Q: If nominal GDP in 2022 is $$\21$$,622$$ billion and real GDP in 2022 is $$\$$19,660$$ billion, what is the GDP deflator for 2022?

$$GDP\ deflator = \frac{21,622}{19,660} \times 100 = 110.0$$

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 specific period, typically one year.

Question 2

Why are intermediate goods excluded from the calculation of GDP?

Accepted Answer

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

Question 3

Suppose a U.S. company produces cars in Mexico and sells them in the United States. How is this production counted in GDP and GNP?

Accepted Answer

It is included in U.S. GNP but not in U.S. GDP.

Question 4

Which of the following is NOT included in the calculation of GDP?

Accepted Answer

Transfer payments such as Social Security benefits.

Question 5

Given the GDP formula $$Y = C + I + G + NX$$, what does 'NX' represent?

Accepted Answer

Net exports, calculated as exports minus imports.

Question 6

If nominal GDP in 2022 is $$\21$$,622$$ billion and real GDP in 2022 is $$\$$19,660$$ billion, what is the GDP deflator for 2022?

Accepted Answer

$$GDP\ deflator = \frac{21,622}{19,660} 	imes 100 = 110.0$$

Question 7

Which of the following would cause GDP to overstate the actual increase in total production over time?

Accepted Answer

An increase in household production replaced by market services.

Question 8

Which scenario best illustrates the concept of 'value added' in GDP measurement?

Accepted Answer

A bakery buys flour for $$\1$ and sells bread for $$\$$3$$; the value added by the bakery is $$\2$.

Question 9

Which of the following is a shortcoming of GDP as a measure of well-being?

Accepted Answer

It does not account for the value of leisure.

Question 10

If real GDP increases by 3% and the GDP deflator increases by 2%, what is the approximate percentage change in nominal GDP?

Accepted Answer

5%

Question 11

During the Covid-19 pandemic, real GDP in the U.S. fell sharply in Q2 2020 and then rose sharply in Q3 2020. What does this illustrate about the business cycle?

Accepted Answer

Business cycles can include rapid expansions and contractions in short periods.

Question 12

Which of the following would be counted in U.S. GDP for 2023?

Accepted Answer

A new house built in California.

Question 13

If the GDP deflator rises from 110.2 to 118.2 in one year, what is the inflation rate for that year?

Accepted Answer

$$\frac{118.2 - 110.2}{110.2} 	imes 100 = 7.3\%$$

Question 14

Which of the following is included in the 'investment' component of GDP?

Accepted Answer

Spending by firms on new factories and equipment.

Question 15

Why might GDP per capita not accurately reflect the standard of living in a country?

Accepted Answer

It does not account for income distribution, leisure, or environmental quality.

Question 16

Which of the following best explains why the underground economy is larger in developing countries?

Accepted Answer

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

Question 17

If a country has a large informal sector, what is a likely consequence for its measured GDP growth rate?

Accepted Answer

Measured GDP growth may underestimate actual economic growth.

Question 18

Which of the following is a component of 'personal income' but NOT of 'national income'?

Accepted Answer

Transfer payments received by households.

Question 19

If the value of U.S. exports is $$\2$ trillion and the value of imports is $$\$$2.5$$ trillion, what is the value of net exports (NX) in the GDP formula?

Accepted Answer

$$NX = 2 - 2.5 = -0.5$$ trillion

Question 20

Which of the following would increase real GDP but not necessarily improve economic well-being?

Accepted Answer

Increased spending on pollution cleanup after an environmental disaster.

Chapter 8: GDP – Measuring Total Production and Income (Macroeconomics Study Notes)

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