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: If nominal GDP increases from $$1 trillion to 1.2 $$trillion and the GDP deflator increases from 100 to 120, what happens to real GDP?

$$Real\ GDP = \frac{Nominal\ GDP}{GDP\ deflator} \times 100$$;\ $$\frac{1,200,000,000,000}{120} \times 100 = 1,000,000,000,000$$;\ Real\ GDP\ remains\ unchanged$

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

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

Question 5

If the Consumer Price Index (CPI) in the base year is 100, and the cost of the CPI basket in the current year is $$120 while it was 100 in $$the base year, what is the CPI in 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 6

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 7

If nominal GDP increases from $$1 trillion to 1.2 $$trillion and the GDP deflator increases from 100 to 120, what happens to real GDP?

Accepted Answer

$$Real\ GDP = \frac{Nominal\ GDP}{GDP\ deflator} 	imes 100$$;\ $$\frac{1,200,000,000,000}{120} 	imes 100 = 1,000,000,000,000$$;\ Real\ GDP\ remains\ unchanged$

Question 8

Which of the following best explains why the underground economy is a limitation of GDP as a measure of national output?

Accepted Answer

It omits production and income from unreported or illegal activities, leading to an underestimation of actual output.

Question 9

A country has the following data for a given year: Consumption = $$8,000, Investment = 2$$,000, Government Purchases = $$3,000, Exports = 1$$,000, Imports = $1,500. What is the GDP using the expenditure approach?

Accepted Answer

$$GDP = C + I + G + (X - M) = 8,000 + 2,000 + 3,000 + (1,000 - 1,500) = 12,500$$

Question 10

Which of the following statements about the GDP deflator and the Consumer Price Index (CPI) is correct?

Accepted Answer

The GDP deflator uses a changing basket of goods, while the CPI uses a fixed basket.

Question 11

If the price level rises rapidly, what happens to the inflation rate?

Accepted Answer

The inflation rate rises.

Question 12

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

Accepted Answer

A tire purchased by a car manufacturer for a new car.

Question 13

Suppose the nominal wage rate increases by 5% and the price level (measured by the CPI) increases by 3%. What happens to the real wage rate?

Accepted Answer

The real wage rate increases by 2%.

Question 14

Which of the following best describes the value added approach to calculating GDP?

Accepted Answer

Summing the value added at each stage of production for all goods and services.

Question 15

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 16

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

Accepted Answer

GDP does not account for environmental degradation.

Question 17

A country’s nominal GDP grew by 10% from one year to the next, while its real GDP grew by only 4%. What can be inferred about the GDP deflator?

Accepted Answer

The GDP deflator increased by approximately 6%.

Question 18

Which of the following would cause GDP to overstate the actual increase in national output?

Accepted Answer

An increase in the price level without an increase in output.

Question 19

If a country’s exports are $$500 billion and its imports are 600 $$billion, what is the value of net exports (NX) and how does it affect GDP?

Accepted Answer

$$NX = Exports - Imports = 500 - 600 = -100$$;\ Net\ exports\ reduce\ GDP\ by\ 100\ billion$

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