IMPROVED ECONOMIC 1002
FINAL EXAM
Why must an economy's income equal its expenditure (spending) ? - CORRECT ANSWER -Every
transaction has a buyer and a seller, therefore Total expenditure must be equal to total income
otherwise it doesn't make sense.
Expenditure (spending) by the buyers must equal the income of the seller.
I paid 20$ for my friends skateboard (Buyer (me) expenditure = 20$ = income of seller (friend)).
What is GDP? - CORRECT ANSWER -The Market Value of All Final Good and Services Produced Within a
Country in a Given Period of Time.
In the definition of GDP, What does "the Market Value" mean? - CORRECT ANSWER -The price of an
asset would trade for in a marketplace setting.
Market values are calculated by using market prices.
In the definition of GDP, What does "of All" mean? - CORRECT ANSWER -GDP includes "all" items
produced and sold LEGALLY in the economy
2 notes:
1. Value of housing services is difficult to measure. If a house is rented, the value of 0the 0rent 0is 0used
0to 0measure 0the 0value 0of 0the 0housing 0services. 0However 0if 0a 0house 0is 0owned 0(or 0mortgaged)
0the 0government0ESTIMATES 0the 0value 0of 0the 0rent 0and 0uses 0that 0value 0as 0the 0value 0of 0the
0housing 0service.
,2. GDP 0DOES 0NOT 0INCLUDE 0ILLEAGAL 0GOODS 0OR 0SERVICES. 0Even 0items 0produced 0and
0consumed 0at0home, 0they 0don't 0count 0towards 0GDP
ex. 0IF 0you 0hire 0someone 0to 0mow 0your 0lawn, 0that 0counts 0towards 0GDP, 0but 0if 0you 0mow
0your 0own 0lawn,0that 0doesn't 0count
In 0the 0definition 0of 0GDP, 0What 0does 0"Final" 0mean? 0- 0CORRECT 0ANSWER 0-Intermediate 0goods
0ARE 0NOT 0included 0in 0GDP 0(goods 0used 0in 0the 0production 0of 0the 0final 0goods, 0ex. 0wheat
0(bread), 0steel 0(pole), 0sugar0(cakes)).
Its 0not 0included, 0because 0its 0already 0part 0of 0the 0value 0of 0the 0final 0good.
Also 0goods 0that 0are 0placed 0into 0inventory 0are 0considered 0to 0be 0"final" 0and 0included 0in
0GDP 0as 0firm's0inventory 0investment.
Goods 0sold 0out 0of 0inventory 0are 0a 0decrease 0in 0inventory 0investment
In 0the 0definition 0of 0GDP, 0What 0does 0"Good 0and 0Services" 0mean? 0- 0CORRECT 0ANSWER 0-GDP
0includes 0both0tangible 0goods 0and 0tangible 0services
Ex. 0Bread, 0butter, 0Bike, 0Water 0bottle 0(goods).
Ex. 0Massage, 0Mowing 0the 0lawn, 0Hiring 0a 0lawyer 0(services).
In 0the 0definition 0of 0GDP, 0What 0does 0"Produced" 0mean? 0- 0CORRECT 0ANSWER 0-Only 0CURRENT
0production0is 0counted 0towards 0GDP, 0used 0goods, 0that 0are 0resold 0DO 0NOT 0COUNT 0towards 0the
0GDP
In 0the 0definition 0of 0GDP, 0What 0does 0"Within 0a 0Country" 0mean? 0- 0CORRECT 0ANSWER 0-GDP
0measures 0the0production 0that 0takes 0place 0within 0the 0geographical 0boundaries 0of 0a 0particular
0country
, Ex. 0If 0a 0British 0citizen 0is 0working 0temporarily 0in 0Canada, 0the 0value 0of 0his 0output 0is 0included
0in 0Canadian0GDP.
Ex. 0If 0a 0Canadian 0owns 0a 0firm 0in 0Haiti, 0the 0value 0of 0the 0production 0of 0that 0firm 0is 0not
0included 0in 0Canadian0GDP.
Ex. 0The 0production 0of 0a 0foreign 0firm 0operating 0in 0Canada 0is 0included 0in 0Canadian 0GDP 0(even
0though 0it 0is 0a0foreign 0firm, 0the 0firm 0workers 0are 0all 0local 0residents 0that 0fuel 0the 0domestic
0(Canadian) 0economy, 0by 0just 0living 0and 0eating).
In 0the 0definition 0of 0GDP, 0What 0does 0"in 0a 0Given 0Period 0of 0Time" 0mean? 0- 0CORRECT
0ANSWER 0-Usual0interval 0of 0time 0used 0to 0measure 0GDP 0is 0a 0year 0or 0a 0quarter 0(3
0months).
When 0the 0government 0reports 0GDP 0for 0a 0quarter, 0the 0data 0is 0generally 0reported 0on 0an 0annual
0basis.
Also 0data 0is 0generally 0adjusted 0for 0regular 0seasonal 0changes 0(like 0Christmas).
What 0is 0the 0GDP's 04 0components 0of 0expenditure? 0- 0CORRECT 0ANSWER 0-consumption,
0investment,0government 0purchases, 0and 0net 0exports
What 0is 0Consumption? 0- 0CORRECT 0ANSWER 0-Includes 0spending 0on 0goods 0and 0services 0by
0households
Exception: 0purchases 0of 0new 0housing
What 0is 0investment? 0- 0CORRECT 0ANSWER 0-Includes 0spending 0on 0new 0equipment 0and
0structures,0including 0households' 0purchases 0of 0new 0housing
What 0is 0Government 0purchases? 0- 0CORRECT 0ANSWER 0-Includes 0spending 0on 0goods 0and
0services 0by 0local,0provincial, 0and 0federal 0governments
FINAL EXAM
Why must an economy's income equal its expenditure (spending) ? - CORRECT ANSWER -Every
transaction has a buyer and a seller, therefore Total expenditure must be equal to total income
otherwise it doesn't make sense.
Expenditure (spending) by the buyers must equal the income of the seller.
I paid 20$ for my friends skateboard (Buyer (me) expenditure = 20$ = income of seller (friend)).
What is GDP? - CORRECT ANSWER -The Market Value of All Final Good and Services Produced Within a
Country in a Given Period of Time.
In the definition of GDP, What does "the Market Value" mean? - CORRECT ANSWER -The price of an
asset would trade for in a marketplace setting.
Market values are calculated by using market prices.
In the definition of GDP, What does "of All" mean? - CORRECT ANSWER -GDP includes "all" items
produced and sold LEGALLY in the economy
2 notes:
1. Value of housing services is difficult to measure. If a house is rented, the value of 0the 0rent 0is 0used
0to 0measure 0the 0value 0of 0the 0housing 0services. 0However 0if 0a 0house 0is 0owned 0(or 0mortgaged)
0the 0government0ESTIMATES 0the 0value 0of 0the 0rent 0and 0uses 0that 0value 0as 0the 0value 0of 0the
0housing 0service.
,2. GDP 0DOES 0NOT 0INCLUDE 0ILLEAGAL 0GOODS 0OR 0SERVICES. 0Even 0items 0produced 0and
0consumed 0at0home, 0they 0don't 0count 0towards 0GDP
ex. 0IF 0you 0hire 0someone 0to 0mow 0your 0lawn, 0that 0counts 0towards 0GDP, 0but 0if 0you 0mow
0your 0own 0lawn,0that 0doesn't 0count
In 0the 0definition 0of 0GDP, 0What 0does 0"Final" 0mean? 0- 0CORRECT 0ANSWER 0-Intermediate 0goods
0ARE 0NOT 0included 0in 0GDP 0(goods 0used 0in 0the 0production 0of 0the 0final 0goods, 0ex. 0wheat
0(bread), 0steel 0(pole), 0sugar0(cakes)).
Its 0not 0included, 0because 0its 0already 0part 0of 0the 0value 0of 0the 0final 0good.
Also 0goods 0that 0are 0placed 0into 0inventory 0are 0considered 0to 0be 0"final" 0and 0included 0in
0GDP 0as 0firm's0inventory 0investment.
Goods 0sold 0out 0of 0inventory 0are 0a 0decrease 0in 0inventory 0investment
In 0the 0definition 0of 0GDP, 0What 0does 0"Good 0and 0Services" 0mean? 0- 0CORRECT 0ANSWER 0-GDP
0includes 0both0tangible 0goods 0and 0tangible 0services
Ex. 0Bread, 0butter, 0Bike, 0Water 0bottle 0(goods).
Ex. 0Massage, 0Mowing 0the 0lawn, 0Hiring 0a 0lawyer 0(services).
In 0the 0definition 0of 0GDP, 0What 0does 0"Produced" 0mean? 0- 0CORRECT 0ANSWER 0-Only 0CURRENT
0production0is 0counted 0towards 0GDP, 0used 0goods, 0that 0are 0resold 0DO 0NOT 0COUNT 0towards 0the
0GDP
In 0the 0definition 0of 0GDP, 0What 0does 0"Within 0a 0Country" 0mean? 0- 0CORRECT 0ANSWER 0-GDP
0measures 0the0production 0that 0takes 0place 0within 0the 0geographical 0boundaries 0of 0a 0particular
0country
, Ex. 0If 0a 0British 0citizen 0is 0working 0temporarily 0in 0Canada, 0the 0value 0of 0his 0output 0is 0included
0in 0Canadian0GDP.
Ex. 0If 0a 0Canadian 0owns 0a 0firm 0in 0Haiti, 0the 0value 0of 0the 0production 0of 0that 0firm 0is 0not
0included 0in 0Canadian0GDP.
Ex. 0The 0production 0of 0a 0foreign 0firm 0operating 0in 0Canada 0is 0included 0in 0Canadian 0GDP 0(even
0though 0it 0is 0a0foreign 0firm, 0the 0firm 0workers 0are 0all 0local 0residents 0that 0fuel 0the 0domestic
0(Canadian) 0economy, 0by 0just 0living 0and 0eating).
In 0the 0definition 0of 0GDP, 0What 0does 0"in 0a 0Given 0Period 0of 0Time" 0mean? 0- 0CORRECT
0ANSWER 0-Usual0interval 0of 0time 0used 0to 0measure 0GDP 0is 0a 0year 0or 0a 0quarter 0(3
0months).
When 0the 0government 0reports 0GDP 0for 0a 0quarter, 0the 0data 0is 0generally 0reported 0on 0an 0annual
0basis.
Also 0data 0is 0generally 0adjusted 0for 0regular 0seasonal 0changes 0(like 0Christmas).
What 0is 0the 0GDP's 04 0components 0of 0expenditure? 0- 0CORRECT 0ANSWER 0-consumption,
0investment,0government 0purchases, 0and 0net 0exports
What 0is 0Consumption? 0- 0CORRECT 0ANSWER 0-Includes 0spending 0on 0goods 0and 0services 0by
0households
Exception: 0purchases 0of 0new 0housing
What 0is 0investment? 0- 0CORRECT 0ANSWER 0-Includes 0spending 0on 0new 0equipment 0and
0structures,0including 0households' 0purchases 0of 0new 0housing
What 0is 0Government 0purchases? 0- 0CORRECT 0ANSWER 0-Includes 0spending 0on 0goods 0and
0services 0by 0local,0provincial, 0and 0federal 0governments
