These are original Marlbridge practice questions, not past exam questions. All questions use Valdoria, a fictional country whose currency is the valda (VD); all figures are fictional. The rubrics are a suggested Marlbridge rubric to help you check your work; they are not an official scoring guideline. Assumptions: every transaction takes place in Valdoria in the year stated unless the question says otherwise; a four-function calculator is enough.
Question 1 (multiple choice · foundation)
Which of the following transactions is counted in Valdoria’s GDP for 2025?
- (A) The Valdorian government pays VD 400 of unemployment benefit to a worker who lost her job in 2025.
- (B) A student buys VD 400 of shares in a Valdorian bank in 2025.
- (C) A family buys a flat that was built and first sold in 2025.
- (D) A bakery buys VD 400 of flour in 2025 and uses all of it to bake bread sold in 2025.
Answer and explanation
Answer: (C). A newly built home is new production in 2025. It is counted as investment (residential construction).
- (A) is a transfer payment. The government receives no good or service in return, so nothing is produced.
- (B) is a financial transaction. It changes who owns part of the bank but produces nothing new.
- (D) is an intermediate good. The flour’s value is already included in the price of the bread, so counting it again would be double counting.
Question 2 (multiple choice · core)
Suppose that in 2026 Valdoria produces only the items below, all sold within the year at the prices shown. The fertiliser is made in Valdoria and used up by rice farmers in 2026.
| Item | Quantity | Price |
|---|---|---|
| Rice sold to households (tonnes) | 500 | VD 400 per tonne |
| Bicycles sold to households | 300 | VD 250 each |
| Haircuts | 2,000 | VD 12 each |
| Fertiliser sold to rice farmers (tonnes) | 40 | VD 500 per tonne |
What is Valdoria’s nominal GDP for 2026?
- (A) VD 275,000
- (B) VD 279,000
- (C) VD 299,000
- (D) VD 319,000
Answer and explanation
Answer: (C). Add price × quantity for the final goods and services only: 500 × 400 + 300 × 250 + 2,000 × 12 = 200,000 + 75,000 + 24,000 = VD 299,000. The fertiliser is an intermediate good, so it is left out.
- (A) leaves out the haircuts (200,000 + 75,000). Services are part of GDP.
- (B) subtracts the fertiliser (299,000 − 20,000). The fertiliser’s value is already inside the price of the rice, and it is new Valdorian production, so it belongs in GDP once. Subtracting it leaves it out altogether.
- (D) adds the fertiliser (299,000 + 40 × 500). That counts it twice: once on its own and once inside the price of the rice.
Question 3 (multiple choice · foundation)
In the two-sector circular flow model, which of the following flows from households to firms through the factor market?
- (A) Labour services
- (B) Wages and salaries
- (C) Consumer goods and services
- (D) Consumption spending
Answer and explanation
Answer: (A). Households own the factors of production and sell their services, such as labour, to firms in the factor market. This is a real flow.
- (B) flows the other way: firms pay wages to households through the factor market.
- (C) flows from firms to households, through the product market.
- (D) does go from households to firms, but through the product market, not the factor market.
Question 4 (multiple choice · core)
A cocoa farmer sells beans to a processor for VD 30. The processor sells cocoa paste to a chocolate maker for VD 70. The chocolate maker sells chocolate bars to a supermarket for VD 130. The supermarket sells the bars to households for VD 180. Assume the farmer buys no intermediate goods. By how much does this chain add to Valdoria’s GDP?
- (A) VD 50
- (B) VD 150
- (C) VD 180
- (D) VD 410
Answer and explanation
Answer: (C). Value added at each stage is 30, 70 − 30 = 40, 130 − 70 = 60 and 180 − 130 = 50. The total is 30 + 40 + 60 + 50 = VD 180, which equals the price of the final good.
- (A) is only the supermarket’s value added (180 − 130). Every stage adds value.
- (B) leaves out the farmer’s value added (180 − 30). The farmer produced the beans, so that VD 30 is part of GDP.
- (D) adds every sale: 30 + 70 + 130 + 180 = 410. This double counts the intermediate goods.
Question 5 (calculation · core)
Here are Valdoria’s figures for 2026, in VD billion.
| Item | VD billion |
|---|---|
| Household spending on new goods and services | 700 |
| Households buying shares in Valdorian firms | 40 |
| Business spending on new equipment | 130 |
| New houses built | 60 |
| Change in firms’ inventories | −10 (stocks fell) |
| Government purchases of goods and services | 280 |
| Unemployment benefits | 70 |
| Exports | 200 |
| Imports | 230 |
| Households buying second-hand furniture | 15 |
(a) Calculate C, I, G and net exports. (b) Calculate Valdoria’s GDP for 2026. (c) Explain why the fall in inventories is subtracted.
Worked solution
(a) C = 700. I = 130 + 60 + (−10) = 180. G = 280. Xn = 200 − 230 = −30. Shares (40), benefits (70) and second-hand furniture (15) are left out.
(b) GDP = 700 + 180 + 280 + (−30) = VD 1,130 billion.
(c) Some goods sold in 2026 were taken from stock produced in earlier years. That spending is already counted in C (or another component), but the goods were not produced in 2026. Subtracting the fall in inventories removes them, so GDP measures only 2026 production. (Adding the 10 instead would give VD 1,150 billion, which is wrong.)
Suggested mark points (3): 1 for correct C, I, G and Xn with the three excluded items left out; 1 for GDP of VD 1,130 billion (accept a value carried forward from an error in (a)); 1 for explaining that the fall in inventories removes goods produced in an earlier year.
Question 6 (constructed response · core)
Use the circular flow model to answer the following.
(a) Identify the market in which Valdorian households buy bus rides, and the market in which they sell their labour. (b) A Valdorian household spends VD 50 on a meal in a restaurant. Describe the money flow and the real flow that this creates in the product market. (c) Explain why total spending on final goods must equal total income in the economy. (d) Households decide to save more of their income, and firms’ investment spending does not change. Explain what happens to the flow of spending on firms’ output.
Model answer and suggested Marlbridge rubric
(a) Bus rides: the product market. Labour: the factor (resource) market.
(b) Money flow: VD 50 of consumption spending goes from the household to the restaurant, where it becomes revenue. Real flow: the meal (a good and a service) goes from the restaurant to the household. The two flows move in opposite directions.
(c) Every valda spent on a final good is revenue for a firm. The firm pays that revenue out as wages, rent, interest and profit to the owners of the factors of production, and any amount left over is profit, which is also income. So every valda of spending becomes a valda of someone’s income.
(d) Saving is a leakage: income that is not spent on output. If saving rises and investment (an injection) does not rise to match it, less spending reaches firms in the product market. The flow of spending, and therefore firms’ revenue and the income they pay out, becomes smaller.
| Point | What earns it |
|---|---|
| 1 | Product market for bus rides and factor market for labour |
| 1 | Money flow (spending to the firm) and real flow (meal to the household) in opposite directions |
| 1 | Explains that spending becomes firms’ revenue, which is paid out as income |
| 1 | Recognises that profit is income, so nothing is left over |
| 1 | Saving is a leakage not matched by injections, so spending on output falls |
In (d), “spending falls” with no reference to the leakage or to unchanged investment earns no point.
Question 7 (constructed response · stretch)
In 2025 a Valdorian bicycle maker buys parts from other firms for VD 2.4 million. It produces bicycles worth VD 6.0 million: it sells VD 5.5 million of bicycles to households, and the remaining VD 0.5 million of bicycles are unsold at the end of the year. It pays wages of VD 2.1 million, rent of VD 0.3 million and interest of VD 0.2 million.
(a) Calculate the bicycle maker’s value added in 2025. (b) Calculate its profit, and show that its incomes add up to its value added. (c) Identify how the VD 0.5 million of unsold bicycles is counted in 2025 GDP using the expenditure approach. (d) A student adds the VD 2.4 million of parts to the VD 6.0 million of bicycles and says the firm’s activity adds VD 8.4 million to GDP. Explain the error.
Model answer and suggested Marlbridge rubric
(a) Value added = 6.0 − 2.4 = VD 3.6 million.
(b) Profit = 3.6 − 2.1 − 0.3 − 0.2 = VD 1.0 million. Wages + rent + interest + profit = 2.1 + 0.3 + 0.2 + 1.0 = VD 3.6 million, the same as the value added.
(c) As investment: an increase in inventories of VD 0.5 million. Together with the VD 5.5 million of consumption, spending on the bicycles is 5.5 + 0.5 = VD 6.0 million, matching the value of what was produced.
(d) The parts are intermediate goods. Their value is already inside the VD 6.0 million value of the bicycles, so adding them counts the same production twice (double counting). The parts’ own value added is counted in GDP through the firms that made them, not through the bicycle maker.
| Point | What earns it |
|---|---|
| 1 | Value added of VD 3.6 million |
| 1 | Profit of VD 1.0 million and incomes shown to sum to value added |
| 1 | Unsold bicycles counted as investment (inventory increase) |
| 1 | Identifies the parts as intermediate goods whose value is already in the bicycles’ price |
| 1 | Names the error as double counting |
Accept “change in inventories” or “inventory investment” in (c). Calling the unsold bicycles “not counted” earns no point.
How did you do?
- Q1 or Q5 exclusions wrong: re-read “What is not counted, and why” in the study guide.
- Q2 wrong: redo Worked example 3, calculating nominal GDP.
- Q5(a)–(b) wrong: redo Worked example 1, the expenditure approach.
- Q3 or Q6 wrong: revisit “The circular flow model” and Figure 1.
- Q4 or Q7 wrong: redo Worked example 2, the value-added approach, and its link to the income approach.
Then tick off the topic checklist.