Question 1

Which of the following best describes the difference between Gross Domestic Product (GDP) and Gross National Product (GNP)?

Accepted Answer

GDP measures the total market value of all final goods and services produced within a country, regardless of ownership, while GNP measures the total market value of all final goods and services produced by a country's citizens, regardless of where the output is produced.

Question 2

Suppose a U.S. company owns a factory in Mexico. The output produced by this factory will be included in:

Accepted Answer

U.S. GNP but not U.S. GDP.

Question 3

Which of the following transactions would be included in the calculation of current year GDP?

Accepted Answer

A new car purchased from a dealership.

Question 4

If a computer is initially worth $1,000 and loses half its value each year due to depreciation, what is its value after three years, and how much depreciation occurs in the third year?

Accepted Answer

After three years: $$125; Depreciation in third year: 125$$

Question 5

Which of the following best explains why GDP does not include the value of household work performed by family members?

Accepted Answer

Household work is a nonmarket activity and is not bought or sold in markets.

Question 6

Using the expenditure approach, which of the following equations correctly represents GDP?

Accepted Answer

$$GDP = C + I + G + (EX - IM)$$

Question 7

A country’s nominal GDP increased from $$500 billion to 550 $$billion over one year, while the GDP deflator increased from 100 to 110. What is the real GDP growth rate over this period?

Accepted Answer

0%

Question 8

Which of the following is an example of a final good in the calculation of GDP?

Accepted Answer

A loaf of bread purchased by a consumer at a grocery store.

Question 9

If net exports (EX - IM) are negative for a country, what does this imply?

Accepted Answer

The country imports more than it exports.

Question 10

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

Accepted Answer

GDP includes the value of all intermediate goods.

Question 11

Suppose a firm produces $$1 million worth of goods, of which 600$$,000 are sold to consumers and $400,000 are added to inventory. How much does this firm’s production contribute to GDP in the current year?

Accepted Answer

$$1,000,000$$

Question 12

Which of the following best describes the 'value added' approach to calculating GDP?

Accepted Answer

Summing the differences between the value of output and the value of intermediate goods at each stage of production.

Question 13

If the personal saving rate in a country is very low, what does this indicate about household behavior?

Accepted Answer

Households are spending a large amount relative to their incomes.

Question 14

Which of the following is included in gross private domestic investment?

Accepted Answer

Spending by firms on new machines and equipment.

Question 15

If nominal GDP is $800 billion and the GDP deflator is 160, what is real GDP?

Accepted Answer

$$500 	ext{ billion}$$

Question 16

Which of the following would be counted as part of the informal economy and thus not included in official GDP statistics?

Accepted Answer

A babysitter paid in cash who does not report the income.

Question 17

Which of the following is a component of national income as measured by the income approach?

Accepted Answer

Compensation of employees.

Question 18

If a country’s GDP per capita increases, which of the following must be true?

Accepted Answer

GDP is growing faster than the population.

Question 19

Which of the following best explains why the fixed-weight procedure for calculating real GDP can be problematic over long periods?

Accepted Answer

It ignores substitution away from goods whose prices are rising and toward goods whose prices are falling.

Question 20

Suppose the government increases its spending on infrastructure by $50 billion, while all other components of GDP remain unchanged. What is the immediate effect on GDP, according to the expenditure approach?

Accepted Answer

GDP increases by $$50 	ext{ billion}.$$

Measuring National Output and National Income: GDP, GNP, and Their Applications

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