Q: Suppose in year T, the nominal GDP is $$\1$${,}200$$ billion and the real GDP is $$\$$1{,}000$$ billion. What is the GDP deflator for year T?

$$\frac{1{,}200}{1{,}000} \times 100 = 120$$

Q: If the GDP deflator in year T is 110 and in year T-1 is 105, what is the inflation rate between these two years?

$$\frac{110 - 105}{105} \times 100 = 4.76\%$$

Question 1

Which of the following best describes the difference between nominal GDP and real GDP?

Accepted Answer

Nominal GDP is measured at current year prices, while real GDP is measured at base year prices.

Question 2

Suppose in year T, the nominal GDP is $$\1$${,}200$$ billion and the real GDP is $$\$$1{,}000$$ billion. What is the GDP deflator for year T?

Accepted Answer

$$\frac{1{,}200}{1{,}000} 	imes 100 = 120$$

Question 3

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

Accepted Answer

Transfer payments such as unemployment benefits.

Question 4

A country has the following values: Consumption ($$C$$) = $$\500$ billion, Investment (I$) = $$\$$200$$ billion, Government spending ($$G$$) = $$\300$ billion, Exports (X$) = $$\$$100$$ billion, Imports ($$M$$) = $$\150$ billion. What is the GDP?

Accepted Answer

$$500 + 200 + 300 + (100 - 150) = \950$ billion

Question 5

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

Accepted Answer

GDP does not account for the distribution of income among citizens.

Question 6

If the GDP deflator in year T is 110 and in year T-1 is 105, what is the inflation rate between these two years?

Accepted Answer

$$\frac{110 - 105}{105} 	imes 100 = 4.76\%$$

Question 7

Which of the following would be counted as 'Investment' ($$I) in $$the GDP calculation?

Accepted Answer

A company buying new machinery for its factory.

Question 8

Why is GDP not equal to National Income (NI)?

Accepted Answer

Because GDP excludes depreciation and indirect business taxes, which must be subtracted to get NI.

Question 9

Which of the following is an example of a transaction that would NOT be included in GDP?

Accepted Answer

A family hiring a housekeeper and paying them cash under the table.

Question 10

If a country’s GDP is $$\2$${,}000$$ billion, depreciation (CCA) is $$\$$200$$ billion, and indirect business taxes (IBT) are $$\100$ billion, what is the National Income (NI)?

Accepted Answer

$$2{,}000 - 200 - 100 = \1$${,}700$ billion

Question 11

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

Accepted Answer

Transfer payments to households

Question 12

A country’s GDP increases, but its pollution levels and crime rates also rise. What does this illustrate about GDP?

Accepted Answer

GDP does not account for negative externalities or social problems.

Question 13

Which formula correctly represents the calculation of real GDP in year T?

Accepted Answer

$$\sum P(B) 	imes Q(T)$$

Question 14

If the GDP deflator is used to measure the price level, what does an increase in the GDP deflator indicate?

Accepted Answer

An increase in the average price of goods and services (inflation).

Question 15

Which of the following would be included in the calculation of personal income?

Accepted Answer

Transfer payments received by households.

Question 16

A country’s GDP is $$\1$${,}500$$ billion. Corporate profits are $$\$$100$$ billion, net interest is $$\50$ billion, social security insurance is $$\$$30$$ billion, transfer payments are $$\40$ billion, interest income is $$\$$20$$ billion, and dividends are $$\10$ billion. What is the personal income?

Accepted Answer

$$1{,}500 - 100 - 50 - 30 + 40 + 20 + 10 = \1$${,}390$ billion

Question 17

Which of the following is a reason why GDP may underestimate the true level of production in an economy?

Accepted Answer

GDP excludes home production and volunteer work.

Question 18

If a country’s GDP increases solely due to higher prices, what happens to real GDP?

Accepted Answer

Real GDP remains unchanged because it is measured at base year prices.

Question 19

Which of the following best explains why new home purchases are included in 'Investment' ($$I) $$rather than 'Consumption' ($$C) in $$GDP?

Accepted Answer

Because new homes are physical assets that contribute to future production.

Question 20

A country’s GDP is $$\2$${,}000$$ billion. Personal income taxes are $$\$$400$$ billion. What is the disposable income if personal income is $$\1$${,}600$ billion?

Accepted Answer

$$1{,}600 - 400 = \1$${,}200$ billion

Gross Domestic Product (GDP): Measurement, Components, and Limitations

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