National Income and Output: A Comprehensive Guide for Economics Students

Question 1

Which of the following measures the value of goods and services produced within a country's borders in a given period?

Accepted Answer

Gross Domestic Product (GDP)

Answer

Gross National Income (GNI)

Answer

Net Domestic Product (NDP)

Answer

National Income

Question 2

What is the key difference between GDP and GNP?

Accepted Answer

GNP includes income earned by citizens abroad, while GDP does not

Answer

GDP includes income earned by citizens abroad, while GNP does not

Answer

There is no difference between GDP and GNP.

Answer

GDP is always higher than GNP.

Question 3

Which national income measure accounts for depreciation?

Accepted Answer

Net National Product (NNP)

Answer

Gross National Product (GNP)

Answer

Gross Domestic Product (GDP)

Answer

National Income

Question 4

How is disposable income related to personal income?

Accepted Answer

Disposable income equals personal income minus taxes and deductions

Answer

Personal income equals disposable income minus taxes and deductions

Answer

Disposable income and personal income are the same

Answer

Disposable income is always higher than personal income

Question 5

Why are constant prices used when calculating real GDP?

Accepted Answer

To remove the impact of inflation and enable meaningful time comparisons

Answer

To adjust for changes in population

Answer

To account for changes in the quality of goods and services

Answer

To make GDP appear more impressive

Question 6

What is the distinction between nominal GDP and real GDP?

Accepted Answer

Nominal GDP uses current prices, while real GDP uses constant prices

Answer

Real GDP uses current prices, while nominal GDP uses constant prices

Answer

There is no difference between nominal GDP and real GDP

Answer

Nominal GDP is always higher than real GDP

Question 7

What's the key difference between nominal GDP and real GDP? Explain why real GDP is a more reliable measure of economic growth.

Accepted Answer

Nominal GDP includes inflation, while real GDP doesn't.

Answer

Real GDP includes inflation, while nominal GDP doesn't.

Answer

Both nominal and real GDP are equally reliable measures of economic growth.

Question 8

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

Accepted Answer

Foreign Direct Investment

Answer

Consumption

Answer

Investment

Answer

Government spending

Question 9

Which type of income measures the total income earned by a country's residents within its borders, regardless of where it is earned, in a given period?

Accepted Answer

Gross National Product (GNP)

Answer

Gross Domestic Product (GDP)

Answer

Disposable Income

Answer

Personal Income

Question 10

What is the key difference between real and nominal GDP?

Accepted Answer

Real GDP is adjusted for inflation, while nominal GDP is not.

Answer

Nominal GDP is adjusted for inflation, while real GDP is not.

Answer

There is no difference between real and nominal GDP.

Answer

Real GDP measures the total value of goods and services produced, while nominal GDP measures the total quantity.

Question 11

What is disposable income, and what is its significance in an economy?

Accepted Answer

It measures the amount of income available to households after taxes and other deductions, and it influences consumer spending and economic growth.

Answer

It determines the level of government spending.

Answer

It is used to calculate GDP.

Answer

It has no significant impact on the economy.

Question 12

Differentiate between intermediate and final goods, explaining their significance in calculating Gross Domestic Product (GDP).

Accepted Answer

Intermediate goods are used to produce final goods, while final goods are consumed directly by end-users.

Answer

Intermediate goods are produced by businesses, while final goods are produced by households.

Answer

Intermediate goods are more valuable than final goods because they are used multiple times in the production process.

Answer

Final goods are utilized to produce intermediate goods, and intermediate goods are purchased by end-users.

Question 13

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

Accepted Answer

Imports

Answer

Consumer spending

Answer

Government spending

Answer

Investments

Question 14

What is the primary distinction between Gross National Product (GNP) and Gross Domestic Product (GDP)?

Accepted Answer

GNP includes income earned by citizens abroad, which GDP does not.

Answer

GDP includes income earned by citizens abroad, which GNP does not.

Answer

GNP and GDP measure different aspects of economic activity.

Answer

There is no distinction between GNP and GDP.

Question 15

Which of the following is included in the calculation of disposable income?

Accepted Answer

Personal income

Answer

Corporation income tax

Answer

Social security contributions

Answer

Property taxes

Question 16

What is the difference between nominal GDP and real GDP?

Accepted Answer

Nominal GDP measures the value of output at current prices, while real GDP measures the value of output at constant prices.

Answer

Nominal GDP is adjusted for inflation, while real GDP is not.

Answer

Real GDP is adjusted for inflation, while nominal GDP is not.

Answer

Nominal GDP is a measure of the total quantity of goods and services produced, while real GDP is a measure of the total value of goods and services produced.

Question 17

How does GDP guide governments in shaping economic policies? Give specific examples to support your answer.

Accepted Answer

GDP helps governments set tax rates and plan for future spending.

Answer

GDP is only used to compare economic performance between countries.

Answer

GDP is not considered in monetary policy decisions made by central banks.

Answer

GDP is an unreliable measure of economic well-being.

Question 18

How does economic growth lead to an increase in national income?

Accepted Answer

Increased production of goods and services

Answer

Lower taxes

Answer

Reduced government spending

Question 19

When consumers spend more on foreign-made goods and services instead of domestic ones, what happens to a nation's income and output?

Accepted Answer

Decreases

Answer

Increases

Answer

Stays the same

Question 20

Which of the following measures the total monetary value of all final goods and services produced within a country's boundaries in a specific period, typically a year?

Accepted Answer

Gross domestic product (GDP)

Answer

Disposable income

Answer

Gross national income (GNI)

Answer

Net domestic product (NDP)

Question 21

Which of the following is included in GDP but not Gross National Product (GNP)?

Accepted Answer

Income earned by foreign residents working within the country

Answer

Income earned by domestic residents working abroad

Answer

Corporate profits

Question 22

Which of the following is NOT a component of disposable income?

Accepted Answer

Corporate taxes

Answer

Interest income

Answer

Government transfers

Answer

Wages and salaries

Question 23

Which of the following is a key advantage of using GDP as a measure of economic growth?

Accepted Answer

Provides a standardized basis for comparing economic performance across countries

Answer

Measures the overall cost of living

Answer

Can be used to predict future economic trends

Question 24

Which of the following formulae represents the expenditure approach to calculating GDP?

Accepted Answer

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

Answer

Y = C + I + G

Answer

DI = Y - T

Answer

GDP = GNP + NI

Question 25

Which of the following formulae represents the value-added approach to calculating GDP?

Accepted Answer

GDP = Σ(Value added by industry)

Answer

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

Answer

DI = Y - T

Answer

Y = C + I + G

Question 26

Which of the following formulae is used to calculate disposable income?

Accepted Answer

DI = Y - T

Answer

GDP = Σ(Value added by industry)

Answer

Y = C + I + G

Answer

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

Question 27

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

Accepted Answer

Interest payments on government debt

Answer

Consumer spending

Answer

Business investment

Answer

Government spending

Question 28

What is the key difference between real GDP and nominal GDP?

Accepted Answer

Real GDP adjusts for inflation while nominal GDP does not

Answer

Nominal GDP is always higher than real GDP

Answer

Real GDP only includes goods produced domestically

Question 29

Which of the following would lead to an increase in Gross National Product (GNP)?

Accepted Answer

Increase in exports

Answer

Fall in domestic investment

Answer

Decrease in government spending

Answer

Decrease in imports

Question 30

Disposable income is calculated by:

Accepted Answer

Subtracting personal taxes from personal income

Answer

Dividing personal income by personal taxes

Answer

Multiplying personal income by personal taxes

Answer

Adding personal taxes to personal income

Question 31

An economic recession is defined as:

Accepted Answer

A sustained decline in real GDP over two consecutive quarters

Answer

A period of high inflation

Answer

A period of low unemployment

Question 32

What is the multiplier effect?

Accepted Answer

The process by which an initial increase in spending leads to a larger increase in total output

Answer

The process by which an initial increase in spending leads to a smaller increase in total output

Answer

The process by which an initial increase in saving leads to a larger increase in total output

Question 33

Which of the following economic indicators is used to measure the cost of living for consumers?

Accepted Answer

Consumer Price Index (CPI)

Answer

Gross Domestic Product (GDP)

Answer

Balance of trade

Answer

Unemployment rate

Question 34

What is the primary role of the central bank in managing the economy?

Accepted Answer

To control the money supply and interest rates

Answer

To set fiscal policy

Answer

To provide social welfare

Answer

To regulate businesses

Question 35

The expenditure approach to calculating GDP involves measuring the:

Accepted Answer

Total value of final goods and services purchased in an economy

Answer

Total income earned by factors of production

Answer

Total wealth accumulated in an economy

Question 36

A major advantage of using Gross Domestic Product (GDP) as a measure of economic well-being is:

Accepted Answer

It allows for international comparisons of economic output

Answer

It includes all types of economic activity

Answer

It accurately reflects changes in living standards

Question 37

The term 'value-added' in GDP calculation refers to the:

Accepted Answer

Value of a product at each stage of its production

Answer

Total income earned by employees in a firm

Answer

Amount invested in capital equipment

Answer

Difference between revenue and costs

Question 38

Which of the following is a limitation of using Gross Domestic Product (GDP) as a measure of economic well-being?

Accepted Answer

It does not include non-market activities

Answer

It is easy to understand

Answer

It is used globally for economic comparisons

Answer

It is adjusted for inflation

Question 39

Disposable income is essential because it represents:

Accepted Answer

The income available to households for spending and saving

Answer

Income used by businesses for investment

Answer

Income used to calculate GDP

Question 40

Which of these is a factor of production that is not tangible?

Accepted Answer

Knowledge

Answer

Labour

Answer

Land

Question 41

Gross National Product (GNP) and Gross Domestic Product (GDP) differ in that GNP represents income earned by:

Accepted Answer

Domestic residents both in the domestic country and abroad

Answer

Foreign residents only

Answer

Domestic residents in the domestic country only

Question 42

Which of the following is not a component in the calculation of GDP?

Accepted Answer

Government spending on education

Answer

Business investment

Answer

Household consumption

Answer

Exports

Question 43

GDP can be calculated by adding together:

Accepted Answer

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

Answer

Income + Taxes

Answer

Wages + Rent + Profit

Answer

Savings + Investments

Question 44

A limitation of GDP as a measure of economic progress is that it:

Accepted Answer

Excludes non-market activities such as unpaid housework and volunteer work

Answer

Only measures the output of the public sector

Answer

Cannot be used to compare different countries

Answer

Is too complex to calculate

Question 45

The difference between nominal GDP and real GDP is that nominal GDP:

Accepted Answer

Is measured in current prices, while real GDP is measured in constant prices

Answer

Measures the total output of the economy, while real GDP measures only a portion

Answer

Is adjusted for inflation, while real GDP is not

Question 46

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

Accepted Answer

A tax cut

Answer

A rise in the interest rate

Answer

An increase in national insurance contributions

Answer

A fall in consumer confidence

Question 47

Inflation can occur when:

Accepted Answer

Aggregate demand exceeds aggregate supply

Answer

Unemployment is high

Answer

Aggregate demand is less than aggregate supply

Answer

The government reduces its spending

Question 48

National income tends to behave in what way during periods of economic growth?

Accepted Answer

Increases

Answer

Decreases

Answer

Stagnates

Question 49

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

Accepted Answer

Government borrowing

Answer

Investment

Answer

Consumption

Question 50

Gross National Product (GNP) differs from GDP in that:

Accepted Answer

It measures the income earned by a country's residents regardless of their location.

Answer

It excludes income earned abroad by domestic residents.

Answer

It subtracts income earned by foreign residents within the country.

Question 51

Disposable income is the amount of income that households can spend after:

Accepted Answer

Taxes and other deductions have been made, including social insurance contributions and personal allowances.

Answer

Investment has been made.

Answer

Essential expenses have been paid.

Answer

Savings have been set aside.

Question 52

Which of the following factors would result in a decrease in real GDP?

Accepted Answer

An increase in inflation when using current prices to calculate GDP

Answer

A decrease in the unemployment rate

Answer

An increase in nominal GDP

Question 53

What is the primary reason for using constant prices when calculating GDP?

Accepted Answer

To isolate the impact of price changes and enable meaningful comparisons of economic output over time.

Answer

To adjust for population growth

Answer

To simplify GDP calculations

Question 54

Which of the following is a key benefit of using national income statistics?

Accepted Answer

They provide a comprehensive measure of an economy's overall performance and progress.

Answer

They can accurately predict future economic trends.

Answer

They provide the sole indicator of a country's economic well-being.

Answer

They can be used to replace detailed industry-specific data.

Question 55

What is the key distinction between direct and indirect taxes?

Accepted Answer

Direct taxes are levied on income and wealth, while indirect taxes are levied on goods and services.

Answer

Direct taxes are always higher than indirect taxes.

Answer

Direct taxes are paid by businesses, while indirect taxes are paid by individuals.

Question 56

How is economic growth generally related to unemployment?

Accepted Answer

sustained economic growth can lead to a reduction in unemployment.

Answer

Unemployment can stimulate economic growth.

Answer

Economic growth always leads to an increase in unemployment.