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 one year.

Question 2

Suppose a U.S. company produces cars in Mexico and sells them in the U.S. How is this production counted in national accounting?

Accepted Answer

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

Question 3

Which of the following transactions would be included in the calculation of this year's GDP?

Accepted Answer

A bakery sells bread made this year to a local customer.

Question 4

If nominal GDP increases by 5% and the price level increases by 3%, what is the approximate growth rate of real GDP?

Accepted Answer

$$2\%$$

Question 5

Which formula correctly represents the expenditure approach to calculating GDP?

Accepted Answer

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

Question 6

A country has the following data (in billions): Consumption = $$500$$, Investment = $$200$$, Government Purchases = $$150$$, Exports = $$100$$, Imports = $$120. $$What is the country's GDP?

Accepted Answer

$$830$$

Question 7

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

Accepted Answer

GDP per capita does not account for income distribution or non-market activities.

Question 8

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

Accepted Answer

$$5\%$$

Question 9

Which of the following is an example of a final good in GDP accounting?

Accepted Answer

A loaf of bread sold to a consumer at a grocery store.

Question 10

Country A has a higher GDP than Country B, but Country B has a higher GDP per capita. What can be inferred from this information?

Accepted Answer

Country A is likely larger in population than Country B.

Question 11

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

Accepted Answer

The value of illegal goods sold in the underground economy.

Question 12

If a country’s GDP is $$2,000$$ and its net factor payments from abroad (NFP) are $$-100$$, what is its Gross National Product (GNP)?

Accepted Answer

$$1,900$$

Question 13

Which of the following best describes the concept of value added in GDP accounting?

Accepted Answer

The difference between a firm's sales revenue and the cost of its intermediate goods.

Question 14

If the price level in year 1 is $$P_1 = 100$ and in year 2 is P_2$ = 110$$, what is the rate of inflation between the two years?

Accepted Answer

$$10\%$$

Question 15

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

Accepted Answer

GDP does not account for the depletion of natural resources.

Question 16

If a country’s exports are $$500$$ and imports are $$600$$, what is the value of net exports ($$NX$$)?

Accepted Answer

$$-100$$

Question 17

Which of the following would cause real GDP to decrease even if nominal GDP increases?

Accepted Answer

The price level increases faster than nominal GDP.

Question 18

Purchases of which of the following are NOT included in the 'Government Purchases' ($$G) $$component of GDP?

Accepted Answer

Social security payments to retirees.

Question 19

If the exchange rate is $$1$$ USD = $$7$$ Yuan, and a basket of goods costs $$700$$ Yuan in China and $$100$$ USD in the U.S., what is the Purchasing Power Parity (PPP) exchange rate for the basket?

Accepted Answer

$$1$$ USD = $$7$$ Yuan

Question 20

Which of the following best explains why median income is often a better measure of the standard of living than average (mean) income?

Accepted Answer

Median income is less affected by extremely high incomes that can skew the average.

Chapter 4: GDP: Measuring the Economy – Key Concepts and Methods

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