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’s borders during a period.

Question 2

Which equation correctly represents the expenditure approach to calculating GDP?

Accepted Answer

$$GDP = C + I + G + (X - M)$$

Question 3

In the production approach to GDP, why is it important to sum only the value added at each stage of production?

Accepted Answer

To avoid double-counting the value of intermediate goods.

Question 4

Which of the following transactions would NOT be included in the calculation of GDP?

Accepted Answer

A company sells shares of its stock to investors.

Question 5

Suppose a coffee shop sells a cup of coffee for $$4. The shop paid 1 $$for the beans and $0.50 for the cup and lid. What is the value added by the coffee shop?

Accepted Answer

$$2.50$$

Question 6

Why are imports subtracted in the expenditure approach to GDP?

Accepted Answer

Because imports are not part of domestic production but are included in consumption, investment, or government spending.

Question 7

Which of the following is NOT captured by GDP as a measure of economic activity?

Accepted Answer

The value of home-cooked meals prepared by family members.

Question 8

If a U.S.-owned factory operates in Mexico, how is its production counted in GDP and GNP?

Accepted Answer

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

Question 9

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

Accepted Answer

GDP does not include the value of leisure, home production, or environmental quality.

Question 10

Refer to the first image. If imports increase, what is the expected effect on GDP, holding all else constant?

Accepted Answer

GDP decreases because imports are subtracted in the GDP calculation.

Question 11

Suppose in a given year, the U.S. GDP increases by 2%, but the population grows by 3%. What happens to GDP per capita?

Accepted Answer

GDP per capita decreases.

Question 12

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

Accepted Answer

A retiree receives Social Security benefits.

Question 13

If the value of exports is $$500 billion and the value of imports is 600 $$billion, what is the net export component in the GDP equation?

Accepted Answer

$$-100$$ billion

Question 14

Which of the following would cause GDP to overstate the actual increase in economic well-being?

Accepted Answer

An increase in pollution due to higher industrial output.

Question 15

Refer to the third image. What does the relationship between per capita GDP and happiness suggest?

Accepted Answer

There is a positive relationship, but increases in happiness diminish as per capita GDP rises.

Question 16

Which of the following is NOT a reason why GDP might differ from GNP?

Accepted Answer

GDP includes only government spending.

Question 17

If a state’s real GDP grew by 4% while the national average was 2%, what does this indicate about the state’s economic performance relative to the nation?

Accepted Answer

The state’s economy grew faster than the national average.

Question 18

Which of the following is included in the investment (I) component of GDP?

Accepted Answer

Purchases of new machinery by firms.

Question 19

A country’s GDP increases, but its GNP remains unchanged. Which of the following could explain this?

Accepted Answer

An increase in production by foreign-owned firms within the country.

Question 20

Which of the following is a limitation of using GDP as a measure of economic performance?

Accepted Answer

GDP does not account for the distribution of income among residents of a country.

Measuring GDP and National Income Accounts

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