Q: If nominal GDP in 2022 is $$22,000 and real GDP in 2022 (using 2017 as the base year) is 20$$,000, what is the GDP deflator for 2022?

$$\frac{22,000}{20,000} \times 100 = 110$$

Question 1

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

Accepted Answer

The market value of all final goods and services produced within a country during a period of time, typically one year.

Question 2

Why are only final goods and services included in the calculation of GDP?

Accepted Answer

To avoid double counting, since the value of intermediate goods is already included in the value of final goods.

Question 3

Which of the following transactions would be included in the calculation of U.S. GDP for 2023?

Accepted Answer

A German company manufactures and sells cars in the United States.

Question 4

Which of the following is NOT a component of GDP as measured by the expenditure approach?

Accepted Answer

Transfer payments (TR)

Question 5

Suppose the following data for a country in 2022: Consumption = $$10,000, Investment = 3$$,000, Government Purchases = $$2,000, Exports = 1$$,500, Imports = $2,500. What is the GDP for 2022?

Accepted Answer

$$10,000 + 3$$,000 + $$2,000 + (1$$,500 - $$2,500) = 14$$,000 + (-$$1,000) = 13$$,000

Question 6

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

Accepted Answer

GDP does not include the value of leisure, household production, or the distribution of income.

Question 7

If nominal GDP in 2022 is $$22,000 and real GDP in 2022 (using 2017 as the base year) is 20$$,000, what is the GDP deflator for 2022?

Accepted Answer

$$\frac{22,000}{20,000} 	imes 100 = 110$$

Question 8

Which of the following is an example of household production that is NOT included in GDP?

Accepted Answer

A parent cooks dinner for their family at home.

Question 9

In the context of the circular flow model, what role does the financial system play?

Accepted Answer

It facilitates the flow of funds from savers to borrowers, supporting investment and government borrowing.

Question 10

Which of the following would cause real GDP to increase while nominal GDP remains unchanged?

Accepted Answer

The quantity of goods and services produced increases while prices remain constant.

Question 11

Which of the following best describes the underground economy?

Accepted Answer

The production of goods and services that is not measured by GDP because it is illegal or unreported to avoid taxes or regulations.

Question 12

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

Accepted Answer

The total value of final goods and services produced per person has increased.

Question 13

Which of the following is subtracted when calculating net exports in the GDP formula?

Accepted Answer

Imports

Question 14

Which of the following is true about the difference between GDP and GNP?

Accepted Answer

GDP measures production within a country's borders; GNP measures production by a country's citizens, including overseas production.

Question 15

Suppose the GDP deflator increased from 110 to 121 over one year. What was the inflation rate during that year?

Accepted Answer

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

Question 16

Which of the following is included in the calculation of national income but not in GDP?

Accepted Answer

GDP minus depreciation (i.e., national income)

Question 17

During a recession, which of the following typically occurs?

Accepted Answer

Total production and total employment decrease.

Question 18

Which of the following best explains why developing countries often have large informal sectors?

Accepted Answer

High taxes, strict regulations, and low confidence in property rights.

Question 19

If real GDP falls for two consecutive quarters, what is this most commonly called?

Accepted Answer

Recession

Question 20

Which of the following is a shortcoming of using GDP as a measure of total production over long periods of time?

Accepted Answer

Changes in household production and the underground economy can distort long-term comparisons.

Chapter 8: GDP – Measuring Total Production and Income

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