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.

Question 2

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

Accepted Answer

A new car produced and sold by a U.S. manufacturer this year.

Question 3

What is the main difference between GDP and GNP?

Accepted Answer

GDP measures output produced within a country, while GNP measures output produced by a country's citizens regardless of location.

Question 4

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

Accepted Answer

Personal saving

Question 5

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

Accepted Answer

Value: $$125; Depreciation in third year: 125$$

Question 6

Which formula correctly represents the expenditure approach to calculating GDP?

Accepted Answer

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

Question 7

Why are intermediate goods excluded from the calculation of GDP?

Accepted Answer

To avoid double counting, since their value is already included in the value of final goods.

Question 8

Which of the following best explains the difference between nominal GDP and real GDP?

Accepted Answer

Nominal GDP is measured in current dollars, while real GDP is adjusted for changes in the price level.

Question 9

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

Accepted Answer

GDP does not account for the distribution of income among individuals.

Question 10

A country has the following data for a given year: GDP = $$20,000$$, Receipts of factor income from abroad = $$500$$, Payments of factor income to abroad = $$300$$, Depreciation = $$2,000. $$What is the country's Net National Product (NNP)?

Accepted Answer

$$NNP = 20,000 + 500 - 300 - 2,000 = 18,200$$

Question 11

Which of the following would be considered part of the informal economy and thus not counted in GDP?

Accepted Answer

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

Question 12

If the GDP deflator increases from 100 to 110 over a year, what does this indicate?

Accepted Answer

The overall price level has increased by 10%.

Question 13

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

Accepted Answer

Salaries paid to public school teachers.

Question 14

Suppose a country’s GDP is $$1,000$$ and its depreciation is $$100. $$What is its net investment if gross investment is $$200$$?

Accepted Answer

$$Net\ investment = Gross\ investment - Depreciation = 200 - 100 = 100$$

Question 15

Which of the following best describes 'value added' in the context of GDP calculation?

Accepted Answer

The difference between the value of goods as they leave a stage of production and the cost of the goods as they entered that stage.

Question 16

Which of the following is a reason why the fixed-weight procedure for calculating real GDP can be problematic?

Accepted Answer

It ignores substitution away from goods whose prices are rising.

Question 17

If a country’s personal income is $$15,000$$ and personal income taxes are $$3,000$$, what is its disposable personal income?

Accepted Answer

$$Disposable\ personal\ income = 15,000 - 3,000 = 12,000$$

Question 18

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

Accepted Answer

GDP does not include the value of government spending on final goods and services.

Question 19

A country’s GDP is $$500,000$$, its net exports are $$-20,000$$, government spending is $$100,000$$, personal consumption is $$300,000$$, and gross private domestic investment is $$120,000. $$Which equation is correct?

Accepted Answer

$$GDP = 300,000 + 120,000 + 100,000 + (-20,000) = 500,000$$

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

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