Q: Suppose nominal GDP in 2021 is $$575 and real GDP in 2021 (with 2020 as the base year) is 250. $$What is the GDP deflator for 2021?

$$\frac{575}{250} \times 100 = 230$$

Question 1

Which of the following best describes the Expenditure Approach to calculating GDP?

Accepted Answer

Summing consumption, investment, government purchases, and net exports.

Question 2

Suppose nominal GDP in 2021 is $$575 and real GDP in 2021 (with 2020 as the base year) is 250. $$What is the GDP deflator for 2021?

Accepted Answer

$$\frac{575}{250} 	imes 100 = 230$$

Question 3

Which of the following is NOT included in the calculation of GDP using the Expenditure Approach?

Accepted Answer

Transfer payments such as pensions and unemployment insurance

Question 4

A farmer sells wheat to a miller for $$1.00, the miller sells flour to a baker for 3.00$$, and the baker sells bread to a consumer for $6.00. What is the total value added to GDP from this process?

Accepted Answer

$6.00

Question 5

Which of the following adjustments must be made to net domestic income at factor cost to arrive at GDP using the Income Approach?

Accepted Answer

Add indirect taxes minus subsidies and add depreciation.

Question 6

If nominal GDP per person is $21,000 in 2018, the 2008 GDP deflator is 100, and the 2018 GDP deflator is 105, what is the approximate real GDP per person in 2018?

Accepted Answer

$$\frac{21,000}{1.05} = 20,000$$

Question 7

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

Accepted Answer

It does not account for environmental damage.

Question 8

What is the main reason for using the chain-weighted output index method instead of the base-year prices method for calculating real GDP?

Accepted Answer

It updates the base year every year, making it more accurate as relative prices change.

Question 9

If nominal GDP increases by 50% from 2016 to 2017, but the overall price level also increases by 50%, what happens to real GDP?

Accepted Answer

Real GDP stays constant.

Question 10

Which of the following best explains why GDP per capita is a better measure for comparing living standards between countries than total GDP?

Accepted Answer

It accounts for differences in population size.

Question 11

Suppose in 2016, nominal GDP is $$1,000 and in 2017 it is 1$$,500. If the GDP deflator in 2016 is 100 and in 2017 is 120, what is real GDP in 2017?

Accepted Answer

$$\frac{1,500}{1.2} = 1,250$$

Question 12

Which of the following is NOT a component of GDP as measured by the Expenditure Approach?

Accepted Answer

Imports

Question 13

Which of the following is a reason why real GDP is not a perfect measure of economic welfare?

Accepted Answer

It does not include leisure time.

Question 14

If the sum of value added at all stages of production in an economy is $21,500, what is the GDP?

Accepted Answer

$21,500

Question 15

Which of the following is a step in the chain-weighted method for calculating real GDP growth?

Accepted Answer

Calculate the average of the growth rates using both years' prices.

Question 16

Why might using exchange rates to compare GDP between countries be problematic?

Accepted Answer

Because prices of particular products can differ greatly between countries.

Question 17

Which of the following is included in the calculation of GDP using the Income Approach?

Accepted Answer

Compensation of employees

Question 18

If real GDP in 2016 is $$500 and in 2017 is 900$$, what is the percentage change in real GDP?

Accepted Answer

$$100 	imes \frac{900-500}{500} = 80\%$$

Question 19

Which of the following is a reason for measuring economic growth using real GDP?

Accepted Answer

To make economic welfare comparisons over time and between countries.

Question 20

Which of the following is a problem with using real GDP to compare economic welfare between countries?

Accepted Answer

Differences in price levels and exchange rates can distort comparisons.

Measuring GDP, Real GDP, and Economic Growth: Principles of Macroeconomics Study Notes

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