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  1. Chapter Fifteen: Macroeconomic Issues and Measurement

Chapter Fifteen: Macroeconomic Issues and Measurement

1
Question 1

An economy is made up of three firms. Firm A mines a raw material, it pays £200 to its workers and it sells £200 worth of output to firm B and £300 worth to firm C (it has no other sales or costs). Firm B makes a consumer good and sells £400 worth, paying £200 to its workers. Firm C also makes a consumer good, selling £600 worth and paying its workers £200. There are no transactions between firms B and C. What is the value of GDP?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is c) £1000Your answer has been saved.
Check your answer

2
Question 2

An economy is made up of three firms. Firm A mines a raw material, it pays £100 to its workers and it sells £300 worth of output to firm B and £400 worth to firm C (it has no other sales or costs). Firm B makes a consumer good and sells £600 worth, paying £200 to its workers. Firm C also makes a consumer good, selling £1000 worth and paying its workers £400. There are no transactions between firms B and C. What is the value of GDP?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is e) £1600Your answer has been saved.
Check your answer

3
Question 3

An economy is made up of three firms. Firm A mines a raw material, it pays £100 to its workers and it sells £300 worth of output to firm B and £400 worth to firm C (it has no other sales or costs). Firm B makes a consumer good and sells £700 worth, paying £200 to its workers. Firm C also makes a consumer good, selling £1100 worth and paying its workers £400. There are no transactions between firms B and C, and there are no taxes or government spending, and no imports and exports. What is the value of GDP?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is b) £1800Your answer has been saved.
Check your answer

4
Question 4

An economy is made up of three firms. Firm A mines a raw material, it pays £300 to its workers and it sells £200 worth of output to firm B and £300 worth to firm C (it has no other sales or costs). Firm B makes a consumer good and sells £500 worth, paying £200 to its workers. Firm C also makes a consumer good, selling £800 worth and paying its workers £200. There are no transactions between firms B and C. What is the value of GDP?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is c) £1300Your answer has been saved.
Check your answer

5
Question 5

Which one of the following is a definition of Gross National Income (GNI, or what used to be called GNP)?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is d) The sum of all final expenditures on the output of the economy plus net income receipts from the rest of the world.Your answer has been saved.
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6
Question 6

The income-based measure of GDP at market prices is made up of:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is c) Gross operating surplus plus compensation of employees plus mixed incomes plus net taxes on production.Your answer has been saved.
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7
Question 7

The GDP gap is:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is b) The difference between actual real GDP and potential real GDP.Your answer has been saved.
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8
Question 8

Which of the following does not give a measure of GDP at market prices?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is e) Gross value added at current basic prices plus taxes minus subsidies on products plus net income receipts from the rest of the world.Your answer has been saved.
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9
Question 9

To what extent does the study of macroeconomics differ from that of microeconomics?

Hint: re-read the section 'What is Macroeconomics?' pp332.Hint

10
Question 10

Make a list of macroeconomic issues that you think should be of concern to government.

Hint: does your list differ from that set out in the section 'Major macroeconomic issues' pp332-35? If your list contains different issues, consider whether they fit into the categories set out on pages 332-35 (e.g. have you identified a more specific version of an issue that can be placed under a broader sub-heading?). Hint

11
Question 11

What is the GDP gap? Why should such a gap be of concern to governments?

Hint: re-read the section 'The GDP gap' pp335-37. You should be clear as to the difference between an 'inflationary gap' and a 'recessionary gap'. Hint

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Question 12

How does the concept of 'value added' help avoid the double counting problem when measuring the value of national output?

Hint: re-read the section 'Measurement of national output' pp337-39, including Box 15.1.Hint

13
Question 13

Draw a diagram to show the income and spending flows between the following:

(a) domestic households;
(b) domestic producers;
(c) government;
(d) the financial system;
(e) overseas.

Hint: re-read the section 'The circular flow of income, output and spending'

pp 339-40. This is a classic diagram that you should try and master. If you need a prompt, re-acquaint yourself with Figure 15.2, (p340).

Hint

14
Question 14

Why should the spending-based measure of GDP equal its income-based counterpart in theory? Why is it unlikely that the two will be equal to each other in reality?

Hint: re-read the section 'GDP, GNI and GNP', pp 340.Hint

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Question 15

Why is government output typically valued at cost rather than by its market value?

Hint: re-read the section 'Government consumption spending' p341.Hint

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Question 16

What are the three main categories of investment spending?

Hint: re-read the section 'Investment spending' pp342-43.Hint

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Question 17

What is the difference between:

(a) GDP and GNI?
(b) GNI and GNP?

Hint: re-read the section 'Income produced and income received' pp345-47. Hint

18
Question 18

Make a list of the problems associated with making international comparisons of GDP.

Hint: re-read the section 'International comparisons of GDP' pp349-51.Hint

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Question 19

Why do the following household groups experience 'different' rates of inflation?

(a) students;
(b) two adults;
(c) two adults and four children;
(d) pensioners.

Hint: re-read 'Case Study 1' pp351-53. Hint