Measurement of Economic Performance: practice questions

6 questions · 12 marks · free, no account · Read the notes first

1. Question 1Multiple choice · 1 mark

   Given (in $ billion): private consumption expenditure 1000, investment expenditure 300, government consumption expenditure 200, exports of goods and services 1500, imports of goods and services 1400. Find GDP.

   A

   $1600 billion

   B

   $4400 billion

   C

   $3000 billion

   D

   $1500 billion

2. Question 2Multiple choice · 1 mark

   A farmer sells wheat to a miller for $100. The miller sells flour to a baker for $250. The baker sells bread to consumers for $600. How much do these activities add to GDP?

   A

   $950

   B

   $600

   C

   $350

   D

   $250

3. Question 3Multiple choice · 1 mark

   Which of the following is included in Hong Kong's GDP?

   A

   CSSA payments to households

   B

   The purchase of shares of a listed company

   C

   The commission earned by an estate agent for selling a second-hand flat

   D

   The price paid for a second-hand flat

4. Question 4Multiple choice · 1 mark

   Nominal GDP is $1200 billion and the GDP deflator is 120. Real GDP is

   A

   $1440 billion

   B

   $1200 billion

   C

   $1080 billion

   D

   $1000 billion

5. Question 54 marks

   An economy's nominal GDP was $2800 billion in Year 1 and $3000 billion in Year 2. The GDP deflator (Year 1 = 100) was 104 in Year 2. Find the growth rate of (a) nominal GDP and (b) real GDP, correct to 2 decimal places.

   Show worked solution

   (a) Nominal growth rate $= \dfrac{3000 - 2800}{2800} \times 100\% = 7.14\%$ (1)

   (b) Real GDP in Year 2 $= \dfrac{3000}{104} \times 100 = 2884.62$ billion (1)

   Real GDP in Year 1 = 2800 billion (base year) (1)

   Real growth rate $= \dfrac{2884.62 - 2800}{2800} \times 100\% = 3.02\%$ (1)

6. Question 64 marks

   Explain TWO limitations of using per capita real GDP to compare the living standards of two economies.

   Show worked solution

   Any TWO (2 marks each; only the first two points are marked):

   • Income distribution: the same per capita real GDP can come with very different income inequality.
   • Non-market activities: housework done by family members is excluded, so living standards in an economy with more non-market production are understated.
   • Leisure: higher output may come from much longer working hours.
   • External costs: output that causes serious pollution raises GDP but lowers living standards.
   • Composition of output: a large share of military spending adds to GDP but not to consumers' welfare.