Question 1

How does the value of total sales of all firms in the country for a year compare with GDP?

Accepted Answer

Total sales of all firms include intermediate goods and services, which are not counted in GDP to avoid double counting. GDP only includes the value of final goods and services, so total sales are typically larger than GDP.

Question 2

If Canada made cannabis illegal, then, other things the same, what would happen to GDP?

Accepted Answer

If Canada made cannabis illegal, it would lead to a decrease in GDP because legal production and sales of cannabis would no longer be included in GDP calculations. The legal cannabis industry is estimated to have contributed over $8 billion to Canada's GDP in 2019, and its elimination would have a significant impact on the economy.

Question 3

How is a potato treated in GDP terms?

Accepted Answer

A potato is counted as a final good when it is purchased by a consumer for personal consumption, such as making mashed potatoes at home. If it is used by a business in the production of another good, like a restaurant making French fries, it is considered an intermediate good and not counted separately in GDP to avoid double counting.

Question 4

How are intermediate goods accounted for when calculating GDP?

Accepted Answer

The value of intermediate goods is not included in GDP to avoid double counting, except when they are part of inventory, as this indicates they have not been used in the production process yet and thus do not contribute to the double counting issue.

Question 5

How are grapes treated in GDP terms?

Accepted Answer

Grapes are counted as intermediate goods if they are used to produce another good, such as wine. If grapes are sold directly to consumers for consumption, they are considered final goods and contribute to GDP as such. Intermediate goods are not counted in GDP to avoid double counting, as their value is included in the final product.

Question 6

Which nonmarket good or service is included as an estimate in Canadian GDP?

Accepted Answer

The estimated rental value of owner-occupied homes is included in Canadian GDP as it is a nonmarket good or service that contributes to the economy. The other options (A, B, and D) are nonmarket goods or services, but they are not included in GDP estimates as they do not involve a market transaction or monetary value.

Question 7

Sally used to prepare her own meals, but now she eats out more. How does Sally's change of habit affect GDP?

Accepted Answer

Sally's change of habit affects GDP by increasing the consumption of restaurant meals, which is the market value of the final goods and services produced in the economy. It does not increase GDP by the additional value Sally produces during her new extra time, as this value is not included in GDP calculations. It also does not necessarily raise GDP by less than the restaurant price of the meals, as the value of Sally's time spent preparing meals is not a factor in GDP calculations either. Additionally, it cannot be assumed that Sally will necessarily use her new extra time productively, so it is not accurate to say that her change of habit will raise GDP by more than the restaurant price of the meals.

Question 8

Joao used to volunteer to cut his elderly neighbour's grass, but now his neighbour pays a company to do it. How does this change affect GDP?

Accepted Answer

When the neighbor starts paying a company to cut the grass instead of having it done for free by Joao, this transaction now becomes part of the market economy and is counted in GDP, increasing it by the price of the service.

Question 9

Over the past few decades, Canadians have chosen to cook less at home and eat more at restaurants. How has this practice affected GDP?

Accepted Answer

The shift towards eating out more often has increased the demand for restaurant services, leading to an increase in the output and revenue of the restaurant industry. This increase in economic activity contributes to an increase in measured GDP.

Question 10

How are intermediate goods treated in GDP computations?

Accepted Answer

Intermediate goods are excluded from GDP computations because their value is already counted in the value of final goods. Including their value would result in double counting and an overestimation of the true value of production in the economy.

Question 11

Suppose an apartment complex converts to a condominium (i.e., the renters become owners of their apartments). Suppose the value of the condominium owners' housing services is now the same as their former rent. What happens to GDP?

Accepted Answer

GDP is unaffected in this scenario because the measure of GDP includes housing services. When apartments are rented, the rent contributes to GDP. When apartments are converted to condominiums, the owners' use of the housing is estimated and included in GDP as housing services at a value equivalent to the rent, thus keeping GDP unchanged.

Question 12

If Deanna decides to cut her son's hair herself instead of having a hairdresser do it, what is the impact on GDP?

Accepted Answer

GDP measures the market value of final goods and services produced within a country's borders during a given period of time. When Deanna cuts her son's hair herself, there is no market transaction taking place, and therefore no contribution to GDP. In contrast, if she were to hire a hairdresser, there would be a market transaction and the hairdresser's services would be included in GDP. By choosing to cut her son's hair herself instead of hiring a hairdresser, Deanna is reducing the amount of economic activity in the hairdressing industry, and therefore reducing the overall level of GDP.

Question 13

Canada legalized cannabis in 2018. What happened to GDP as a result of this change in the law?

Accepted Answer

Legalizing cannabis created a new industry and increased economic activity, resulting in increased GDP.

Question 14

A professional gambler moves from a province where gambling is illegal to a province where gambling is legal. What impact does this move have on Canada's GDP?

Accepted Answer

When the professional gambler moves to a province where gambling is legal, he can now engage in legal gambling activities and generate income from it. This increase in income will contribute to increased economic activity, which in turn raises the GDP of the province and the country as a whole.

Question 15

Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. What would this change do by itself?

Accepted Answer

The shift towards market-produced goods would lead to an increase in GDP over time as the production and consumption of goods in the market increases, leading to economic growth. This shift also indicates a higher level of division of labor and specialization, allowing for greater efficiency and productivity.

Question 16

Suppose an apartment complex converts to a condominium (i.e., the renters become owners of their apartments). What is included in GDP?

Accepted Answer

When an apartment complex converts to condominiums, the rent previously paid by renters was included in GDP as part of housing services. However, the purchase of the condominiums is considered a transfer of ownership and does not count as part of GDP, as GDP measures the value of goods and services produced within a country in a given period, not transactions of existing assets.

Question 17

What is NOT included in GDP?

Accepted Answer

Volunteer work is not included in GDP because it is not paid work.

Question 18

Roommates Grace and Kelly are sharing household chores and think they have an even exchange. If instead they paid each other for the chores the other did, what would happen to GDP?

Accepted Answer

When roommates pay each other for household chores, these transactions become part of the market economy and are included in GDP calculations, leading to an increase in GDP.

Question 19

A professional gambler moves from a province where gambling is legal to a province where gambling is illegal. What impact does this move have on Canada's GDP?

Accepted Answer

Gambling is a legal economic activity in places where it is allowed, contributing to GDP through various channels such as taxes, employment, and business revenues. When the gambler moves to a province where gambling is illegal, this economic activity is no longer legally contributing to GDP, leading to a decrease.

Question 20

How is the value of housing services included in GDP?

Accepted Answer

The value of housing services is based on an estimate of its rental value. This is because the concept of GDP is to measure the value of goods and services produced within a country's borders during a given period, and housing services are included under the category of "imputed rent" - a measure of the value of owning and living in a home that is similar to the value of renting a home. This value is estimated using data on rental prices in the market, and it is included in GDP as part of personal consumption expenditures.

Quiz 5: Measuring a Nations Income