Q: Suppose the nominal GDP of a country in 2022 is $$20 trillion, and the real GDP (in 2017 dollars) is 18 $$trillion. What is the GDP deflator for 2022?

$$GDP\ deflator = \frac{Nominal\ GDP}{Real\ GDP} \times 100 = \frac{20}{18} \times 100 = 111.1$$

Q: Suppose the GDP deflator in 2021 is 110 and in 2022 is 121. What is the inflation rate between 2021 and 2022?

$$Inflation\ Rate = \frac{121 - 110}{110} \times 100 = 10\%$$

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 of time.

Question 2

Suppose the nominal GDP of a country in 2022 is $$20 trillion, and the real GDP (in 2017 dollars) is 18 $$trillion. What is the GDP deflator for 2022?

Accepted Answer

$$GDP\ deflator = \frac{Nominal\ GDP}{Real\ GDP} 	imes 100 = \frac{20}{18} 	imes 100 = 111.1$$

Question 3

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

Accepted Answer

The value of household production, such as a parent cooking dinner for their family.

Question 4

If a U.S. company produces shoes in Vietnam and sells them in Europe, how is this production counted in national income accounting?

Accepted Answer

It is included in Vietnam's GDP and U.S. GNP.

Question 5

Which of the following best explains why GDP may not be a good measure of economic well-being?

Accepted Answer

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

Question 6

A country has the following data for a given year: Consumption = $$8 trillion, Investment = 2 $$trillion, Government Purchases = $$3 trillion, Exports = 1 $$trillion, Imports = $2 trillion. What is the country's GDP?

Accepted Answer

$$GDP = C + I + G + (X - M) = 8 + 2 + 3 + (1 - 2) = 12$$

Question 7

Which of the following transactions would be counted in the calculation of this year's GDP?

Accepted Answer

A new house is built and sold to a family.

Question 8

If nominal GDP increases from one year to the next, which of the following must be true?

Accepted Answer

Either the quantity of goods and services produced, the price level, or both have increased.

Question 9

Which of the following is an example of investment as defined in the calculation of GDP?

Accepted Answer

A business builds a new factory.

Question 10

Suppose the GDP deflator in 2021 is 110 and in 2022 is 121. What is the inflation rate between 2021 and 2022?

Accepted Answer

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

Question 11

Which of the following is a shortcoming of GDP as a measure of total production?

Accepted Answer

GDP omits household production and the underground economy.

Question 12

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

Accepted Answer

Measured GDP will understate the country's true production.

Question 13

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 uses base-year prices.

Question 14

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

Accepted Answer

A reduction in pollution control spending.

Question 15

Disposable personal income is best defined as:

Accepted Answer

Personal income minus personal tax payments.

Question 16

A country’s GDP is $$500 billion, depreciation is 50 $$billion, and personal tax payments are $$30 billion. If personal income is 400 $$billion, what is disposable personal income?

Accepted Answer

$$Disposable\ Personal\ Income = Personal\ Income - Personal\ Tax\ Payments = 400 - 30 = 370\ billion$$

Question 17

Which of the following is an example of value added in the production process?

Accepted Answer

The difference between the price a bakery charges for bread and the cost of flour it purchased.

Question 18

If the price level in an economy rises but the quantity of goods and services produced remains unchanged, what happens to nominal and real GDP?

Accepted Answer

Nominal GDP increases, real GDP remains unchanged.

Question 19

Which of the following is a component of GDP as measured by the expenditure approach?

Accepted Answer

Business investment in new equipment.

Question 20

If a country’s exports increase while its imports remain constant, what is the likely effect on GDP, all else equal?

Accepted Answer

GDP will increase.

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

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