Q: If Nominal GDP is $500 billion and the GDP price index is 125, what is Real GDP?

$$Real\ GDP = \frac{Nominal\ GDP}{Price\ Index} \times 100 = \frac{500}{125} \times 100 = 400\ billion$$

Q: If a country’s Nominal GDP is $$1,000 billion and its Real GDP is 800 $$billion, what is the GDP price index?

$$GDP\ Price\ Index = \frac{Nominal\ GDP}{Real\ GDP} \times 100 = \frac{1,000}{800} \times 100 = 125$$

Q: If the GDP price index increased from 120 to 132 in one year, what is the rate of inflation?

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

Question 1

Which of the following transactions would be included in the calculation of Gross Domestic Product (GDP) for the United States?

Accepted Answer

A U.S. resident pays a stockbroker for services rendered in buying stocks.

Question 2

Which equation correctly represents the Expenditure Approach to calculating GDP?

Accepted Answer

$$GDP = C + Ig + G + Xn$$

Question 3

A country’s GDP is $$2,000 billion. The consumption of fixed capital (depreciation) is 200 $$billion. What is the Net Domestic Product (NDP)?

Accepted Answer

$$NDP = GDP - Consumption\ of\ Fixed\ Capital = 2,000 - 200 = 1,800\ billion$$

Question 4

Which of the following best explains why intermediate goods are excluded from GDP calculations?

Accepted Answer

Including intermediate goods would result in multiple counting, overstating GDP.

Question 5

If Nominal GDP is $500 billion and the GDP price index is 125, what is Real GDP?

Accepted Answer

$$Real\ GDP = \frac{Nominal\ GDP}{Price\ Index} 	imes 100 = \frac{500}{125} 	imes 100 = 400\ billion$$

Question 6

Which of the following is NOT a shortcoming of GDP as a measure of economic well-being?

Accepted Answer

GDP includes the value of improved product quality.

Question 7

A business purchases new machinery for $$100,000, spends 20$$,000 on construction, and increases its inventory by $10,000. What is the total Gross Private Domestic Investment (Ig) for this business?

Accepted Answer

$$Ig = 100,000 + 20,000 + 10,000 = 130,000$$

Question 8

Which of the following would be subtracted from National Income to arrive at Personal Income?

Accepted Answer

Undistributed corporate profits

Question 9

If a country’s Nominal GDP is $$1,000 billion and its Real GDP is 800 $$billion, what is the GDP price index?

Accepted Answer

$$GDP\ Price\ Index = \frac{Nominal\ GDP}{Real\ GDP} 	imes 100 = \frac{1,000}{800} 	imes 100 = 125$$

Question 10

Which of the following is considered a 'disinvestment' in national income accounting?

Accepted Answer

A decrease in inventories

Question 11

A country’s GDP is $$10,000 million. Depreciation is 1$$,000 million. Net foreign factor income is $$200 million. Statistical discrepancy is 50 $$million. What is the National Income (NI)?

Accepted Answer

$$NI = NDP + NFFI - SD = (GDP - Depreciation) + NFFI - SD = (10,000 - 1,000) + 200 - 50 = 9,200$$

Question 12

Which of the following is a component of National Income but NOT included in Personal Income?

Accepted Answer

Corporate income taxes

Question 13

If the GDP price index increased from 120 to 132 in one year, what is the rate of inflation?

Accepted Answer

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

Question 14

Which of the following would be considered a nonproductive transaction and thus excluded from GDP?

Accepted Answer

A parent gives a child a cash gift for their birthday.

Question 15

Which of the following best describes the difference between GDP and National Income?

Accepted Answer

GDP measures output produced within a country’s borders, while National Income measures income earned by a country’s citizens, regardless of location.

Question 16

A household receives $$2,000 in transfer payments, earns 5$$,000 in wages, and pays $1,000 in personal taxes. What is their Disposable Income?

Accepted Answer

$$Disposable\ Income = Personal\ Income - Personal\ Taxes = (5,000 + 2,000) - 1,000 = 6,000$$

Question 17

Which of the following would increase GDP but not necessarily improve the well-being of citizens?

Accepted Answer

Increased spending on pollution cleanup after an environmental disaster

Question 18

If a country’s GDP is $$15,000 million, and personal taxes paid by households are 2$$,000 million, what is the Disposable Income if Personal Income is $12,000 million?

Accepted Answer

$$Disposable\ Income = Personal\ Income - Personal\ Taxes = 12,000 - 2,000 = 10,000\ million$$

Question 19

Which of the following would be counted as part of Gross Private Domestic Investment (Ig) in GDP calculations?

Accepted Answer

A business increases its inventory of finished goods

Question 20

If the GDP price index in 2022 is 150 and in 2023 is 140, what is the inflation rate between these years?

Accepted Answer

$$\frac{140 - 150}{150} 	imes 100 = -6.67\%$$

Measuring Domestic Output and National Income: A Study Guide

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