Q: Which formula correctly calculates the inflation rate using a price index?

$$\frac{\text{Price Index}_{t} - \text{Price Index}_{t-1}}{\text{Price Index}_{t-1}} \times 100$$

Question 1

Which of the following best describes the product approach to measuring GDP?

Accepted Answer

Summing the value added at each stage of production for all goods and services produced within a country.

Question 2

Suppose a fictional island produces only coconuts and restaurant meals. If the coconut producer sells $$1000 worth of coconuts to the restaurant, and the restaurant sells 2500 $$worth of meals to consumers, what is the GDP using the product approach?

Accepted Answer

$2500

Question 3

Which of the following is a major problem in measuring GDP accurately?

Accepted Answer

GDP cannot account for the underground economy directly.

Question 4

If nominal GDP in 2018 is $2,000 billion and the GDP deflator is 1.25, what is real GDP in 2018?

Accepted Answer

$$1,600$$ billion

Question 5

Which formula correctly calculates the inflation rate using a price index?

Accepted Answer

$$\frac{	ext{Price Index}_{t} - 	ext{Price Index}_{t-1}}{	ext{Price Index}_{t-1}} 	imes 100$$

Question 6

Why might the growth rate of nominal GDP be higher than the growth rate of real GDP over time?

Accepted Answer

Because nominal GDP reflects both changes in output and prices, while real GDP only reflects changes in output.

Question 7

Which of the following is NOT a problem associated with measuring real GDP and the price level?

Accepted Answer

Relative prices of goods remain constant over time.

Question 8

Private disposable income can be defined as:

Accepted Answer

Total income available to the private sector after taxes and transfers.

Question 9

If private saving is $$500$$ and government saving is $$-200$$, what is national saving?

Accepted Answer

$$300$$

Question 10

Which of the following best describes the expenditure approach to measuring GDP?

Accepted Answer

Summing all spending on final goods and services produced within a country.

Question 11

Which of the following is included in the labour force according to Statistics Canada?

Accepted Answer

Employed and unemployed.

Question 12

If the government runs a deficit, what is the sign of government saving?

Accepted Answer

Negative

Question 13

Which of the following best explains why government production is difficult to measure in GDP?

Accepted Answer

Government output is typically not sold in the market.

Question 14

If the chain-weighted real GDP and nominal GDP cross in 2012, what does this imply?

Accepted Answer

Real GDP is measured in 2012 dollars.

Question 15

Which of the following is a real-world implication of the underground economy for GDP measurement?

Accepted Answer

GDP is likely to be understated.

Question 16

If the GDP deflator increases from 120 to 126 in one year, what is the inflation rate for that year?

Accepted Answer

$$5\%$$

Question 17

National savings is reflected in which of the following?

Accepted Answer

Investment plus the current account surplus.

Question 18

Which of the following is a key difference between the CPI and the GDP deflator?

Accepted Answer

The CPI measures the price level of a fixed basket of consumer goods, while the GDP deflator measures the price level of all final goods and services produced.

Question 19

If a country’s national saving increases, which of the following is most likely to occur, holding other factors constant?

Accepted Answer

The country will acquire more claims on foreigners or increase investment.

Chapter 2: Measurement in Macroeconomics – GDP, Price Indices, and Labour Market

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