ECON 1002 Macroeconomics — 150
Practice Questions with Answers and
Rationales 2026
Aligned with Carleton University ECON 1002S (Summer 2026) Course
Outline
Disclaimer: This is an original practice exam created for study purposes
based on the ECON 1002 course syllabus and publicly available
macroeconomics content. It is not a reproduction of any specific
copyrighted exam. For authoritative review, consult your course textbook
(Milligan, Oreopoulos, Stevenson & Wolfers, Principles of
Macroeconomics, 2nd Canadian Edition) and lecture materials .
SECTION 1: MEASURING MACROECONOMIC PERFORMANCE — GDP
(Q1–Q30)
1. Which of the following best defines Gross Domestic Product
(GDP)?
A. The total income earned by a country's citizens, regardless of where
they live
B. The market value of all final goods and services produced within a
country's borders in a given period
C. The total value of all goods and services sold in a country in a given
year
D. The total amount of money circulating in an economy
Answer: B
Rationale: GDP measures the market value of all final goods and services
produced within a country's geographic borders during a specific time
,period. It excludes intermediate goods to avoid double-counting and does
not include income earned abroad .
2. In national income accounting, "value added" refers to:
A. The total revenue a firm receives from selling its output
B. The market value of a firm's output minus the cost of inputs
purchased from other firms
C. The profit a firm earns after paying all expenses
D. The total wages paid to a firm's employees
Answer: B
Rationale: Value added is the difference between the market value of a
firm's output and the cost of intermediate inputs. Summing value added
across all firms avoids double-counting .
3. Why are intermediate goods excluded from GDP calculations?
A. They are too difficult to measure accurately
B. Including them would result in double-counting, distorting the true
value of economic activity
C. They are not produced within the country's borders
D. They are always exported rather than consumed domestically
Answer: B
Rationale: Counting intermediate goods alongside final goods would count
the same economic activity multiple times, overstating GDP. Only final
goods and services are counted .
4. Which of the following is NOT included in government purchases
(G) when calculating GDP?
A. Spending on highway construction
B. Purchase of new military equipment
C. Social Security and unemployment insurance payments
D. Salaries of government employees
Answer: C
Rationale: Government transfer payments such as Social Security,
welfare, and unemployment insurance are not purchases of goods and
services; they simply redistribute income. They are excluded from G .
,5. The expenditures approach to GDP is expressed as:
A. GDP = C + S + T
B. GDP = C + Ig + G + Xn
C. GDP = W + R + I + P
D. GDP = Y - T + TR
Answer: B
Rationale: The expenditure approach sums Consumption (C), Gross
private domestic Investment (Ig), Government purchases (G), and Net
exports (Xn = X - M) .
6. In the income approach to GDP, "compensation of employees"
includes:
A. Only wages and salaries
B. Wages, salaries, and benefits paid by businesses and government
C. Only bonuses and stock options
D. Only payments to government workers
Answer: B
Rationale: Compensation of employees encompasses all forms of
employee remuneration, including wages, salaries, and fringe benefits .
7. Which of the following transactions would be included in the
current year's GDP?
A. The sale of a 10-year-old house
B. The commission earned by a real estate agent from selling a house
C. The purchase of 100 shares of stock in a corporation
D. A Social Security payment received by a retiree
Answer: B
Rationale: The real estate agent's commission is payment for a service
produced in the current year. The sale of an existing house, stock
purchases, and transfer payments are not included .
8. Nominal GDP differs from real GDP because:
A. Nominal GDP includes only goods, while real GDP includes services
B. Nominal GDP uses current prices, while real GDP uses base-year
prices
, C. Real GDP includes exports, while nominal GDP does not
D. Nominal GDP is adjusted for inflation, while real GDP is not
Answer: B
Rationale: Nominal GDP values output at current prices; real GDP values
output at constant (base-year) prices to isolate changes in quantities from
changes in prices .
9. If nominal GDP increases from $500 billion to $550 billion while the
GDP deflator rises from 100 to 110, what happens to real GDP?
A. It increases
B. It remains unchanged
C. It decreases
D. Cannot be determined
Answer: B
Rationale: Real GDP = (Nominal GDP / Deflator) × 100. Initially: (500/100)
× 100 = $500 billion. After: (550/110) × 100 = $500 billion. Real GDP is
unchanged .
10. Potential GDP measures:
A. The maximum GDP an economy can produce if all resources are fully
employed
B. The level of GDP an economy can produce when using its
resources at normal rates
C. The GDP level achieved during an economic boom
D. The GDP level when unemployment is zero
Answer: B
Rationale: Potential GDP is the sustainable level of output when labor and
capital are employed at normal, long-run rates—not maximum capacity,
and not zero unemployment .
11. Which of the following is NOT a component of the expenditure
approach to GDP?
A. Personal consumption expenditures
B. Gross private domestic investment
C. Proprietor's income
D. Net exports
Practice Questions with Answers and
Rationales 2026
Aligned with Carleton University ECON 1002S (Summer 2026) Course
Outline
Disclaimer: This is an original practice exam created for study purposes
based on the ECON 1002 course syllabus and publicly available
macroeconomics content. It is not a reproduction of any specific
copyrighted exam. For authoritative review, consult your course textbook
(Milligan, Oreopoulos, Stevenson & Wolfers, Principles of
Macroeconomics, 2nd Canadian Edition) and lecture materials .
SECTION 1: MEASURING MACROECONOMIC PERFORMANCE — GDP
(Q1–Q30)
1. Which of the following best defines Gross Domestic Product
(GDP)?
A. The total income earned by a country's citizens, regardless of where
they live
B. The market value of all final goods and services produced within a
country's borders in a given period
C. The total value of all goods and services sold in a country in a given
year
D. The total amount of money circulating in an economy
Answer: B
Rationale: GDP measures the market value of all final goods and services
produced within a country's geographic borders during a specific time
,period. It excludes intermediate goods to avoid double-counting and does
not include income earned abroad .
2. In national income accounting, "value added" refers to:
A. The total revenue a firm receives from selling its output
B. The market value of a firm's output minus the cost of inputs
purchased from other firms
C. The profit a firm earns after paying all expenses
D. The total wages paid to a firm's employees
Answer: B
Rationale: Value added is the difference between the market value of a
firm's output and the cost of intermediate inputs. Summing value added
across all firms avoids double-counting .
3. Why are intermediate goods excluded from GDP calculations?
A. They are too difficult to measure accurately
B. Including them would result in double-counting, distorting the true
value of economic activity
C. They are not produced within the country's borders
D. They are always exported rather than consumed domestically
Answer: B
Rationale: Counting intermediate goods alongside final goods would count
the same economic activity multiple times, overstating GDP. Only final
goods and services are counted .
4. Which of the following is NOT included in government purchases
(G) when calculating GDP?
A. Spending on highway construction
B. Purchase of new military equipment
C. Social Security and unemployment insurance payments
D. Salaries of government employees
Answer: C
Rationale: Government transfer payments such as Social Security,
welfare, and unemployment insurance are not purchases of goods and
services; they simply redistribute income. They are excluded from G .
,5. The expenditures approach to GDP is expressed as:
A. GDP = C + S + T
B. GDP = C + Ig + G + Xn
C. GDP = W + R + I + P
D. GDP = Y - T + TR
Answer: B
Rationale: The expenditure approach sums Consumption (C), Gross
private domestic Investment (Ig), Government purchases (G), and Net
exports (Xn = X - M) .
6. In the income approach to GDP, "compensation of employees"
includes:
A. Only wages and salaries
B. Wages, salaries, and benefits paid by businesses and government
C. Only bonuses and stock options
D. Only payments to government workers
Answer: B
Rationale: Compensation of employees encompasses all forms of
employee remuneration, including wages, salaries, and fringe benefits .
7. Which of the following transactions would be included in the
current year's GDP?
A. The sale of a 10-year-old house
B. The commission earned by a real estate agent from selling a house
C. The purchase of 100 shares of stock in a corporation
D. A Social Security payment received by a retiree
Answer: B
Rationale: The real estate agent's commission is payment for a service
produced in the current year. The sale of an existing house, stock
purchases, and transfer payments are not included .
8. Nominal GDP differs from real GDP because:
A. Nominal GDP includes only goods, while real GDP includes services
B. Nominal GDP uses current prices, while real GDP uses base-year
prices
, C. Real GDP includes exports, while nominal GDP does not
D. Nominal GDP is adjusted for inflation, while real GDP is not
Answer: B
Rationale: Nominal GDP values output at current prices; real GDP values
output at constant (base-year) prices to isolate changes in quantities from
changes in prices .
9. If nominal GDP increases from $500 billion to $550 billion while the
GDP deflator rises from 100 to 110, what happens to real GDP?
A. It increases
B. It remains unchanged
C. It decreases
D. Cannot be determined
Answer: B
Rationale: Real GDP = (Nominal GDP / Deflator) × 100. Initially: (500/100)
× 100 = $500 billion. After: (550/110) × 100 = $500 billion. Real GDP is
unchanged .
10. Potential GDP measures:
A. The maximum GDP an economy can produce if all resources are fully
employed
B. The level of GDP an economy can produce when using its
resources at normal rates
C. The GDP level achieved during an economic boom
D. The GDP level when unemployment is zero
Answer: B
Rationale: Potential GDP is the sustainable level of output when labor and
capital are employed at normal, long-run rates—not maximum capacity,
and not zero unemployment .
11. Which of the following is NOT a component of the expenditure
approach to GDP?
A. Personal consumption expenditures
B. Gross private domestic investment
C. Proprietor's income
D. Net exports
