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Below is a national income statement for the economy:
Direct (Personal Income) taxes $80
Corporate profit taxes $24
Government transfer payments $72
Canadian Exports $90
Undistributed corporate profits $32
Government purchases of goods and services $160
Imports by Canadians $96
Consumption Expenditures $300
Depreciation $56
Net foreign income $-12
Gross investment $86
Other income not paid out to persons $10
What is the value of net investment?
$30 = Gross Investment - Corporate profit taxes & Undistributed corporate profits
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Businesses or Households?
Sell goods and services, pay for factors of production.
Provide factors of production, pay for goods & services.
- Businesses sell goods and services to households and pay for factors of production.
- Households provide factors of production and pay for goods and services.
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Name 3 Injections.
- Investment (in Capital Goods)
- Government Spending
- Exports
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What is National Income Equilibrium?
Leakages = Injections
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What is Economic Growth & Recession?
- Economic Growth - when injections are greater than leakages, the economy expands - an increase in real GDP per capita - An increase in an economy's capacity to produce
- Recession - when leakages are greater that injections, the economy contracts
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Which of the following describes aggregate expenditure?
a. It equals I + X + G.
b. It always equals equilibrium national income.
c. It always equals the value of production.
d. It does not include consumption expenditures.
e. It equals C + I + G + (X - IM).
E: It equals C + I + G + (X-IM)
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Which of the following is regarded as physical capital?
a. A savings account.
b. A share of Bank of Montreal stock.
c. A dump truck.
d. A stock certificate
C: A dump truck
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What is national income?
a. It is the income of Canadians earned abroad.
b. It is the income earned in Canada.
c. It is the income of Canadians earned in Canada.
d. It is the income earned by Canadians.
D: It is the income earned by Canadians
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Which of the following is a final good or service?
a. Fuel bought by a trucking company.
b. Fertilizer purchased by a farmer in Alberta.
c. A haircut.
d. The tires purchased by General Motors from Goodyear.
e. The shampoo purchased by a hairdresser for use in the shop.
C: Haircut
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Which of the following is equivalent to unplanned investment?
a. Net foreign factor income.
b. Change in inventories.
c. Depreciation.
d. Change in consumption.
B: Change in inventories
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Which of the following best defines national income?
a. The after-tax income received by households
b. The before-tax income received by households
c. All incomes earned by resource suppliers
d. The money value of all final goods and services produced minus all sales taxes
e. GDP plus depreciation
C: All incomes earned by resource suppliers
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Why are GDP data criticized as being inaccurate measures of economic welfare?
a. They do not measure changes in the distribution of income.
b. They do not measure changes in the amount of leisure.
c. They do not measure changes in product quality.
d. They do not measure the adverse effects of economic activity upon the environment.
e. They do not measure changes in the distribution of income, the amount of leisure, product quality, and the adverse effects of economic activity upon the environment.
E: They do not measure changes in the distribution of income, the amount of leisure, product quality, and the adverse effects of economic activity upon the environment
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The population of a country has increased while the value of its real GDP has decreased, over the previous year. Which of the following will be true:
a. Nominal GDP has increased.
b. Nominal GDP has decreased.
c. Real GDP per capita has increased.
d. Real GDP per capita has decreased.
D: Real GDP per capita has decreased
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Which of the following is true of real GDP per capita?
a. It indicates changes in an economy's capacity to produce.
b. It measures social, rather than economic, well-being of a nation's population.
c. It is a ranking of countries by standard of living.
d. It is larger for countries with larger populations.
A: It indicates changes in an economy's capacity to produce
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What is the result if the size of the "underground economy" grows?
a. Real GDP will rise more rapidly than nominal GDP.
b. GDP will understate the level of economic activity.
c. GDP will overstate the level of economic activity.
d. Since GDP does not include the "underground economy", there will be no understatement or overstatement of economic activity.
e. Since the "underground economy" is included in the reported GDP, there is no issue of inaccuracy.
B: GDP will understate the level of economic activity
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What is consumption?
a. The amount by which the capital stock is used up each year.
b. The amount by which the stock of consumer durables is used up each year.
c. The expenditure by households on goods and services.
d. The expenditure by firms on goods and services.
C: The expenditures by households on goods and services
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How does government spending on goods and services differ from government transfer payments?
a. The former is done by the federal government and the latter by provincial governments.
b. The former does not include investment spending but the latter does.
c. The former represents payments for purchases of goods and services but the latter does not.
d. They are the same thing and therefore there is no difference.
C: The former represents payments for purchases of goods and services but the latter does not.
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How could reported GDP remain constant when production has risen?
a. If the price level rises.
b. If the increase in production was in the form of a non-market activity.
c. If underground production fell.
d. If inventories fall.
B: If the increase in production was in the form of a non-market activity.
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What is GDP?
Gross Domestic Product - The value of all final goods and services produced in a period
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What is GDI?
Gross Domestic Income - Total earnings received by households, business and government in a period
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GDP = GDI (Y)
What is needed to calculate each?
- GDP - Consumption, Gross Investment, Government & Net exports (X-M)
- GDI - Compensation of employees, Gross operating surplus, Gross mixed income, Taxes (net of subsidies) on production & Indirect taxes (net of subsidies)
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NDP = NDI
How do you calculate them?
- NDP - GDP less depreciation, less indirect taxes (net of subsidies)
- NDI - GDI less depreciation, less indirect taxes (net of subsidies)
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NNP = NNI
How do you calculate them?
- NNP - NDP +/- Net foreign factor income
- NNI - NDI +/- Net foreign factor income
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What is Personal Income?
How is it calculated?
- Personal Income is a person's gross income.
- NNP (National Income)
- + Government transfer payments
- - Undistributed corporate profits (retained earnings)
- - Corporate profit taxes
- - Less other income not paid out
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What is Disposable Income?
How is it calculated?
- Disposable Income is the net income that people take home after income taxes and deductions. Households either save their disposable income or use it for consumption.
- Personal Income - Less personal income taxes
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What is Nominal GDP & Real GDP?
- Nominal GDP - The value of GDP in terms of prices prevailing at the time of measurement
- Real GDP - The value of GDP measured in terms of prices prevailing in a given base year (inflation adjusted GDP)
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