Q: Suppose the GDP deflator increases from 120 to 132 between 2024 and 2025. What is the percentage change in the overall price level?

$$\frac{132 - 120}{120} \times 100 = 10\%$$

Question 1

Which of the following transactions would NOT be included in the calculation of GDP for the United States in 2025?

Accepted Answer

A U.S. company manufactures cars in Mexico and sells them in the United States.

Question 2

Suppose the GDP deflator increases from 120 to 132 between 2024 and 2025. What is the percentage change in the overall price level?

Accepted Answer

$$\frac{132 - 120}{120} 	imes 100 = 10\%$$

Question 3

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 4

A household hires a babysitter and pays her in cash, without reporting the transaction. How does this affect GDP?

Accepted Answer

It is part of the underground economy and is not included in measured GDP.

Question 5

Which of the following is an example of an intermediate good and should NOT be counted directly in GDP?

Accepted Answer

Cardboard boxes purchased by FedEx for shipping customers' packages.

Question 6

If the value of U.S. exports is $$500 billion and the value of U.S. imports is 600 $$billion in a given year, what is the value of net exports ($$NX$$)?

Accepted Answer

$$NX = 500 - 600 = -100$$ billion

Question 7

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

Accepted Answer

GDP does not account for the value of leisure time.

Question 8

Suppose a country has a large informal sector. What is a likely consequence for its measured GDP and economic growth?

Accepted Answer

Measured GDP will underestimate actual output, and growth rates may be lower due to limited investment.

Question 9

Which equation correctly represents the expenditure approach to calculating GDP?

Accepted Answer

$$Y = C + I + G + NX$$

Question 10

A government pays unemployment benefits to citizens. How is this transaction treated in GDP calculations?

Accepted Answer

It is a transfer payment and is not included in GDP.

Question 11

Which of the following would increase measured GDP but might not improve economic well-being?

Accepted Answer

Increased spending on pollution cleanup after an environmental disaster.

Question 12

If nominal GDP in 2024 is $$20 trillion and real GDP in 2024 (using 2017 as the base year) is 18 $$trillion, what is the GDP deflator for 2024?

Accepted Answer

$$\frac{20}{18} 	imes 100 = 111.1$$

Question 13

Which of the following is counted as investment in GDP?

Accepted Answer

A business purchases new machinery for its factory.

Question 14

Why does GDP only count new goods and services produced within a given year?

Accepted Answer

To avoid double counting and accurately measure current production.

Question 15

Which of the following would be considered a final good in GDP calculations?

Accepted Answer

A new car purchased by a consumer.

Question 16

If the U.S. government builds a new military base, which component of GDP is affected?

Accepted Answer

Government purchases ($$G)$$

Question 17

Which of the following best explains why GDP growth may exaggerate increases in actual total production over long periods?

Accepted Answer

Some household production is replaced by paid services, which are counted in GDP.

Question 18

Suppose the BEA broadens the definition of investment to include spending on intellectual property (IP) such as software and movies. What is the likely effect on measured GDP?

Accepted Answer

Measured GDP will increase, reflecting the added value of IP-intensive industries.

Question 19

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

Accepted Answer

Transfer payments

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

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