National Income and Output: Quizzes and Practice Questions

Question 1

The circular flow of income model depicts:

Accepted Answer

The flow of income between households and firms

Answer

The flow of goods and services in the economy

Answer

The relationship between national income and economic growth

Answer

The influence of government expenditure on the economy

Question 2

The fundamental national income accounting identity is:

Accepted Answer

GDP = C + I + G + (X - M)

Answer

GDP = C + S

Answer

GDP = I + G

Answer

GDP = C + I + S

Question 3

Real GDP is a measure that:

Accepted Answer

Adjusts for inflation to reflect the economy's output

Answer

Represents the economy's output at current prices

Answer

Measures the total income earned in the economy

Answer

Quantifies the total spending within the economy

Question 4

The Phillips curve illustrates the relationship between:

Accepted Answer

Inflation and unemployment

Answer

Economic growth and inflation

Answer

National income and unemployment

Answer

Income distribution and inflation

Question 5

Which of the following is NOT included in the calculation of Gross Domestic Product (GDP)?

Accepted Answer

Imports

Answer

Government spending

Answer

Investment

Answer

Consumer spending

Question 6

Which of the following is NOT included in the calculation of Gross Domestic Product (GDP)?

Accepted Answer

Transfer payments

Answer

Consumption spending

Answer

Investment spending

Answer

Government spending

Question 7

What is the formula for calculating GDP using the expenditure approach?

Accepted Answer

GDP = Consumption + Investment + Government spending + (Exports - Imports)

Answer

GDP = Consumption + Investment + Government spending - (Exports - Imports)

Answer

GDP = Consumption - Investment + Government spending + (Exports - Imports)

Answer

GDP = Consumption + Investment - Government spending + (Exports - Imports)

Question 8

What is the circular flow of income?

Accepted Answer

A diagram that shows the flow of income between households, businesses, and the government

Answer

A model that explains how national income is distributed across different income groups

Answer

A theory that describes the relationship between inflation and unemployment

Answer

A graphical representation of the factors affecting aggregate demand

Question 9

How does an increase in government spending typically affect national income?

Accepted Answer

Increases national income

Answer

Decreases national income

Answer

Has no effect on national income

Answer

Increases national income only if it is financed by taxation

Question 10

What is the difference between nominal and real GDP?

Accepted Answer

Nominal GDP measures output in current prices, while real GDP adjusts for inflation

Answer

Real GDP measures output in constant prices, while nominal GDP adjusts for inflation

Answer

Nominal GDP is always higher than real GDP

Answer

Real GDP is always higher than nominal GDP

Question 11

How does a decrease in investment spending affect the circular flow of income?

Accepted Answer

Reduces income for businesses and households

Answer

Increases income for businesses and households

Answer

Has no effect on income

Answer

Increases income for businesses only

Question 12

How does an increase in exports affect GDP?

Accepted Answer

Increases GDP

Answer

Decreases GDP

Answer

Has no effect on GDP

Answer

Increases GDP only if it is matched by a decrease in imports

Question 13

Which of the following is NOT included in the Gross Domestic Product (GDP)?

Accepted Answer

Capital depreciation

Answer

Consumption

Answer

Investment

Answer

Government spending

Question 14

What formula is applied to calculate nominal GDP?

Accepted Answer

P x Q

Answer

(P x Q) - (P1 x Q1)

Answer

P + Q

Answer

(P + Q) / 2

Question 15

What is the main distinction between nominal GDP and real GDP?

Accepted Answer

Nominal GDP measures output in current prices; real GDP measures output in constant prices

Answer

Nominal GDP includes inflation, while real GDP does not

Answer

Real GDP includes inflation, while nominal GDP does not

Answer

Real GDP measures output in current prices; nominal GDP measures output in constant prices

Question 16

What is the difference between consumption and investment?

Accepted Answer

Consumption is spending on goods and services that are used immediately, while investment is spending on goods and services that are used to produce future goods and services

Answer

Investment is spending on goods and services that are used immediately, while consumption is spending on goods and services that are used to produce future goods and services

Answer

Consumption and investment are the same thing

Answer

There is no difference between consumption and investment

Question 17

Which of the following is NOT a component of Gross Domestic Product (GDP)?

Accepted Answer

Imports of goods and services

Answer

Consumer spending

Answer

Government spending

Answer

Investment spending

Question 18

Which of the following is a primary measure of economic growth?

Accepted Answer

Change in real GDP over time

Answer

Change in inflation rate

Answer

Change in unemployment rate

Answer

Change in consumer confidence

Question 19

The Keynesian multiplier effect describes the:

Accepted Answer

Amplification of changes in aggregate spending on economic output

Answer

Diminution of government spending on economic output

Answer

Stabilizing effect of government spending on economic output

Answer

Irrelevance of government spending on economic output

Question 20

Which of the following policies is generally associated with promoting long-run economic growth?

Accepted Answer

Investing in education and infrastructure

Answer

Increasing taxes on businesses

Answer

Reducing government regulations

Answer

Printing more money

Question 21

The multiplier effect is larger when:

Accepted Answer

The marginal propensity to save is low

Answer

The marginal propensity to import is high

Answer

The tax rate is high

Answer

The government budget is in deficit

Question 22

Which of the following is NOT a component of Gross Domestic Product (GDP)?

Accepted Answer

Imports

Answer

Consumption expenditure

Answer

Government expenditure

Answer

Investment

Question 23

The circular flow of income model demonstrates the:

Accepted Answer

Interdependence of economic agents in an economy

Answer

Role of government in redistributing income

Answer

Relationship between savings and investment

Answer

Causes of inflation

Question 24

Which of the following factors would lead to an increase in national income?

Accepted Answer

Technological advancements

Answer

Decrease in consumption expenditure

Answer

Increase in unemployment

Answer

Natural disasters

Question 25

The difference between GDP and Gross National Product (GNP) represents:

Accepted Answer

Income earned by domestic residents working abroad

Answer

Income earned by foreign residents working in the domestic economy

Answer

Government expenditure on public goods and services

Answer

Net exports (exports minus imports)

Question 26

Which scenario would NOT result in an increase in national income?

Accepted Answer

Increased purchases of used cars

Answer

Government investment in a new highway

Answer

Increased employment

Answer

Technological advancements in businesses

Question 27

How does a shift in consumer confidence affect aggregate demand and economic growth?

Accepted Answer

A drop in consumer confidence leads to a decrease in aggregate demand, slowing economic growth.

Answer

A drop in consumer confidence leads to an increase in aggregate demand, accelerating economic growth.

Answer

Changes in consumer confidence have no impact on aggregate demand or economic growth.

Question 28

How does a decrease in interest rates affect the circular flow of income?

Accepted Answer

Increased investment and spending boost national income.

Answer

Reduced saving and investment lower national income.

Answer

Interest rate changes do not impact the circular flow of income.

Question 29

Which of the following is NOT a component of Gross Domestic Product (GDP)?

Accepted Answer

Transfer payments

Answer

Government expenditure on goods and services

Answer

Investment expenditure by businesses

Answer

Consumption expenditure by households

Question 30

The circular flow of income model illustrates how income flows through:

Accepted Answer

Different sectors of the economy, including households, businesses, and the government.

Answer

Only households and businesses.

Answer

Only businesses and the government.

Answer

Only households and the government.

Question 31

Which of the following is a common measure of economic growth?

Accepted Answer

Real GDP growth rate

Answer

Balance of trade

Answer

Unemployment rate

Answer

Inflation rate

Question 32

Expansionary fiscal policy involves:

Accepted Answer

Increasing government spending, reducing taxes, or both.

Answer

Raising interest rates.

Answer

Reducing government borrowing.

Answer

Decreasing the money supply.

Question 33

The value of all final goods and services produced within a country's borders over a specified period of time is known as:

Accepted Answer

Gross Domestic Product (GDP)

Answer

Disposable Income

Answer

Gross National Product (GNP)

Answer

National Income

Question 34

Which of the following is included in national income but NOT in Gross Domestic Product?

Accepted Answer

Net factor income from abroad

Answer

Rent

Answer

Profits

Answer

Wages and salaries

Question 35

The multiplier effect refers to:

Accepted Answer

The amplified effect of a change in spending on national income.

Answer

The level of unemployment in an economy.

Answer

The rate at which GDP grows over time.

Question 36

Which of the following is a potential limitation of using GDP as a measure of economic well-being?

Accepted Answer

It does not account for non-market activities and the distribution of income.

Answer

It is too volatile.

Answer

It is only relevant for developed countries.

Answer

It is not adjusted for inflation.

Question 37

The relationship between GDP, consumption, investment, government spending, and net exports is expressed by the:

Accepted Answer

National Income Identity

Answer

Phillips Curve

Answer

Multiplier Equation

Answer

Circular Flow of Income