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 in a given time period.

Question 2

A lumberjack sells logs to a lumber company for $$1 each. The lumber company turns the logs into plywood and sells it to a furniture maker for 10. $$The furniture maker uses the plywood to make a table, which is sold to a consumer for $100. What value is included in GDP?

Accepted Answer

$100

Question 3

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

Accepted Answer

The value of a used car sold between two households.

Question 4

Which equation correctly represents the expenditure approach to calculating GDP?

Accepted Answer

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

Question 5

If a country’s consumption expenditure is $$500$$, investment is $$200$$, government expenditure is $$300$$, exports are $$100$$, and imports are $$150$$, what is the country’s GDP?

Accepted Answer

$$500 + 200 + 300 + 100 - 150 = 950$$

Question 6

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

Accepted Answer

A company purchasing new machinery for its factory.

Question 7

Why is only the value of final goods included in GDP, and not intermediate goods?

Accepted Answer

To avoid double counting, since the value of intermediate goods is already included in the value of final goods.

Question 8

Which of the following would increase U.S. net exports (X - M)?

Accepted Answer

An increase in exports of U.S.-made airplanes.

Question 9

If real GDP per person increases, which of the following must also be true?

Accepted Answer

Real GDP increased faster than the population.

Question 10

Which of the following best explains why real GDP is a better measure than nominal GDP for comparing economic output over time?

Accepted Answer

Real GDP uses constant base-year prices, removing the effects of inflation.

Question 11

Suppose the nominal GDP of a country increased by 5% from one year to the next, but prices also increased by 5%. What happened to real GDP?

Accepted Answer

Real GDP stayed the same.

Question 12

Which of the following is a limitation of using real GDP as a measure of economic well-being?

Accepted Answer

It does not account for household production or underground economic activity.

Question 13

If the depreciation of capital in a country is $$50$$ and gross investment is $$200$$, what is net investment?

Accepted Answer

$$150$$

Question 14

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

Accepted Answer

A U.S. company produces cars in Mexico.

Question 15

Which of the following best describes the business cycle?

Accepted Answer

The irregular pattern of expansions and recessions in real GDP over time.

Question 16

If you know the values of $$Y$$, $$I$$, $$G$$, $$X$$, and $$M$$, how would you solve for $$C$$ using the GDP equation?

Accepted Answer

$$C = Y - I - G - X + M$$

Question 17

Why is real GDP measured at purchasing power parity (PPP) prices a better way to compare standards of living across countries?

Accepted Answer

It accounts for differences in price levels between countries.

Question 18

Which of the following would cause GDP to overstate the growth in total production over time?

Accepted Answer

A shift from household production to market production.

Question 19

Which of the following is an example of government expenditure (G) in the GDP calculation?

Accepted Answer

The government building a new highway.

Question 20

Which of the following is NOT a component of aggregate expenditure in the GDP equation?

Accepted Answer

Transfer payments

Monitoring the Value of Production: GDP – Principles of Macroeconomics Study Notes

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