economics
beginner
10 sample questions
Gdp Measurement MCQ Practice Test
National output calculation methods
Q1. When calculating GDP using the expenditure approach, which of the following components is not included in the estimation of personal consumption expenditures?
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A. Gross investment in human capital
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B. Net imports
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C. Government consumption expenditures
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D. Transfer payments to individuals ✓
Explanation: Transfer payments, such as social security benefits and unemployment insurance, are not included in personal consumption expenditures because they do not represent the purchase of goods and services. Instead, they are treated as government expenditures.
Q2. When calculating GDP using the expenditure approach, which of the following is NOT considered a component of personal consumption expenditures?
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A. Purchases of new and used dwellings and also expenditures on ownership costs of those dwellings
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B. Purchases of consumer durables, such as refrigerators and washing machines
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C. Purchases of nondurable goods, such as food and clothing
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D. Government transfers in kind, such as food stamps and housing subsidies ✓
Explanation: Government transfers in kind are not considered a component of personal consumption expenditures, as they are not used to purchase goods and services. Instead, they are provided by the government to assist households with their consumption needs.
Q3. When calculating GDP using the production approach, which of the following is NOT included in the value of output?
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A. Intermediate goods used in the production of final goods ✓
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B. Depreciation of capital stock
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C. Value of services rendered by government-owned enterprises
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D. Value added by foreign subsidiaries of domestic corporations
Explanation: The production approach to calculating GDP focuses on the value of final goods and services. Intermediate goods are used up in the production process and their value is already included in the value of the final goods. Therefore, they are not included separately in the calculation to avoid double-counting.
Q4. When calculating GDP using the "expenditure approach", which of the following is NOT considered a component of personal consumption expenditures (PCE)?
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A. Household purchases of new and used durable goods
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B. Household purchases of new and used non-durable goods
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C. Household purchases of new and used services
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D. Household purchases of new and used residential structures ✓
Explanation: In the expenditure approach to calculating GDP, personal consumption expenditures (PCE) include household purchases of new and used non-durable goods, services, and durable goods, but do not include household purchases of new and used residential structures, which are instead included in investment expenditures.
Q5. In GDP accounting, how is a good produced this year but added to inventory and sold next year treated?
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A. It counts as inventory investment in this year's GDP ✓
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B. It is excluded from GDP entirely
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C. It counts as consumption this year
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D. It is counted twice, in both years
Explanation: Output is counted when produced: unsold goods enter GDP as inventory investment (part of I), and are not counted again as output when sold.
Q6. When calculating GDP using the expenditure approach, what is the correct treatment of imputed rent received by homeowners?
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A. It is included in personal consumption expenditures as a component of housing services. ✓
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B. It is excluded from GDP because it does not represent a real economic transaction.
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C. It is included in the value of new housing construction as a component of the gross investment.
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D. It is included in the value of existing housing stock as a component of the net stock of fixed capital.
Explanation: Imputed rent is the value of the housing services provided by owner-occupied homes. It is included in personal consumption expenditures as a component of housing services, as homeowners are effectively consuming the housing services they receive.
Q7. A country’s GDP is calculated using the expenditure approach. If the government introduces a new tax on imports, which of the following is the most likely direct impact on the components used to calculate GDP, assuming all other factors remain constant?
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A. The tax revenue would directly decrease the government consumption expenditure component, resulting in a decrease in GDP.
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B. The tax revenue would directly decrease the net exports component, resulting in a decrease in GDP.
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C. The tax would increase the price of imports, potentially decreasing the import component of net exports, resulting in a potential increase in GDP.
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D. The tax would increase the price of imports, potentially decreasing the import component of net exports, resulting in a potential decrease in GDP. ✓
Explanation: When a new tax is introduced on imports, the price of imports increases. This can lead to a decrease in the quantity of imports, which is a component of net exports (imports are subtracted). A decrease in imports, all else equal, would increase net exports and thus GDP. However, if the tax is significant enough, it could decrease imports and lead to a decrease in GDP. The tax revenue itself is not directly subtracted from any GDP component.
Q8. In the context of GDP measurement, what is the effect of a 10% increase in the price of a basket of goods on the GDP deflator, assuming the quantity of goods consumed remains constant?
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A. The GDP deflator increases by 10% ✓
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B. The GDP deflator remains unchanged
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C. The GDP deflator decreases by 10%
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D. The GDP deflator increases by 9%
Explanation: When the price of a basket of goods increases by 10% and the quantity of goods consumed remains constant, the GDP deflator, which is a price index, also increases by 10%. This is because the GDP deflator is a weighted average of the prices of all goods and services, and an increase in the price of a basket of goods directly affects the deflator.
Q9. A firm produces and sells an intermediate good used in the production of another firm's final good. The intermediate good is not sold to any other firms. If the intermediate good is produced domestically and the final good is exported, how would this affect the GDP calculation in the domestic economy?
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A. It would increase the GDP by the value of the intermediate good.
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B. It would decrease the GDP by the value of the intermediate good.
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C. It would have no effect on the GDP.
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D. It would increase the GDP by the value of the final good. ✓
Explanation: GDP includes the value of final goods and services produced within a country's borders. When the final good is exported, its value is added to the GDP. The value of the intermediate good is already incorporated into the value of the final good, so it is not counted separately.
Q10. When calculating GDP using the expenditure approach, which of the following components is not subject to the “valuation at market prices” rule?
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A. Household consumption of services produced by non-profit institutions serving households (NPISHs) ✓
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B. Gross investment in structures by general government
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C. Gross investment in inventories by non-financial corporations
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D. Imports of goods and services
Explanation: The valuation at market prices rule requires that all components of GDP be valued at their market prices. However, services produced by NPISHs are often valued at their opportunity cost rather than market prices, making this component not subject to the valuation at market prices rule.
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