Q: Suppose nominal GDP in 2022 is $$7,800 and real GDP in 2022 is 6$$,680. What is the GDP deflator for 2022?

$$GDP\ deflator = \frac{Nominal\ GDP}{Real\ GDP} \times 100 = \frac{7800}{6680} \times 100 = 116.8$$

Question 1

Which of the following best describes Gross Domestic Product (GDP)?

Accepted Answer

The market value of all final goods and services produced in a country during a period of time, typically one year.

Question 2

Why are intermediate goods excluded from GDP calculations?

Accepted Answer

Because their value is already included in the value of final goods, preventing double counting.

Question 3

Which of the following would NOT be counted in the United States' GDP?

Accepted Answer

A DVD produced in 2021 and resold in 2022.

Question 4

Which equation correctly represents the expenditure approach to calculating GDP?

Accepted Answer

$$GDP = C + I + G + NX$$

Question 5

Which of the following is considered 'investment' in GDP calculations?

Accepted Answer

Spending by firms on new factories, office buildings, machinery, and additions to inventories.

Question 6

If the value of imports exceeds the value of exports in a country, what is the effect on net exports (NX) in the GDP calculation?

Accepted Answer

Net exports will be negative, decreasing GDP.

Question 7

Which of the following is a shortcoming of GDP as a measure of well-being?

Accepted Answer

GDP does not account for the value of leisure.

Question 8

Suppose nominal GDP in 2022 is $$7,800 and real GDP in 2022 is 6$$,680. What is the GDP deflator for 2022?

Accepted Answer

$$GDP\ deflator = \frac{Nominal\ GDP}{Real\ GDP} 	imes 100 = \frac{7800}{6680} 	imes 100 = 116.8$$

Question 9

Which of the following would be included in the calculation of Gross National Product (GNP) but not GDP?

Accepted Answer

Production by a U.S. firm in Germany.

Question 10

If real GDP increases while nominal GDP remains constant, what does this imply about the price level?

Accepted Answer

The price level has decreased.

Question 11

Which of the following is NOT a component of GDP according to the expenditure approach?

Accepted Answer

Transfer payments.

Question 12

A country has a large informal sector (underground economy). What is a likely consequence for its GDP measurement?

Accepted Answer

GDP will underestimate the actual total production.

Question 13

Which of the following best explains why GDP per capita may not accurately reflect the standard of living?

Accepted Answer

It does not account for the distribution of income among the population.

Question 14

If the GDP deflator rises from 110.2 to 118.0 in one year, what is the inflation rate for that year?

Accepted Answer

$$\frac{118.0 - 110.2}{110.2} 	imes 100 = 7.1\%$$

Question 15

Which of the following would cause GDP to increase, but not necessarily improve economic well-being?

Accepted Answer

Increased spending on crime prevention and security.

Question 16

Disposable personal income is calculated as:

Accepted Answer

Personal income minus personal tax payments.

Question 17

During the Covid-19 pandemic, real GDP in the U.S. dropped sharply in the second quarter of 2020. Which of the following best explains the impact on households and firms?

Accepted Answer

Many people lost their jobs and many businesses never reopened after closing.

Question 18

If a country’s GDP and Gross Domestic Income (GDI) show different trends in a given year, what does this suggest?

Accepted Answer

Short-run changes in the state of the economy may be interpreted differently depending on the measure used.

Question 19

Which of the following is an example of household production that is NOT included in GDP?

Accepted Answer

A parent cooking dinner for their family.

Chapter 8: GDP – Measuring Total Production and Income

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