Q: Suppose nominal GDP in 2022 is $$25,744$$ billion and real GDP is $$21,822$$ billion. What is the GDP deflator for 2022?

$$\frac{25,744}{21,822} \times 100 = 118.0$$

Q: If the GDP deflator increases from $$110.2 to$$ $$118.0$$, what is the inflation rate over this period?

$$\frac{118.0 - 110.2}{110.2} \times 100 = 7.1\%$$

Question 1

Which of the following best describes the circular-flow diagram as shown in the image above?

Accepted Answer

It illustrates how households and firms interact in product and factor markets, with households providing factors of production and purchasing goods and services, while firms buy factors and sell goods and services.

Question 2

Which of the following is NOT considered a factor of production in the circular-flow model?

Accepted Answer

Goods and services

Question 3

In the expenditure approach to calculating GDP, which equation is used?

Accepted Answer

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

Question 4

If a U.S. firm produces shoes in Vietnam and sells them in Europe, how is this production counted in GDP and GNP?

Accepted Answer

It is included in U.S. GNP but not in U.S. GDP.

Question 5

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

Accepted Answer

Cotton fabric purchased by a shirt manufacturer

Question 6

Why are used goods not included in the calculation of GDP?

Accepted Answer

Because they were already counted in GDP when they were first sold as new goods.

Question 7

Suppose nominal GDP in 2022 is $$25,744$$ billion and real GDP is $$21,822$$ billion. What is the GDP deflator for 2022?

Accepted Answer

$$\frac{25,744}{21,822} 	imes 100 = 118.0$$

Question 8

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

Accepted Answer

It does not account for the value of leisure time.

Question 9

If the GDP deflator increases from $$110.2 to$$ $$118.0$$, what is the inflation rate over this period?

Accepted Answer

$$\frac{118.0 - 110.2}{110.2} 	imes 100 = 7.1\%$$

Question 10

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

Accepted Answer

Business spending on new machinery

Question 11

A country has a large informal sector (underground economy). What is a likely consequence for its measured GDP?

Accepted Answer

Measured GDP will understate the actual level of production in the country.

Question 12

Which of the following is NOT a component of government purchases in GDP?

Accepted Answer

Transfer payments such as Social Security

Question 13

If a country’s imports exceed its exports, what is true about its net exports (NX)?

Accepted Answer

Net exports are negative.

Question 14

Which of the following would be counted in U.S. GDP but NOT in U.S. GNP?

Accepted Answer

Production by a Japanese-owned factory located in Texas

Question 15

Personal income differs from national income because personal income:

Accepted Answer

Includes transfer payments and excludes firms’ retained earnings.

Question 16

Which of the following best explains why GDP per capita is not a perfect measure of living standards?

Accepted Answer

It does not account for income distribution, leisure, or environmental quality.

Question 17

If real GDP increases but nominal GDP increases by a larger percentage, what does this indicate?

Accepted Answer

Prices have increased (inflation has occurred).

Question 18

Which of the following is an example of household production that is NOT included in GDP?

Accepted Answer

A parent cooking dinner for their family

Question 19

If the value added by a shirt company is $$\12$ and the value added by the retailer is $$\$$20$$, what is the total value added from these two stages?

Accepted Answer

$$12 + 20 = 32$$

Question 20

Disposable personal income is best defined as:

Accepted Answer

Personal income minus personal tax payments

Chapter 8: GDP—Measuring Total Production and Income (Macroeconomics Study Notes)

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