Page 1 University of Lethbridge - Department of Economics ECON 1012 – Introduction to Macroeconomics Instructor: Michael G. Lanyi Chapter 6 –– National Income Accounting Answer Key 1. D Response: National income accounting provides a means for combining subaggregates into a single aggregate measure of production and consumption that can then be used to gauge total economic activity. 2. D Response: See the definition of GDP in the text. 3. A Response: Because GDP measures the market value of the final output produced within a country's borders and GNI measures the market value of the final output produced by a country's citizens, the income earned abroad by domestic factor sources must be added to GDP and the income earned domestically by foreign factor sources must be subtracted from GDP in order to move from GDP to GNI. 4. C Response: Since Opel does not operate in the U.S., its income does not increase U.S. GDP. 5. D Response: See the definitions of flow and stock in the text. 6. C Response: GDP includes only goods sold to consumers. Sales to other firms are intermediate goods and pension benefits do not reflect production. 7. B Response: Summing final sales is one way to avoid double counting since the value of intermediate goods is excluded when summing final sales. 8. A Response: Subtract the cost of production ($4000) from final sales ($5000) to find the contribution of the services by the dealer to GDP ($1000). 9. A Response: GDP is the sum of the value added by the three firms, which equals 500 + 1400 + 875, or 2775. 10. C Response: The commission that the dealer receives is a part of GDP because that is the value added as a result of an economic activity. The others are nonmarket activities or transfers of financial assets and are not counted in GDP.