Q: Suppose nominal GDP in 2022 is $$21,000 and real GDP in 2022 is 17$$,800. What is the GDP deflator for 2022?

$$GDP\ deflator = \frac{21,000}{17,800} \times 100 = 118.0$$

Question 1

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

Accepted Answer

The total market value of all final goods and services produced in a country during a 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 included in the calculation of U.S. GDP?

Accepted Answer

A used laptop sold by a student to another student.

Question 4

Which equation correctly represents the expenditure approach to calculating GDP?

Accepted Answer

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

Question 5

If the value of U.S. exports is $$2,995 billion and imports are 3$$,966 billion, what is the value of net exports?

Accepted Answer

$$NX = 2,995 - 3,966 = -971$$

Question 6

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

Accepted Answer

A family member cooking dinner at home.

Question 7

Why might GDP per capita not accurately reflect the well-being of a country’s citizens?

Accepted Answer

It does not account for the value of leisure, pollution, crime, or income distribution.

Question 8

Suppose nominal GDP in 2022 is $$21,000 and real GDP in 2022 is 17$$,800. What is the GDP deflator for 2022?

Accepted Answer

$$GDP\ deflator = \frac{21,000}{17,800} 	imes 100 = 118.0$$

Question 9

Which of the following is a shortcoming of GDP as a measure of total production?

Accepted Answer

It omits household production and the underground economy.

Question 10

During the Covid-19 pandemic, real GDP in the U.S. dropped by nearly 30% in one quarter and rebounded by over 35% the next. What does this illustrate about the business cycle?

Accepted Answer

The business cycle can include rapid and extreme fluctuations in economic activity.

Question 11

Which of the following would be classified as investment in GDP accounting?

Accepted Answer

A firm purchasing new machinery for its factory.

Question 12

If a country has a large informal sector, what is a likely consequence for its economic growth?

Accepted Answer

Lower investment and slower growth due to lack of security and capital.

Question 13

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

Accepted Answer

Transfer payments

Question 14

If real GDP is calculated using 2017 prices, but relative prices change over time, what adjustment does the BEA use to improve accuracy?

Accepted Answer

Chain-weighted prices

Question 15

Which of the following best explains why GDP growth may exaggerate increases in actual production over long periods?

Accepted Answer

Household production replaced by paid services increases measured GDP without increasing actual output.

Question 16

A country’s GDP per capita decreases after a reduction in crime. Why might this not indicate a decrease in well-being?

Accepted Answer

Lower crime reduces spending on police and prisons, which lowers GDP but improves well-being.

Question 17

Which of the following is an example of a government purchase included in GDP?

Accepted Answer

Construction of a new highway by the federal government.

Question 18

If nominal GDP and real GDP are equal in a given year, what is the value of the GDP deflator?

Accepted Answer

$$GDP\ deflator = 100$$

Question 19

Which of the following would increase GDP but might not improve economic well-being?

Accepted Answer

Increased spending on pollution cleanup after an environmental disaster.

Question 20

Which of the following is a plausible reason for a country to have a large underground economy?

Accepted Answer

High taxes and regulations, and low confidence in property security.

GDP: Measuring Total Production and Income – Study Notes

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