Q: If nominal GDP in 2022 is $$20,000$$ and real GDP in 2022 (base year 2015) is $$18,000$$, what is the GDP deflator for 2022?

$$\frac{20,000}{18,000} \times 100 = 111.11$$

Q: If the GDP deflator increases from 120 to 132 in one year, what is the inflation rate for that year?

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

Question 1

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

Accepted Answer

The market value of all final goods and services produced within a country during a specific period.

Question 2

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

Accepted Answer

The value of a used house sold in the current year.

Question 3

Suppose a bakery buys flour for $$500 and sells bread made from that flour for 1$$,500. What is the value added by the bakery?

Accepted Answer

$1,000

Question 4

Which of the following equations correctly represents the expenditure approach to calculating GDP?

Accepted Answer

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

Question 5

If nominal GDP in 2022 is $$20,000$$ and real GDP in 2022 (base year 2015) is $$18,000$$, what is the GDP deflator for 2022?

Accepted Answer

$$\frac{20,000}{18,000} 	imes 100 = 111.11$$

Question 6

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

Accepted Answer

GDP does not include the value of leisure time.

Question 7

During World War II, U.S. real GDP increased dramatically. According to the study materials, why might this not have reflected an increase in the well-being of the typical person?

Accepted Answer

Most of the increase in GDP was due to military production, not consumer goods.

Question 8

Which of the following would be counted as part of U.S. Gross National Product (GNP) but NOT U.S. GDP?

Accepted Answer

Profits earned by a U.S. company operating a factory in Mexico.

Question 9

If the GDP deflator increases from 120 to 132 in one year, what is the inflation rate for that year?

Accepted Answer

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

Question 10

Which of the following is an example of a transfer payment?

Accepted Answer

Social Security payments to retirees.

Question 11

A country updates its GDP calculation by including more accurate data on its underground economy and changes its base year for real GDP. What is the most likely immediate effect?

Accepted Answer

Measured real GDP increases, but the actual standard of living does not change.

Question 12

Which of the following best explains why economists use GDP rather than national income as the primary measure of total production and income?

Accepted Answer

Depreciation is difficult to measure accurately, and percentage changes in GDP and national income are nearly the same.

Question 13

If a U.S. household purchases a new house, how is this expenditure classified in the calculation of GDP?

Accepted Answer

Investment

Question 14

Which of the following would cause measured GDP to increase, even if total production in the economy does not actually change?

Accepted Answer

More household production is replaced by market production.

Question 15

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

Accepted Answer

2%

Question 16

Which of the following is an example of an intermediate good?

Accepted Answer

Steel purchased by an automobile manufacturer to make cars.

Question 17

If a country has a high GDP per capita but also high levels of pollution and crime, what does this suggest about GDP as a measure of well-being?

Accepted Answer

GDP may overstate the actual well-being of the population.

GDP: Measuring Total Production and Income – Comprehensive Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards