Q: Which of the following best describes the GDP deflator?

An index calculated as $$\frac{\text{Nominal GDP}}{\text{Real GDP}} \times 100$$

Question 1

Which of the following best explains why only final goods are included in the calculation of GDP, rather than both final and intermediate goods?

Accepted Answer

Including both final and intermediate goods would overstate GDP due to double counting.

Question 2

Suppose a bakery buys flour for $$200 from a miller, uses it to bake bread, and sells the bread for 500. $$What is the value added by the bakery?

Accepted Answer

$$500 - 200$$ = $300

Question 3

Which of the following equations correctly represents the calculation of GDP from the expenditure side?

Accepted Answer

$$GDP = C + I + G + NX$$

Question 4

A country’s nominal GDP increased from $$1,000$$ billion to $$1,100$$ billion, while its real GDP increased from $$1,000$$ billion to $$1,050$$ billion. What does this imply about the price level?

Accepted Answer

The price level increased.

Question 5

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

Accepted Answer

The value of illegal activities such as unreported drug sales.

Question 6

If a Canadian company produces cars in Canada and sells them to Germany, how is this transaction reflected in Canada’s GDP calculation?

Accepted Answer

It is included in exports and increases net exports.

Question 7

Which of the following best describes the GDP deflator?

Accepted Answer

An index calculated as $$\frac{	ext{Nominal GDP}}{	ext{Real GDP}} 	imes 100$$

Question 8

Which of the following is an example of a government transfer payment that is excluded from GDP calculations?

Accepted Answer

Old Age Security (OAS) pension payments

Question 9

Suppose the following data for a country: Wages and salaries = $$800$$, Business profits = $$200$$, Interest income = $$100$$, Indirect taxes (net of subsidies) = $$50$$, Depreciation = $$30. $$What is GDP from the income side?

Accepted Answer

$$800 + 200 + 100 + 50 + 30 = 1,180$$

Question 10

Which of the following is a reason why GDP may not fully capture a nation’s standard of living?

Accepted Answer

GDP does not account for non-market activities such as home production and volunteering.

Question 11

If gross investment in a year is $$500$$ and depreciation is $$120$$, what is net investment?

Accepted Answer

$$500 - 120 = 380$$

Question 12

Which of the following best describes the difference between the GDP deflator and the Consumer Price Index (CPI)?

Accepted Answer

The GDP deflator measures the average price of all goods produced domestically, while the CPI measures the average price of consumer goods.

Question 13

A country’s real GDP per capita increases, but pollution and income inequality also rise. What does this suggest about using real GDP per capita as a measure of well-being?

Accepted Answer

Real GDP per capita is an incomplete measure of overall well-being.

Question 14

Which of the following is an example of an omission from official GDP statistics?

Accepted Answer

The value of unpaid household work

Question 15

If a country’s GDP is measured using current prices, what type of GDP is being calculated?

Accepted Answer

Nominal GDP

Question 16

Which of the following is a correct statement about the circular flow of income and expenditure?

Accepted Answer

Households provide factors of production to firms and receive income in return.

Question 17

Suppose the following transactions occur in a year: A steel producer sells steel to a car manufacturer for $$2,000. The car manufacturer uses the steel to produce cars and sells them to consumers for 10$$,000. What is the total contribution to GDP from these transactions?

Accepted Answer

$10,000

Question 18

Which of the following is a component of investment expenditure in GDP calculations?

Accepted Answer

The construction of new residential housing

Question 19

If a country’s GDP is $$2,000$$ billion and its population is $$50$$ million, what is its real GDP per capita?

Accepted Answer

$$2,000,000,000,000 \div 50,000,000 = 40,000$$

Question 20

Which of the following best describes the role of depreciation in GDP calculations from the income side?

Accepted Answer

Depreciation is added to factor incomes and indirect taxes (net of subsidies) to calculate GDP.

Chapter 5: The Measurement of National Income (Ragan: Macroeconomics, 18th Canadian Edition)

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