Question

1. The underground economy exists for all of the following reasons  EXCEPT the

		avoidance of government regulation.
		production of illegal goods.
		desire to maintain accurate records of economic transactions.
		avoidance of taxes.

2. Producer surplus (for a single exchange) is defined as the exchange price minus the supply price.

True

False

3. Consumer surplus (for a single exchange) is defined as the demand price minus the supply price.

True

False

4. When using the income approach to measure GDP, the largest share of GDP generally consists of:

		interest income.
		labor income.
		capital income.
		profits.
		indirect taxes.

5. GDP declines during

		a decrease in unemployment.
		the movement from below potential GDP back to potential GDP.
		the movement from trough to peak.
		the movement from peak to trough.

6. Economists distinguish real GDP from nominal GDP to

		determine whether economic welfare has changed.
		measure the change in nominal interest rates.
		determine whether the government sector is growing.
		determine whether real production has changed.

Answer 1

1. Option C.

• The underground economy exists for all of the following reasons expect that desire to maintain accurate records of economic transactions.
• Underground economy is also termed as shadow economy as the trade of goods and services or other economic transactions occur illegally.

2. True.

• Producer surplus is defined as the exchange price minus the supply price.
• Producer suplus can also be defined as the difference between how much a supplier is willing to supply and how much he receives in the trade.

3. True.

• Consumer surplus is defined as the demand price minus the supply price.
• The consumer surplus can also be defined the consumer gain from buying any good at a price lower than they were actually prepared to pay.

4. Option B.

• When using the income approach to measure GDP, the largest share of GDP generally consists of labour income.
• When determining the GDP using the income approach, it takes into account the total income generated from the various factors of production like the land, labour, capital and organisation, while the largest share comes from the labour income.

5. Option D.

• GDP declines during the movement from peak to trough.
• A movement from peak to trough occurs during recession and the recession is a time period in which GDP declines and unemployment rises.

6. Option D.

• Economists distinguish real GDP from nominal GDP to determine whether real production has changed.
• If the nominal GDP has gone up then it Indicates that the prices and the real production has gone up and if the real GDP has gone up it Indicates how the real production has changed.