Section B: Answer all questions

1. State with reasons which of the transactions listed below will NOT be counted in GDP:
A meat processing company builds a new plant
A drug dealer sells $5000 worth of illegal drugs
A student purchases a used text book
Company A launches a hostile takeover of company B and purchases its stock
A public utility company installs new turbines and cooling equipment
[15]
2. Why are additions to inventory a component of net investment [3]
3. Use the data in Table 1 to determine Gross Domestic Product by both the expenditure and
income approach. Then determine Net Domestic Product [8]




















4. Discuss four reasons why Gross Domestic Product is not always a true measure of
economic well-being. [12]

5. Explain the difference between GDP and GNP. [3]

TABLE 1
Personal Consumption expenditures $245
Net Foreign factor income 4
Transfer payments 12
Rents 14
Consumption of fixed capital 27
Social security contributions 20
Interest 13
Proprietor's Income 33
Net exports 11
Dividend 16
Compensation of employees 223
Indirect business taxes 18
Undistributed corporate profits 21
Personal taxes 26
Corporate income taxes 19
Corporate profits 56
Government purchases 72
Net private domestic investments 33
Personal saving 20
Section A: Multiple-Choice
1. The term G in C+I+G+X-M includes all of the following except:
a) Government purchases of new computers of new computers
b) Pensions paid to retirees
c) Salaries paid to public servants
d) Government capital expenditures
2. According to the circular flow of income, the consumers are:
a) The owners of factors of production
b) Consumers of goods and services
c) Producers of goods and services
d) Both the owners of factors of production and consumers of goods and services
3. In calculating GDP:
a) Both exports and imports are added
b) Neither exports nor imports are added
c) Exports are added and imports are subtracted
d) Imports are added and exports are subtracted
4. The method of calculating GDP by summing wages, interest, rent and profit is known as:
a) Income method
b) Expenditure method
c) Output method
d) GDP at factor cost
5. An item that is excluded from GDP of T&T and included in GNP of T&T is the income
earned by a:
a) T&T investor who receives dividends from shares owned in a T&T company
b) Jamaican investor who receives dividends from shares owned in a T&T company
c) T&T investor who receives dividends from shares owned in a Jamaican company
d) Jamaican investor who receives dividends from shares owned in a Jamaican
company
6. The value added of a firm is the:
a) Value of the firms output after the cost of intermediate goods and services has
been subtracted
b) Profit margin of the firm
c) Sum of all income: wages, profits, rents and interest that it generates
d) Value of all its assets: plant and equipment that are used in production



7. The table shows figures for a certain economy





What is the net national product at factor cost?
a) $98m
b) $105m
c) $106m
d) $108
8. Real GDP is not a good indicator of economic welfare because it:
a) Does not take account of leisure time
b) Does not measure the value of the black economy
c) Does not include the external costs and benefits created by externalities
d) All of the above
9. Assume a bakery purchases $5,000 in flour per week and bakes $12,000 in bread. If it
pays electricity, what is the firms weekly contribution to GDP?
a) $12,000
b) $7,000
c) $5,000
d) $3,500
10. Which of the following would be included in GDP in a given year?
a) The value of used textbooks sold
b) The value of the printer used to print new textbooks printed for the book season
during the year
c) The value of new textbooks printed for the book season during the year
d) The value of the paper used to print textbooks
11. Which of the following is not a limitation of real national income statistics?
a) Failure to take into account tax evasion and black markets
b) Failure to include environmental degradation and other negative externalities
c) Failure to consider the number of leisure and working hours
d) Failure to include intermediate foods and services
$m
Consumption, investment and government expenditure 100
exports 25
imports 20
Indirect taxes 12
subsidies 14
Net property income from abroad 1
Capital consumption 10