Q: Suppose nominal GDP in 2022 is $$8,000 and real GDP in 2022 (using 2012 as the base year) is 6$$,500. What is the GDP deflator for 2022?

$$GDP\ Deflator = \frac{Nominal\ GDP}{Real\ GDP} \times 100 = \frac{8,000}{6,500} \times 100 = 123.08$$

Question 1

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

Accepted Answer

The total market value of all final goods and services produced within a country during a specific period, usually one year.

Question 2

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

Accepted Answer

To avoid double counting, since intermediate goods are 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 new car produced and sold by a Japanese-owned factory located in Ohio.

Question 4

Which equation correctly represents the expenditure approach to calculating GDP?

Accepted Answer

$$GDP = C + I + G + NX$$

Question 5

Suppose nominal GDP in 2022 is $$8,000 and real GDP in 2022 (using 2012 as the base year) is 6$$,500. What is the GDP deflator for 2022?

Accepted Answer

$$GDP\ Deflator = \frac{Nominal\ GDP}{Real\ GDP} 	imes 100 = \frac{8,000}{6,500} 	imes 100 = 123.08$$

Question 6

Which of the following is NOT a shortcoming of GDP as a measure of well-being?

Accepted Answer

GDP includes the value of illegal goods and services.

Question 7

If the value of U.S. imports exceeds the value of U.S. exports, what is the effect on net exports (NX) in the GDP equation?

Accepted Answer

Net exports will be negative, reducing GDP.

Question 8

Which of the following is an example of government purchases included in GDP?

Accepted Answer

Salaries paid to public school teachers.

Question 9

Why might GDP growth overstate the increase in actual total production over long periods?

Accepted Answer

Because some household production may be replaced by paid services, which are then counted in GDP.

Question 10

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

Accepted Answer

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

Question 11

A country has the following data for a given year: Consumption = $$5,000, Investment = 2$$,000, Government Purchases = $$1,500, Exports = 1$$,000, Imports = $2,500. What is the GDP?

Accepted Answer

$$GDP = 5,000 + 2,000 + 1,500 + (1,000 - 2,500) = 7,000$$

Question 12

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

Accepted Answer

A firm purchasing new machinery for its factory.

Question 13

If real GDP increases but nominal GDP increases by a larger percentage, what can we conclude?

Accepted Answer

The price level has increased.

Question 14

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

Accepted Answer

GDP does not account for pollution and other negative effects of production.

Question 15

Which of the following would be counted as part of U.S. gross national product (GNP) but NOT U.S. GDP?

Accepted Answer

A U.S. firm producing shoes in Vietnam.

Question 16

Disposable personal income is best defined as:

Accepted Answer

Personal income minus personal tax payments.

Question 17

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

Accepted Answer

A parent cooking dinner for their family.

Question 18

If the underground economy is large in a country, what is the likely effect on measured GDP?

Accepted Answer

Measured GDP will understate the actual level of production.

Question 19

Which of the following best explains why GDP per capita is not a perfect measure of living standards?

Accepted Answer

It does not account for the distribution of income or non-market activities.

Question 20

Suppose the GDP deflator increased from 110 to 115 over one year. What was the inflation rate during that year?

Accepted Answer

$$Inflation\ Rate = \frac{115 - 110}{110} 	imes 100 = 4.55\%$$

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

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