Question

1. If we were to add up the value of output of all production of goods and services in the economy, we would:

1. obtain GDP at factor cost.

2. obtain GDP at market prices.

3. obtain GDP using the income method.

4. overestimate the value of production taking place in the economy.

5. underestimate the value of production taking place in the economy.

2. The               demand for money arises out of the need to hold money as a medium of exchange. This demand for money is a function of         .

1. precautionary; interest rates

2. transactions; national income

3. speculative; interest rates

4. speculative; national income

5. transactions; interest rates

3. If 2010 is the base year for real GDP calculations, we know for certain that nominal GDP:

1. is less than real GDP in 2010.

2. is greater than real GDP in 2010.

3. equals real GDP in 2010.

4. in 2009 was greater than real GDP in 2010.

5. in 2009 was less than real GDP in 2010.

4. Which of the following would be classed as an expansionary fiscal policy?

1. An increase in the quantity of money.

2. A reduction in the number of goods exempted from VAT.

3. An increase in government taxation.

4. An increase in government expenditure.

5. An increase in the VAT rate.

5. In the Keynesian model, Investment (I) is determined by:

1. The expected profitability from the investment. The greater the expected profit, the greater the Investment.
2. The interest rate both for borrowing capital or investing capital.
3. The opportunity cost of using the funds.
4. The level of risk and or uncertainty.
5. All of the above

6. Inflation tends to:

1. benefit the elderly at the expense of the young.

2. benefit taxpayers at the expense of the government.

3. benefit borrowers at the expense of lenders.

4. benefit creditors at the expense of debtors.

5. benefit people with fixed nominal incomes.

7. During an economic downturn, sales fall and some workers lose their jobs. This unemployment is referred to as:

1. seasonal unemployment.

2. frictional unemployment.

3. cyclical unemployment.

4. structural unemployment.

5. technological unemployment.

Answer 1

Question 1

GDP includes only final goods and services.

It does not include intermediate goods.

This is because the value of intermediate goods are reflected in the value of final goods.

If intermediate goods are taken separately then this will lead to problem of double counting and would overestimate GDP.

Thus,

If we were to add up the value of output of all production of goods and services in the economy, we would overestimate the value of production taking place in the economy.

Hence, the correct answer is the option (d).