once tax payments are subtracted at each stage, they are equal.

D) Once net exports of goods and services are subtracted from GDP, all three are equal.

E) Value of production always equals income but expenditures are smaller because households save some of their income and do not spend it.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

25) The following are all final goods EXCEPT

A) Nike shoes used by a basketball player.

B) flour used by the baker to make cupcakes.

C) bread eaten by a family for lunch.

D) a computer used by Intel to design new computer chips.

E) pencils used by a 6th grader in class.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

26) In 2017/18, Australian GDP was

A) $1,848 billion using the expenditure approach .

B) $1,848 billion million using the income approach.

C) $1,289 billion using the expenditure approach and $1,458 billion using the income approach.

D) $2 trillion using the income approach and $1 trillion using the expenditure approach.

E) Both A and B are correct.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

27) In comparing the magnitudes of the components of GDP according to the expenditure approach, we see that in Australia,

A) investment is less than government expenditure on goods and services.

B) investment is larger than government expenditure on goods and services.

C) government expenditure on goods and services is the largest category.

D) investment is the largest category.

E) investment, government expenditure on goods and services, and consumption expenditure are all about the same size.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

28) If consumption was 70 per cent of GDP and investment and government expenditure were both each, then we see that

A) GDP can be over 100 per cent because it is "gross" rather than "net."

B) exports must be more than imports.

C) we must subtract depreciation from investment so that the components of GDP do not exceed .

D) exports must be less than imports.

E) the error is due to rounding.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

29) The table above gives data for a nation. What is the amount of the country's GDP?

A) $6,200 billion

B) $5,800 billion

C) $6,900 billion

D) $6,600 billion

E) $6,000 billion

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

30) The table above gives data for a nation. The value of the country's net exports of goods and services shows that the country's

A) value of its imports exceeded the value of its exports.

B) net exports of goods and services are decreasing.

C) value of its imports is negative.

D) value of its imports must equal zero.

E) value of its exports exceeded the value of its imports.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

31) The purchase of 500 Westpac shares by a Super fund

A) is not counted as part of GDP.

B) is counted as consumption expenditure.

C) is counted as investment in the GDP accounts.

D) is counted as part of import expenditure in the GDP accounts because Westpac is a foreign firm.

E) is counted as part of export expenditure in the GDP accounts because Westpac is a foreign firm.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

32) The income approach measures GDP by summing

A) C + I + G + NX.

B) the total production of all final goods and services produced in a year within a country's borders.

C) the wealth of households, business and government.

D) the incomes paid to households for the resources they own.

E) Both answers A and D are correct.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

33) According to the income approach to measuring GDP, the largest income category is

A) consumption expenditure.

B) profits.

C) interest.

D) wages.

E) rent.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

34) Adding wages, interest, rent and profits yields

A) net domestic product at factor cost.

B) total expenditure.

C) gross domestic product.

D) gross domestic product at factor cost.

E) GNP.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

35) If the income and expenditure approaches do NOT add to exactly the same estimate of GDP, the difference is called

A) a statistical discrepancy.

B) direct taxes.

C) a subsidy.

D) depreciation.

E) All of the above.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

36) The expenditure approach values ________ and the income approach values ________.

A) goods and services at market prices; goods and services at factor prices

B) only goods at market prices; only services at factor prices

C) goods and services at market prices; services at factor prices

D) goods and services at factor prices; goods and services at market prices

E) services only at factor prices; goods only at market prices

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

37) Real GDP measures the value of goods and services produced in a given year, valued using

A) real rather than nominal prices.

B) prices that prevail the same year.

C) no prices.

D) future prices.

E) base-year prices.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

38) Nominal GDP measures the value of goods and services produced in a given year, valued using

A) base-year prices.

B) constant prices.

C) future prices.

D) no prices.

E) prices of the same year.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

39) Nominal GDP is GDP

A) after adjusting for any price changes.

B) that ignores depreciation.

C) using current market values.

D) minus depreciation.

E) during a recession.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

40) Nominal GDP increases

A) only if the productivity of resources increases.

B) only if prices increase.

C) if either prices and/or total production increase.

D) only if total production increases.

E) only if depreciation decreases.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

41) John was researching the economic growth of a country between 2014 and 2019. Using 2014 as the base year, he calculated a 12 per cent increase for real GDP and a 10 per cent increase for nominal GDP. His results indicate that

A) the quantity of goods and services produced and prices both decreased over the period.

B) he made an error when calculating nominal GDP.

C) the quantity of goods and services produced increased and prices decreased over the period.

D) the quantity of goods and services produced did not change and prices decreased over the period.

E) the quantity of goods and services produced decreased over the period.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

42) If real GDP is greater than nominal GDP for a particular year, then

A) prices must have fallen between the current year and the base year.

B) production must have increased between the current year and the base year.

C) production must have fallen between the current year and the base year.

D) prices must have risen between the current year and the base year.

E) prices must have fallen between the current year and the immediate past year.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

43) The base year is 2019. A country only produces iPhones. The price of an iPhone in 2017 was $50. The price of an iPhone was $30 in 2019. The quantity of iPhones produced in 2017 was 10,000 units and in 2019 was 20,000 units. Nominal GDP in 2019 equals

A) $1,000,000.

B) $600,000.

C) $500,000.

D) $200,000.

E) an amount that cannot be determined without information about real GDP in 2014.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

44) The base year is 2018. A country only produces Blu-ray players. The price of a Blu-ray player in 2018 was $100. The price of a Blu-ray player was $90 in 2019. The quantity of Blu-ray players produced in 2018 was 10,000 units and in 2019 was 10,500 units. Real GDP in 2018 equals

A) $1,050,000.

B) $1,000,000.

C) $900,000.

D) $945,000.

E) an amount that cannot be determined without information about real GDP in 2011 .

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

45) The table above gives the production and prices for a small nation that produces only bread and soda. The base year is 2015. What is nominal GDP in 2015?

A) $410

B) $550

C) $450

D) $900

E) $460

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

46) The table above gives the production and prices for a small nation that produces only bread and soda. The base year is 2015. What is real GDP in 2016?

A) $300

B) $210

C) $510

D) $530

E) $1080

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

47) A south pacific island produces only coconuts. In 2018, the price of a coconut is $1 and the quantity produced is 200. In 2019, the price of a coconut is $1.50 and the quantity produced is 250. 2018 is the base year. Real GDP in 2019 is ________.

A) $1.50

B) $200

C) $375

D) $350

E) $250

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

48) Even though it is not a perfect measure, economists can use real GDP to

i. compare how standards of living in China have changed over the past 10 years.

ii. look at the length of recessions and expansions in Australia.

iii. compare the standard of living in China versus the standard of living in Vietnam.

A) i and ii

B) ii only

C) i, ii and iii

D) ii and iii

E) i and iii

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

49) In Australia, between 1959/60 and 2017/18, there has been

i. a consistent, non-changing growth rate of potential GDP per person.

ii. an increase in the standard of living based on real GDP per person.

iii. fluctuations in real GDP per person around potential GDP per person.

A) i only

B) i, ii and iii

C) i and ii only

D) ii only

E) ii and iii

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

50) If we use GDP to measure our standard of living, then our procedure is

A) inaccurate because our standard of living has nothing to do with goods and services.

B) inaccurate because our standard of living does not depend only on goods and services.

C) inaccurate because our standard of living only depends on used goods and services.

D) accurate only if we use nominal GDP rather than real GDP.

E) accurate because our standard of living depends solely on goods and services.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

51) The relationship between real GDP and potential GDP over the business cycle can be best summarised by which of the following statements?

A) Real GDP cannot be greater than potential GDP.

B) Real GDP cannot be less than potential GDP.

C) Real GDP cannot be equal to potential GDP.

D) Real GDP is always equal to potential GDP.

E) Real GDP fluctuates around potential GDP.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

52) A business cycle has two turning points, which are the

A) trough and peak.

B) recession and trough.

C) expansion and recession.

D) peak and expansion.

E) peak and recession.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

53) A standard definition of recession is

A) a period of time when the unemployment rate exceeds 6.5 per cent.

B) an increase in unemployment from one month to the next.

C) a period of expansion in many sectors of the economy.

D) an increase in GDP that lasts for at least 2 consecutive quarters.

E) a decrease in GDP that lasts for at least 2 consecutive quarters.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

54) The National Bureau of Economic Research describes a recession as

A) "a period of significant decline in total output, income, employment, and trade, usually lasting from six months to a year."

B) "a one-year period with increases in the unemployment rate."

C) "a decrease in the standard of living for at least one year."

D) "a decrease in potential GDP for at least six months."

E) "a decrease in real GDP for two successive quarters."

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

55) Which of the following describes the Australian economy at the end of 1990 and the middle of 1991?

A) Real GDP per person increased.

B) The economy was in a recession.

C) Real GDP reached a peak.

D) The economy was in an expansion.

E) None of the above answers is correct.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

56) As measured, GDP omits which of the following?

i. Illegal sales of goods and services

ii. Changes in the amount of leisure time

iii. Household production of goods and services

A) i only

B) i and iii

C) ii and iii

D) i and ii

E) i, ii and iii

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

57) Goods and services such as environmental quality, leisure time and household production are not included in GDP because they are not

A) really durable goods.

B) for consumption.

C) made for profit.

D) bought in markets.

E) productive activities.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

58) The calculation of GDP excludes the value of

A) expenditure on durable goods.

B) businesses' purchases of new machine tools.

C) a family member painting the family home.

D) government expenditure on office supplies.

E) households' purchases of shampoo.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

59) As more women decide to work outside the home and therefore hire others to work around their home, GDP will increase by

A) only the value of the output produced by the newly working women.

B) the value of the household work they were previously performing minus the value of the output produced by the newly working women.

C) the value of the output produced by the newly working women minus the value of the household work they were previously performing.

D) only the value of the household work they are now hiring someone to perform.

E) the value of the output produced by the newly working women plus the value of any household work they are now hiring someone to perform.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

60) Pat gives up a $40,000 per year job to stay at home and take care of the house. By so doing, Pat saves $15,000 in child care and house cleaning services which he now performs himself. The direct effect on GDP from Pat's decision is a decrease of

A) $25,000.

B) $30,000.

C) $40,000.

D) $15,000.

E) $55,000.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

61) Leisure time is ignored when calculating GDP because leisure time

A) is not bought in a market.

B) is not an economic good.

C) is not productive.

D) has been declining over time.

E) does not affect our standard of living.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

62) Beijing is notorious for its excessive pollution. China's measure of GDP is

A) not affected by the estimated value of the pollution's harm.

B) changed by the pollution only when comparing its GDP with Australian GDP.

C) decreased by the estimated value of the pollution's harm.

D) increased by the estimated value of the pollution's harm.

E) None of the above answers is correct.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

63) The Human Development Index was proposed because

A) of the limitations of real GDP as a measure comparing the standard of living in different nations.

B) people confuse nominal GDP and real GDP.

C) nominal GDP and real GDP are subjective measures.

D) the GDP deflator changes if the base year is changed.

E) different nations have different populations.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

64) In 2015, the United Nations Human Development Index ranked Australia

A) second.

B) last.

C) third.

D) tenth.

E) first.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

65) GDP handles household production by

A) including it in real GDP but not in nominal GDP because there are no prices paid for the work.

B) estimating a dollar value of the goods purchased to do housework.

C) ignoring it.

D) estimating a dollar value of the services provided.

E) including it in exactly the same way that all other production is included.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

66) You hire some of your friends to help you move to a new house. You pay them a total of $200 and buy them dinner at Pizza Hut. Which of the following is true?

A) If your friends do not report the $200 on their tax forms, it becomes part of the underground economy.

B) Neither the $200 nor the dinner should be counted in GDP because both are household production.

C) The dinner at Pizza Hut should be counted as part of GDP, but not the $200.

D) Hiring your friends is an illegal activity and should not be counted in GDP.

E) The $200 should be counted as part of GDP but not the dinner at Pizza Hut.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking

67) A country with a real GDP per person similar to real GDP per person in Australia but with limited political freedom is generally considered to have

A) a lower standard of living than Australia.

B) a larger Human Development Index because the other country still needs to develop more political freedom.

C) an overstated nominal GDP.

D) the same standard of living as Australia.

E) an understated GDP.

Difficulty: Basic

A-Head: 5.2 Measuring Australian GDP

AACSB: Analytical thinking\