Q: Suppose the GDP deflator increases from 120 to 132 between 2023 and 2024. What is the percentage change in the overall price level?

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

Q: Suppose nominal GDP in 2024 is $$\22$$,000$$ billion and real GDP in 2024 (base year 2017) is $$\$$20,000$$ billion. What is the GDP deflator for 2024?

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

Question 1

Which of the following best describes the definition of 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

Which of the following transactions would NOT be included in the calculation of U.S. GDP for 2024?

Accepted Answer

A U.S. resident sells a used laptop to another U.S. resident through an online marketplace in 2024.

Question 3

Suppose the GDP deflator increases from 120 to 132 between 2023 and 2024. What is the percentage change in the overall price level?

Accepted Answer

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

Question 4

Which of the following is an example of an intermediate good, and why is it excluded from GDP calculations?

Accepted Answer

Cardboard boxes purchased by FedEx for shipping; they are excluded because their value is included in the final shipping service.

Question 5

Which of the following best explains why GDP can be measured either by total production or total income?

Accepted Answer

Because everything produced and sold generates income for someone, so the value of production equals the value of income.

Question 6

A U.S. company purchases new computer software from IBM to improve its logistics. Which component of GDP does this transaction affect?

Accepted Answer

Investment

Question 7

If the value of U.S. imports exceeds the value of U.S. exports in a given year, what is the effect on net exports ($$NX) $$and GDP?

Accepted Answer

$$NX is $$negative, decreasing GDP.

Question 8

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

Accepted Answer

It does not account for the value of leisure time.

Question 9

Suppose nominal GDP in 2024 is $$\22$$,000$$ billion and real GDP in 2024 (base year 2017) is $$\$$20,000$$ billion. What is the GDP deflator for 2024?

Accepted Answer

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

Question 10

Which of the following would be counted as part of government purchases in U.S. GDP?

Accepted Answer

The construction of a new highway by the state of Tennessee

Question 11

Why did the BEA's 2013 change to include spending on research and development (R&D) as investment increase measured GDP?

Accepted Answer

Because R&D spending was previously not counted as part of GDP, and now it is included as investment.

Question 12

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

Accepted Answer

The difference between a firm's sales and the cost of intermediate goods it purchases.

Question 13

Which of the following is an example of a transaction that would increase U.S. net exports ($$NX$$)?

Accepted Answer

FedEx ships packages from New York City to Tokyo, Japan.

Question 14

Which of the following is a reason why GDP may overstate the increase in actual total production over long periods?

Accepted Answer

Household production is increasingly replaced by paid services, which are counted in GDP.

Question 15

Suppose in 2024, the U.S. government spends $$\500$ billion on teachers' salaries, $$\$$200$$ billion on highways, and $$\300$ billion on Social Security payments. What is the value of government purchases included in GDP?

Accepted Answer

$$\700$ billion

Question 16

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

Accepted Answer

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

Question 17

If nominal GDP increases from $$\18$$,000$$ billion to $$\$$19,800$$ billion and the GDP deflator increases from 120 to 132, what is the percentage change in real GDP?

Accepted Answer

$$\frac{19,800}{132} 	imes 100 = 15,000$$; $$\frac{18,000}{120} 	imes 100 = 15,000$$; 	ext{So, } 0\%$

Question 18

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

Accepted Answer

Transfer payments ($$T)$$

Question 19

During World War II, U.S. GDP increased dramatically. According to economist Robert Higgs, why might this not have reflected an increase in prosperity for the typical person?

Accepted Answer

Because most of the increase was in the production of war goods, not consumption goods.

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

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