Q: Suppose the nominal GDP of a country in 2020 is $$500 billion, and the real GDP (using 2015 as the base year) is 400 $$billion. What is the GDP deflator for 2020?

$$GDP\ deflator = \frac{Nominal\ GDP}{Real\ GDP} \times 100 = \frac{500}{400} \times 100 = 125$$

Q: A country’s nominal GDP increased from $$1 trillion to 1.2 $$trillion over one year, while the GDP deflator increased from 100 to 120. What happened to real GDP?

$$Real\ GDP_{year\ 2} = \frac{1,200}{120} \times 100 = 1,000$$

Question 1

Which of the following transactions would be included in the calculation of a country's Gross Domestic Product (GDP) for the current year?

Accepted Answer

A new airplane manufactured and sold to an airline company.

Question 2

Suppose the nominal GDP of a country in 2020 is $$500 billion, and the real GDP (using 2015 as the base year) is 400 $$billion. What is the GDP deflator for 2020?

Accepted Answer

$$GDP\ deflator = \frac{Nominal\ GDP}{Real\ GDP} 	imes 100 = \frac{500}{400} 	imes 100 = 125$$

Question 3

Which of the following best describes the difference between GDP and GNP?

Accepted Answer

GDP measures the value of all final goods and services produced within a country's borders; GNP measures the value produced by a country's citizens, regardless of location.

Question 4

A bakery buys flour for $$2,000, sugar for 1$$,000, and sells bread for $10,000. What is the value added by the bakery?

Accepted Answer

$$Value\ added = Final\ sales - Cost\ of\ intermediate\ goods = 10,000 - (2,000 + 1,000) = 7,000$$

Question 5

Which of the following is NOT included in the calculation of GDP using the expenditure approach?

Accepted Answer

Transfer payments such as unemployment benefits.

Question 6

If the Consumer Price Index (CPI) in the base year is 100, and the cost of the basket in the current year is $$120 while it was 100 in $$the base year, what is the CPI for the current year?

Accepted Answer

$$CPI = \frac{Cost\ of\ basket\ in\ current\ year}{Cost\ of\ basket\ in\ base\ year} 	imes 100 = \frac{120}{100} 	imes 100 = 120$$

Question 7

Which of the following best explains why the GDP deflator and the CPI may give different rates of inflation?

Accepted Answer

The GDP deflator includes all goods and services produced domestically, while the CPI includes only goods and services bought by consumers.

Question 8

A country’s nominal GDP increased from $$1 trillion to 1.2 $$trillion over one year, while the GDP deflator increased from 100 to 120. What happened to real GDP?

Accepted Answer

$$Real\ GDP_{year\ 2} = \frac{1,200}{120} 	imes 100 = 1,000$$

Question 9

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

Accepted Answer

Steel purchased by an automobile manufacturer to produce cars.

Question 10

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

Accepted Answer

The country’s total GDP has increased faster than its population.

Question 11

Which of the following would be counted in the U.S. GDP but NOT in U.S. GNP?

Accepted Answer

A car produced in the U.S. by a Japanese-owned company.

Question 12

Suppose the government increases its purchases of goods and services by $500 million, with no change in other components. What is the immediate effect on GDP, all else equal?

Accepted Answer

GDP increases by $500 million.

Question 13

If the value of net exports (exports minus imports) is negative, what does this imply about a country’s spending?

Accepted Answer

The country is importing more than it is exporting.

Question 14

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

Accepted Answer

GDP does not include the value of leisure or non-market activities.

Question 15

A country’s nominal GDP grew by 10% in one year, but the GDP deflator also increased by 10%. What happened to real GDP?

Accepted Answer

Real GDP did not change.

Question 16

Which of the following best describes the circular flow diagram in macroeconomics?

Accepted Answer

It illustrates the flow of income and expenditure among households, firms, government, and the rest of the world.

Question 17

If the price of imported consumer goods rises, which price index will be most affected?

Accepted Answer

The Consumer Price Index (CPI).

Question 18

Which of the following is an example of a paper transaction that is excluded from GDP?

Accepted Answer

An individual buying shares of stock.

Question 19

If nominal GDP is $2,000 billion and the GDP deflator is 200, what is real GDP?

Accepted Answer

$$Real\ GDP = \frac{Nominal\ GDP}{GDP\ deflator} 	imes 100 = \frac{2,000}{200} 	imes 100 = 1,000$$

Measuring National Output and National Income: ch 6

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