GDP National Income Accounting 4 — Questions and Answers
Question 1: Which of the following would cause GDP to be overstated if it were included?
- Intermediate goods sold to manufacturers (Correct answer)
- New residential construction
- Government purchases of fighter jets
- Consumer spending on restaurant meals
Correct answer: Intermediate goods sold to manufacturers
Including intermediate goods alongside the final goods that incorporate them would count the same value multiple times, overstating total output.
Question 2: The 'statistical discrepancy' that sometimes appears in GDP accounts arises because:
- Illegal transactions are excluded from official data
- The expenditure approach and income approach are measured independently and rarely match perfectly (Correct answer)
- Depreciation estimates are uncertain
- Government spending data is released with a lag
Correct answer: The expenditure approach and income approach are measured independently and rarely match perfectly
The expenditure and income approaches to GDP use different data sources, so measurement errors produce a small statistical discrepancy between them.
Question 3: Which best explains why household production (e.g., a parent cooking meals at home) is excluded from US GDP?
- It has no economic value
- It is not sold in a market, so it lacks a market price for measurement (Correct answer)
- It is counted under government services
- It is classified as a transfer payment
Correct answer: It is not sold in a market, so it lacks a market price for measurement
GDP measures market transactions; non-market household services have no observable price, so they are excluded despite their real economic value.
Question 4: Corporate income taxes in national income accounting flow from:
- National Income to Personal Income, reducing PI (Correct answer)
- GDP to GNP, reducing GNP
- Personal Income to Disposable Income, reducing DI
- Gross output to Net National Product
Correct answer: National Income to Personal Income, reducing PI
Corporate taxes are subtracted from National Income's corporate profits component when calculating Personal Income, along with retained earnings and social insurance taxes.
Question 5: An economy has: C = $12T, I = $3T, G = $4T, X = $2T, M = $2.5T. What is GDP?
- $21T
- $18.5T (Correct answer)
- $21.5T
- $20.5T
Correct answer: $18.5T
GDP = C + I + G + (X − M) = 12 + 3 + 4 + (2 − 2.5) = 12 + 3 + 4 − 0.5 = $18.5T.
Question 6: In national income accounting, 'rental income' as measured by the BEA includes:
- Only rent paid to private landlords
- Rent paid plus the imputed rental value of owner-occupied housing (Correct answer)
- Rent paid minus property taxes
- Only commercial real estate rental income
Correct answer: Rent paid plus the imputed rental value of owner-occupied housing
The BEA imputes a rental value for owner-occupied homes (as if homeowners rented to themselves) to maintain consistency in national income measurement.
Question 7: Which statement about GDP and economic well-being is most accurate?
- Higher GDP always means higher well-being for all citizens
- GDP is a comprehensive measure that captures income distribution and leisure
- GDP measures total market output but misses inequality, leisure, and environmental quality (Correct answer)
- Real GDP per capita fully captures differences in living standards across nations
Correct answer: GDP measures total market output but misses inequality, leisure, and environmental quality
GDP measures aggregate market production but omits income distribution, non-market activity, leisure, environmental degradation, and other well-being dimensions.
GDP National Income Accounting 4
Which of the following would cause GDP to be overstated if it were included?