National income: Practice Questions

In national income accounting, a resident producing unit (RPU) is primarily defined by which of the following criteria?

If the value of primary income flows to the rest of the world is greater than primary income flows from the rest of the world, which of the following is correct?

Which of the following statements regarding the GDP deflator and the Consumer Price Index (CPI) is/are correct?

I. The CPI includes the prices of imported consumer goods, whereas the GDP deflator does not.
II. The GDP deflator includes the prices of exported capital goods, whereas the CPI does not.
III. Both indices use the same fixed basket of goods for their calculations.

Under the expenditure approach of calculating Gross Domestic Product (GDP), which of the following is classified as Gross Investment?

Under the expenditure approach, which of the following items is classified as Government Consumption Expenditure?

Define Resident Producing Units (RPUs) and explain their significance in ensuring that only economic activities within a country's geographical boundary are included in its Gross Domestic Product (GDP).

Distinguish between the coverage of goods and services included in the Consumer Price Index (CPI) versus the GDP deflator as measures of the overall price level.

Explain one reason why Gross Domestic Product (GDP) may be an inadequate measure of a country's economic welfare due to its exclusion of non-market activities.

Suppose a major Hong Kong-based technology company establishes a new research and development (R&D) centre in Singapore, employing only Singaporean researchers. The profits generated by this R&D centre are entirely repatriated back to the Hong Kong parent company.

(a) Explain how the operations of this R&D centre in Singapore would affect Hong Kong's Gross Domestic Product (GDP).

(b) Explain how the repatriated profits from this R&D centre would affect Hong Kong's Gross National Income (GNI).

(c) Briefly state one reason why GNI might be a better indicator than GDP for assessing the economic welfare of Hong Kong residents in this specific scenario.

(a) Country A experiences rapid economic growth, as indicated by a rising GDP. However, this growth is largely driven by foreign multinational corporations establishing factories, employing a significant number of foreign expatriates in management roles, and leading to substantial environmental pollution.

Analyse how this situation might lead to a significant difference between Country A's Gross Domestic Product (GDP) and Gross National Income (GNI), and explain which measure might be a better indicator of the economic welfare of Country A's residents.

(b) Beyond the distinction between GDP and GNI, discuss two other reasons why an increase in a country's national income statistics (like GDP or GNI) may not necessarily lead to an improvement in its residents' overall economic welfare. Provide a distinct example for each reason.