Question 1

Which of the following best describes Gross Domestic Product (GDP)?

Accepted Answer

The total market value of all newly produced final goods and services made in one country in one year.

Question 2

Which equation represents the expenditure approach to calculating GDP?

Accepted Answer

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

Question 3

If a U.S. company produces cars in Germany and sells them in Europe, how is this reflected in U.S. GDP and GNP?

Accepted Answer

Included in U.S. GNP but not in U.S. GDP.

Question 4

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

Accepted Answer

The value of a used car sold this year.

Question 5

Why are intermediate goods excluded from the final calculation of GDP?

Accepted Answer

Because their value is already included in the value of final goods.

Question 6

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

Accepted Answer

Nominal GDP is measured using current prices, while real GDP is adjusted for inflation using a price index.

Question 7

Suppose the price level doubles but the quantity of goods and services produced remains the same. What happens to nominal and real GDP?

Accepted Answer

Nominal GDP doubles, real GDP remains unchanged.

Question 8

Which of the following is an example of a shortcoming of GDP as a measure of wellbeing?

Accepted Answer

GDP does not include the value of leisure time.

Question 9

If a country’s GDP per capita increases but income inequality also rises sharply, what can be inferred about the typical citizen’s standard of living?

Accepted Answer

GDP per capita may overstate the improvement in the typical citizen’s standard of living.

Question 10

Which of the following is included in the 'Investment' component ($$I) of $$GDP?

Accepted Answer

Construction of new residential housing.

Question 11

A bakery buys flour for $$2,000 and sells bread for 5$$,000. What is the bakery’s value added to GDP?

Accepted Answer

$$3,000$$

Question 12

Which of the following would increase U.S. GDP but not U.S. GNP?

Accepted Answer

A German company produces and sells cars in the U.S.

Question 13

If the Consumer Price Index (CPI) increases from 120 to 126 in one year, what is the annual inflation rate?

Accepted Answer

$$\frac{126 - 120}{120} 	imes 100 = 5\%$$

Question 14

Which of the following is a reason why GDP may not accurately reflect a country’s economic wellbeing?

Accepted Answer

GDP does not account for environmental degradation.

Question 15

Which of the following is true about the circular flow of income in an economy?

Accepted Answer

Firms pay households for factors of production, and households spend income on goods and services.

Question 16

If a country’s net exports ($$NX) $$are negative, what does this imply?

Accepted Answer

The country imports more than it exports.

Question 17

Which of the following would be counted as part of government purchases ($$G) in $$GDP?

Accepted Answer

Salaries paid to public school teachers.

Question 18

If the GDP deflator in year 1 is 100 and in year 2 is 110, what is the rate of inflation between the two years?

Accepted Answer

$$\frac{110 - 100}{100} 	imes 100 = 10\%$$

Question 19

Which of the following is an example of an imputation in GDP calculation?

Accepted Answer

The value of rent that homeowners would pay if they rented their own homes.

Question 20

Why might median income be a better measure of the typical citizen’s wellbeing than GDP per capita?

Accepted Answer

Median income is less affected by extreme values in the income distribution.

GDP: Measuring the Economy – Key Concepts in Macroeconomic Output and Income

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