Q: A bakery produces $$1,000$$ loaves of bread in a year, but only $$800$$ are sold. Each loaf sells for $$\2$. How does this affect GDP for the year?

GDP increases by $$1,000 \times \2$$ = \$$2,000$$

Q: If Nominal GDP in Year 1 is $$\1$$,500$$ and Real GDP in Year 1 is $$\$$1,200$$, what is the GDP Deflator for Year 1?

$$\frac{1,500}{1,200} \times 100 = 125$$

Q: Suppose in Year 1, Nominal GDP is $$\2$$,000$$ and Real GDP is $$\$$2,000. In $$Year 2, Nominal GDP is $$\2$$,400$$ and Real GDP is $$\$$2,100. $$What is the GDP Deflator in Year 2?

$$\frac{2,400}{2,100} \times 100 = 114.3$$

Q: If the GDP Deflator increases from $$120 to$$ $$132$$ between two years, what is the inflation rate over this period?

$$\frac{132 - 120}{120} \times 100 = 10\%$$

Question 1

Which of the following is included in the calculation of Gross Domestic Product (GDP)?

Accepted Answer

The purchase of a new car by a household

Question 2

Suppose a U.S. company produces shoes in Vietnam and sells them in Europe. How is this production counted in national income accounting?

Accepted Answer

It is included in U.S. Gross National Product (GNP) but not in U.S. Gross Domestic Product (GDP)

Question 3

Which of the following transactions would increase the 'Investment' component of GDP?

Accepted Answer

A construction company builds a new residential apartment complex

Question 4

If a country’s exports are $$500 million and its imports are 650 $$million, what is the value of Net Exports (NX)?

Accepted Answer

$$-150$$ million

Question 5

Which of the following is NOT included in the calculation of GDP?

Accepted Answer

Transfer payments such as Social Security

Question 6

A bakery produces $$1,000$$ loaves of bread in a year, but only $$800$$ are sold. Each loaf sells for $$\2$. How does this affect GDP for the year?

Accepted Answer

GDP increases by $$1,000 	imes \2$$ = \$$2,000$$

Question 7

Which formula correctly represents the Expenditure Approach to calculating GDP?

Accepted Answer

$$Y = C + I + G + NX$$

Question 8

If Nominal GDP in Year 1 is $$\1$$,500$$ and Real GDP in Year 1 is $$\$$1,200$$, what is the GDP Deflator for Year 1?

Accepted Answer

$$\frac{1,500}{1,200} 	imes 100 = 125$$

Question 9

Which of the following best explains why GDP may not be a perfect measure of a country’s economic well-being?

Accepted Answer

GDP does not account for leisure, pollution, or income distribution

Question 10

Suppose in Year 1, Nominal GDP is $$\2$$,000$$ and Real GDP is $$\$$2,000. In $$Year 2, Nominal GDP is $$\2$$,400$$ and Real GDP is $$\$$2,100. $$What is the GDP Deflator in Year 2?

Accepted Answer

$$\frac{2,400}{2,100} 	imes 100 = 114.3$$

Question 11

If the GDP Deflator increases from $$120 to$$ $$132$$ between two years, what is the inflation rate over this period?

Accepted Answer

$$\frac{132 - 120}{120} 	imes 100 = 10\%$$

Question 12

Which of the following is an example of 'demand-pull' inflation?

Accepted Answer

A surge in consumer spending causes prices to rise

Question 13

A country has the following data: Consumption = $$\800$ billion, Investment = $$\$$200$$ billion, Government Purchases = $$\300$ billion, Exports = $$\$$100$$ billion, Imports = $$\150$ billion. What is the country’s GDP?

Accepted Answer

$$800 + 200 + 300 + (100 - 150) = \1$$,250$ billion

Question 14

Which of the following would be counted as part of government purchases in GDP?

Accepted Answer

The federal government pays a contractor to build a highway

Question 15

If Ford produces 100 cars in 2023, sells 80, and stores 20 in inventory, how does this affect GDP in 2023?

Accepted Answer

GDP increases by the value of all 100 cars produced

Question 16

Which of the following is an example of an economic activity excluded from GDP?

Accepted Answer

A neighbor mowing your lawn for free

Question 17

If Real GDP increases by 5% and the GDP Deflator increases by 3%, what is the approximate percentage change in Nominal GDP?

Accepted Answer

About 8%

Question 18

Which of the following best describes the difference between GDP and GNP?

Accepted Answer

GDP measures production within a country’s borders; GNP measures production by a country’s residents regardless of location

Question 19

A country’s Nominal GDP grew from $$\1$$,000$$ to $$\$$1,200$$ while its Real GDP grew from $$\1$$,000$$ to $$\$$1,100. $$What is the percentage change in the GDP Deflator?

Accepted Answer

$$\frac{(\frac{1,200}{1,100} 	imes 100) - 100}{100} 	imes 100 = 9.1\%$$

Chapter 8: Measuring Total Production and Income (GDP)

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