Q: If nominal GDP in 2020 is $$2,000$$ billion and real GDP (in 2012 prices) is $$1,800$$ billion, what is the GDP deflator for 2020?

$$ \frac{2000}{1800} \times 100 = 111.1 $$

Question 1

Which of the following best explains why economists use the concept of value added when measuring national output?

Accepted Answer

To avoid the problem of double counting intermediate goods in GDP calculations.

Question 2

Suppose a steel producer buys iron ore for $$1000 and sells steel to a car manufacturer for 1500. $$The car manufacturer then sells the finished car for $3000. What is the total value added in this production process?

Accepted Answer

$2000

Question 3

Which of the following is included in the calculation of GDP from the expenditure side?

Accepted Answer

Household consumption, investment, government purchases, and net exports

Question 4

If nominal GDP in 2020 is $$2,000$$ billion and real GDP (in 2012 prices) is $$1,800$$ billion, what is the GDP deflator for 2020?

Accepted Answer

$$ \frac{2000}{1800} 	imes 100 = 111.1 $$

Question 5

Which of the following is NOT considered a component of investment expenditure in GDP calculations?

Accepted Answer

Purchases of stocks and bonds

Question 6

Why do economists use real GDP instead of nominal GDP when comparing economic output over time?

Accepted Answer

Because real GDP adjusts for changes in the price level, reflecting true changes in output.

Question 7

Which of the following best describes the difference between the GDP deflator and the Consumer Price Index (CPI)?

Accepted Answer

The GDP deflator measures the average price of all goods produced domestically, while the CPI measures the average price of consumer goods.

Question 8

Which of the following is an example of an omission from GDP that could lead to an underestimation of economic activity?

Accepted Answer

Home production, such as meals cooked at home

Question 9

If gross investment in a given year is $$500$$ million and depreciation is $$100$$ million, what is net investment?

Accepted Answer

$$400$$ million

Question 10

Which of the following statements about GDP and living standards is most accurate?

Accepted Answer

Changes in real per capita GDP are a good measure of changes in average material living standards.

Question 11

A government pays unemployment benefits to citizens. How is this transaction treated in the calculation of GDP?

Accepted Answer

It is not included in GDP because it is a transfer payment.

Question 12

Which of the following equations correctly represents GDP from the expenditure side?

Accepted Answer

$$ GDP = C_a + I_a + G_a + NX_a $$

Question 13

Suppose Canada’s nominal GDP increased by 5% in a year, but the GDP deflator increased by 3%. What is the approximate growth rate of real GDP?

Accepted Answer

2%

Question 14

Which of the following is a reason why GDP may not fully capture a country’s economic well-being?

Accepted Answer

GDP does not account for the value of leisure time.

Question 15

If a Canadian firm produces goods in Canada and sells them to a company in the United States, how is this transaction reflected in Canada’s GDP?

Accepted Answer

It is included in GDP as an export.

Question 16

Which of the following best describes the role of the statistical discrepancy in national income accounting?

Accepted Answer

It ensures that GDP measured from the income and expenditure sides are equal.

Question 17

A country’s GDP increases, but its population grows even faster. What happens to real GDP per capita?

Accepted Answer

It decreases.

Question 18

Which of the following is an example of a non-factor payment included in GDP from the income side?

Accepted Answer

Indirect taxes net of subsidies

Question 19

If the value of all final goods and services produced in a country is $$1,000$$ billion, but the sum of all sales by firms is $$1,500$$ billion, what is the main reason for the difference?

Accepted Answer

Double counting of intermediate goods

Question 20

Which of the following would cause nominal GDP to rise but not real GDP?

Accepted Answer

An increase in the price level with no change in output

Chapter 5: The Measurement of National Income – Study Notes

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