Q: Given the following data for 2025: 95,000 dozen eggs at $$5.00 each and 110 eye exams at 100 $$each, what is the nominal GDP for 2025?

$$(95,000 \times 5.00) + (110 \times 100) = 475,000 + 11,000 = 486,000$$

Q: If nominal GDP in 2025 is $$486,000 and real GDP in 2025 (using 2015 prices) is 246$$,300, what is the GDP deflator for 2025?

$$\frac{486,000}{246,300} \times 100 \approx 197.3$$

Q: Suppose the price level rises from 100 to 197 over a decade. Using the formula $$\frac{\text{New Price Level} - \text{Old Price Level}}{\text{Old Price Level}} \times 100$$, what is the percentage increase in the price level?

$$\frac{197 - 100}{100} \times 100 = 97\%$$

Question 1

Which of the following best explains why only final goods and services are included in the calculation of GDP, not intermediate goods?

Accepted Answer

Including intermediate goods would result in double-counting, as their value is already included in the price of final goods.

Question 2

Given the following data for 2025: 95,000 dozen eggs at $$5.00 each and 110 eye exams at 100 $$each, what is the nominal GDP for 2025?

Accepted Answer

$$(95,000 	imes 5.00) + (110 	imes 100) = 475,000 + 11,000 = 486,000$$

Question 3

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

Accepted Answer

GDP includes the value of household production.

Question 4

Using the value-added approach and the scenario provided, what is the total value added to GDP by McCreary Modern?

Accepted Answer

$$1,000 - 400 = 600$$

Question 5

If a U.S. company produces cars in Germany, how is this production counted in national accounting?

Accepted Answer

It is included in German GDP.

Question 6

Which formula correctly represents the expenditure approach to calculating GDP?

Accepted Answer

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

Question 7

Why do economists prefer to use real GDP rather than nominal GDP when comparing economic output over time?

Accepted Answer

Real GDP accounts for changes in price level, isolating changes in actual production.

Question 8

If the GDP deflator in 2015 is 100 and in 2025 is approximately 197, what does this indicate about the price level?

Accepted Answer

Prices have increased by 97% compared to the base year.

Question 9

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

Accepted Answer

Firm spending on new equipment

Question 10

A household pays a neighbor in cash to mow their lawn, and the transaction is not reported. How does this affect GDP?

Accepted Answer

It is not included in GDP because it is unreported and informal.

Question 11

If nominal GDP in 2025 is $$486,000 and real GDP in 2025 (using 2015 prices) is 246$$,300, what is the GDP deflator for 2025?

Accepted Answer

$$\frac{486,000}{246,300} 	imes 100 \approx 197.3$$

Question 12

Which of the following would be counted in U.S. GDP for the year 2025?

Accepted Answer

A new couch produced and sold in the U.S. in 2025

Question 13

Which of the following is a reason why GDP per capita may not accurately reflect the standard of living in a country?

Accepted Answer

GDP per capita ignores income distribution among the population.

Question 14

If the government increases spending on building new highways, which component of GDP does this affect?

Accepted Answer

Government Purchases (G)

Question 15

Suppose the price level rises from 100 to 197 over a decade. Using the formula $$\frac{	ext{New Price Level} - 	ext{Old Price Level}}{	ext{Old Price Level}} 	imes 100$$, what is the percentage increase in the price level?

Accepted Answer

$$\frac{197 - 100}{100} 	imes 100 = 97\%$$

Question 16

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

Accepted Answer

GDP does not include the value of unpaid childcare performed at home.

Question 17

If a country’s GDP increases but its population grows even faster, what happens to GDP per capita?

Accepted Answer

GDP per capita decreases.

Question 18

Which of the following is NOT included in the calculation of GDP using the expenditure approach?

Accepted Answer

Social Security payments to retirees

Question 19

If the value of exports is $$200 billion and the value of imports is 250 $$billion, what is the value of net exports (NX) in GDP?

Accepted Answer

$$NX = 200 - 250 = -50$$ billion

Measuring GDP and Its Limitations: Concepts, Methods, and Applications

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