Q: Which formula correctly represents the GDP deflator?

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

Q: If nominal GDP in 2020 is $$2,000 billion and real GDP in 2020 (using 2010 as the base year) is 1$$,600 billion, what is the GDP deflator for 2020?

$$GDP\ deflator = \frac{2,000}{1,600} \times 100 = 125$$

Q: If the price level in the base year is 100, and the price level in the current year is 120, what is the inflation rate over this period?

$$\frac{120-100}{100} \times 100 = 20\%$$

Question 1

Which of the following best describes Gross Domestic Product (GDP)?

Accepted Answer

The total value of all final goods and services produced within a country's borders in a given period.

Question 2

Which of the following transactions would be included in the calculation of GDP using the expenditure approach?

Accepted Answer

A new house built and sold to a family.

Question 3

Given the following data for a country in a given year: Consumption = $$500 billion, Investment = 200 $$billion, Government Spending = $$300 billion, Exports = 100 $$billion, Imports = $150 billion. What is the GDP using the expenditure approach?

Accepted Answer

$950 billion

Question 4

Which formula correctly represents the GDP deflator?

Accepted Answer

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

Question 5

If nominal GDP in 2020 is $$2,000 billion and real GDP in 2020 (using 2010 as the base year) is 1$$,600 billion, what is the GDP deflator for 2020?

Accepted Answer

$$GDP\ deflator = \frac{2,000}{1,600} 	imes 100 = 125$$

Question 6

Which of the following is NOT a component of GDP in the expenditure approach?

Accepted Answer

Transfer Payments

Question 7

Suppose a country’s nominal GDP increased from $$1,000 billion to 1$$,200 billion over one year, while the GDP deflator increased from 100 to 120. What happened to real GDP?

Accepted Answer

Real GDP decreased.

Question 8

Which of the following best explains why intermediate goods are not included in GDP calculations?

Accepted Answer

Their value is already included in the value of final goods.

Question 9

If a country’s exports are $$300 billion and imports are 400 $$billion, what is the value of net exports, and how does it affect GDP?

Accepted Answer

Net exports are -$100 billion, decreasing GDP.

Question 10

Which of the following is an example of a limitation of GDP as a measure of economic well-being?

Accepted Answer

GDP does not account for the value of leisure time.

Question 11

If the price level in the base year is 100, and the price level in the current year is 120, what is the inflation rate over this period?

Accepted Answer

$$\frac{120-100}{100} 	imes 100 = 20\%$$

Question 12

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

Accepted Answer

Nominal GDP is measured in current prices, while real GDP is measured in base year prices.

Question 13

A country has the following data: Nominal GDP = $$5,000 billion, Real GDP = 4$$,000 billion, Population = 200 million. What is the real GDP per capita?

Accepted Answer

$20,000

Question 14

Which of the following would cause GDP to overstate the true level of economic activity in a country?

Accepted Answer

Including the value of environmental degradation.

Question 15

If the GDP deflator in 2022 is 110 and in 2023 is 121, what is the inflation rate between these two years?

Accepted Answer

$$\frac{121-110}{110} 	imes 100 = 10\%$$

Question 16

Which of the following is an example of an item that would be excluded from GDP calculations?

Accepted Answer

A used textbook sold from one student to another.

Question 17

Suppose Country A has a higher nominal GDP per capita than Country B, but Country B has a higher real GDP per capita. What could explain this difference?

Accepted Answer

Country A has a higher price level than Country B.

Question 18

Which of the following best describes purchasing power parity (PPP)?

Accepted Answer

PPP adjusts GDP for differences in price levels between countries.

Question 19

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

Accepted Answer

GDP grew faster than the population.

Question 20

Which of the following is a reason why GDP may underestimate the true level of economic activity?

Accepted Answer

It excludes household production and the underground economy.

Measuring the Economy: Gross Domestic Product and National Income Accounting

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