Q: Suppose nominal GDP in 2023 is $$10,000 and real GDP in 2023 (using 2020 as the base year) is 8$$,000. What is the GDP deflator for 2023?

$$GDP\ deflator = 100 \times \frac{Nominal\ GDP}{Real\ GDP} = 100 \times \frac{10,000}{8,000} = 125$$

Q: Suppose in 2025, the GDP deflator is 120 and in 2024 it was 110. What is the inflation rate between 2024 and 2025 as measured by the GDP deflator?

$$Inflation\ rate = 100 \times \frac{120 - 110}{110} = 9.09\%$$

Question 1

Which of the following transactions would be included in the calculation of U.S. GDP for the current year?

Accepted Answer

A U.S. consumer purchases a newly built house from a local developer.

Question 2

Suppose nominal GDP in 2023 is $$10,000 and real GDP in 2023 (using 2020 as the base year) is 8$$,000. What is the GDP deflator for 2023?

Accepted Answer

$$GDP\ deflator = 100 	imes \frac{Nominal\ GDP}{Real\ GDP} = 100 	imes \frac{10,000}{8,000} = 125$$

Question 3

Which of the following best explains why GDP is not a perfect measure of a country's economic well-being?

Accepted Answer

GDP does not account for the distribution of income, environmental degradation, or non-market activities.

Question 4

A U.S. company produces $$2 million worth of goods in 2024, but only sells 1.5 $$million of them. How is this reflected in the GDP calculation for 2024?

Accepted Answer

$$2 million is counted in GDP: 1.5 $$million as consumption and $0.5 million as investment (inventory accumulation).

Question 5

If nominal GDP increases by 10% from one year to the next, but real GDP increases by only 4%, what can be inferred about the price level?

Accepted Answer

The price level has increased by approximately 6%.

Question 6

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

Accepted Answer

The purchase of a used house.

Question 7

Suppose in 2025, the GDP deflator is 120 and in 2024 it was 110. What is the inflation rate between 2024 and 2025 as measured by the GDP deflator?

Accepted Answer

$$Inflation\ rate = 100 	imes \frac{120 - 110}{110} = 9.09\%$$

Question 8

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

Accepted Answer

Nominal GDP values output using current prices, while real GDP values output using the prices of a base year.

Question 9

A Canadian company operates a factory in the United States. The value of the goods produced by this factory is included in:

Accepted Answer

U.S. GDP and Canadian GNP.

Question 10

Which of the following is an example of investment as defined in the calculation of GDP?

Accepted Answer

A firm builds a new factory to expand production.

Question 11

If a country’s GDP per capita increases, which of the following must be true?

Accepted Answer

The average output per person has increased.

Question 12

Which of the following is a limitation of using GDP as a measure of economic performance?

Accepted Answer

GDP does not account for the value of leisure time.

Question 13

Suppose the following data for a simple economy: In 2023, 100 units of product A are sold at $$20 each, and 200 units of product B are sold at 10 $$each. What is the nominal GDP for 2023?

Accepted Answer

$$Nominal\ GDP = (100 	imes 20) + (200 	imes 10) = 2,000 + 2,000 = 4,000$$

Question 14

Which of the following would increase U.S. net exports (NX)?

Accepted Answer

A French tourist spends money on vacation in New York.

Question 15

If the government increases its purchases of goods and services by $100 million, with no other changes in the economy, what is the effect on GDP?

Accepted Answer

GDP increases by $100 million.

Question 16

Which of the following is an example of a non-market activity that is NOT included in GDP?

Accepted Answer

A parent caring for their own child at home.

Question 17

If a country’s nominal GDP doubled over 10 years, but its real GDP increased by only 50%, what does this imply about the price level over that period?

Accepted Answer

The price level increased by approximately 33%.

Question 18

Which of the following is true regarding the circular-flow diagram?

Accepted Answer

Households provide factors of production to firms and receive income in return.

Question 19

Which of the following would be excluded from the calculation of GDP?

Accepted Answer

A retiree receiving Social Security payments.

Measuring Economic Activity: Gross Domestic Product (GDP) and Its Components

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