Q: If nominal GDP in 2024 is $$8250 and real GDP in 2024 (using 2023 as the base year) is 7200$$, what is the GDP deflator for 2024?

$$\8250$$/\$$7200 \times 100 = 114.6$$

Q: Suppose the GDP deflator increases from 120 to 132 between 2024 and 2025. What is the inflation rate for this period?

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

Question 1

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

Accepted Answer

The total market value of all final goods and services produced within a country in a given period of time.

Question 2

Which of the following transactions would be included in the calculation of U.S. GDP for 2025?

Accepted Answer

A U.S. resident pays for a haircut at a local salon.

Question 3

Which of the following is NOT considered a component of GDP?

Accepted Answer

Transfer Payments

Question 4

Suppose Sarah spends $1800 on a new laptop for her publishing business. The laptop was built in China. How does this transaction affect U.S. GDP and its components?

Accepted Answer

Investment increases by $$1800, Net Exports decrease by 1800$$, GDP is unchanged.

Question 5

Which formula correctly represents the expenditure approach to calculating GDP?

Accepted Answer

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

Question 6

If nominal GDP in 2024 is $$8250 and real GDP in 2024 (using 2023 as the base year) is 7200$$, what is the GDP deflator for 2024?

Accepted Answer

$$\8250$$/\$$7200 	imes 100 = 114.6$$

Question 7

Which of the following is an example of an intermediate good?

Accepted Answer

Steel purchased by a car manufacturer to produce cars.

Question 8

Why is real GDP considered a better measure of economic well-being than nominal GDP?

Accepted Answer

Because real GDP is adjusted for inflation, reflecting changes in the quantity of goods and services produced.

Question 9

Which of the following is excluded from GDP calculations?

Accepted Answer

The value of housework performed by a parent for their own child.

Question 10

If General Motors builds $$500 million worth of cars, but only sells 470 $$million worth, how is this reflected in GDP?

Accepted Answer

Investment increases by $30 million due to inventory accumulation.

Question 11

Which of the following best explains why GDP is not a perfect measure of economic well-being?

Accepted Answer

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

Question 12

Suppose the GDP deflator increases from 120 to 132 between 2024 and 2025. What is the inflation rate for this period?

Accepted Answer

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

Question 13

Which of the following would be counted as investment in GDP?

Accepted Answer

A firm purchases new machinery for its factory.

Question 14

A U.S. resident rents an apartment. How is this transaction reflected in GDP?

Accepted Answer

It is included in consumption.

Question 15

If the nominal GDP in 2025 is $$10,800 and the real GDP in 2025 (using 2023 as the base year) is 8$$,400, what is the GDP deflator for 2025?

Accepted Answer

$$100 	imes \frac{10,800}{8,400} = 128.6$$

Question 16

Which of the following would increase U.S. net exports (NX)?

Accepted Answer

A U.S. company sells software to a firm in Germany.

Question 17

Jane spends $1200 on a computer for her editing business. She buys last year’s model from a local manufacturer. How is this reflected in GDP?

Accepted Answer

It is included in investment for the current year.

Question 18

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

Accepted Answer

The city of Boston pays a contractor to build a new bridge.

Question 19

If a country’s real GDP per capita increases, which of the following is most likely to occur?

Accepted Answer

The average standard of living in the country increases.

Question 20

Which of the following is a limitation of using GDP as a measure of economic performance, according to Joseph Stiglitz?

Accepted Answer

GDP does not account for environmental degradation or resource sustainability.

Measuring Economic Activity and Gross Domestic Product (GDP)

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