GDP Concept and Indicators 5

Question 1

Which of the following best describes the 'underground economy' in relation to GDP?

Accepted Answer

Legal and illegal transactions that go unreported to avoid taxes or regulation

Answer

The shadow or underground economy consists of unreported activities that escape official measurement, causing GDP to understate true economic activity.

Question 2

Which statement about GDP and environmental sustainability is most accurate?

Accepted Answer

GDP rises when oil spills occur because cleanup spending counts as output

Answer

Disaster cleanup, pollution remediation, and even depletion of natural resources can boost GDP by generating market activity, a well-known criticism of the measure.

Question 3

Which GDP concept strips out the depreciation of capital to show net output available for consumption and new investment?

Accepted Answer

Net Domestic Product (NDP)

Answer

NDP = GDP − Capital Consumption Allowance (depreciation), representing the net value of goods and services produced after replacing worn-out capital.

Question 4

In a simple circular-flow model, which of the following is true?

Accepted Answer

Total income in the economy equals total output

Answer

By definition, total spending on output equals total income generated from producing it, which is the foundation of GDP identity.

Question 5

If real GDP grows faster than population, which of the following occurs?

Accepted Answer

Real GDP per capita rises

Answer

When real output grows faster than population, the average person's share of real output—real GDP per capita—increases, indicating rising living standards.

GDP - Gross Domestic Product Practice Test

GDP - Gross Domestic Product Practice Test

GDP Concept and Indicators 5