CFA Level 2 - Economics Session 4 - Reading 20: Measuring Economic Activity-LOS a

CFA Level 2 – Economics, Session 4 – Reading 20

Measuring Economic Activity-LOS a

(Practice Questions, Sample Questions)

Distinguish between the measures of economic activity (i.e., gross domestic product, gross national income, and net national income), including their components.

1. When calculating the Gross Domestic Product (GDP) of a country:

A) the output, expenditure, and income measures are always equal.

B) the income (rent, interest, profits, and dividends) earned by all of the residents of the country is included, regardless of where the assets are located.

C) only the value of goods and services at the final stage of production are included.

Explanation: C) Including goods and services at the intermediate stages of production in the GDP calculation would overstate the economic activity of a country; therefore, only finished products are included.

2. Gross Domestic Product (GDP), a measure of a country’s output, is best defined as the:

A) total goods and services produced by a country’s citizens in one year, adjusted for the shadow economy.

B) total market value of all final goods and services produced in a country in one year.

C) total goods and services produced by a country’s citizens in one year.

Explanation: B) GDP is the sum of all economic value produced in one year in a country, regardless of who owns the assets. It does not account for depreciation or the productivity of the country’s shadow economy.