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 a country in one year.

Question 2

Which equation correctly represents the expenditure approach to calculating GDP?

Accepted Answer

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

Question 3

If a bakery buys flour for $$2,000 and sells bread for 9$$,000, what is the value added by the bakery?

Accepted Answer

$$7,000$$

Question 4

Which of the following transactions would NOT be included in the current year’s GDP?

Accepted Answer

A homemade meal prepared and consumed at home.

Question 5

Suppose nominal GDP increased by 5% and the price level increased by 3%. What is the approximate growth rate of real GDP?

Accepted Answer

$$2\%$$

Question 6

Which of the following is true about the relationship between GDP and GNP?

Accepted Answer

GNP equals GDP plus net factor payments from abroad.

Question 7

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

Accepted Answer

$$5\%$$

Question 8

Which of the following is NOT considered a government purchase (G) in the calculation of GDP?

Accepted Answer

Social security payments to retirees.

Question 9

Why is GDP per capita often used instead of total GDP when comparing living standards between countries?

Accepted Answer

GDP per capita accounts for differences in population size.

Question 10

Which of the following best explains why purchasing power parity (PPP) adjustments are made when comparing GDP across countries?

Accepted Answer

To adjust for differences in price levels between countries.

Question 11

A country’s GDP is $$500 billion, and net factor payments from abroad (NFP) are 20 $$billion. What is the country’s GNP?

Accepted Answer

$$520$$ billion

Question 12

Which of the following is a limitation of using GDP as a measure of wellbeing?

Accepted Answer

GDP does not account for the distribution of income.

Question 13

If a country depletes its natural resources to increase GDP, what is a likely long-term consequence?

Accepted Answer

Future GDP may decrease due to resource depletion.

Question 14

Which of the following best describes the circular flow of income in an economy?

Accepted Answer

Firms pay wages, rent, and profits to households, who spend income on goods and services.

Question 15

If the price level at time $$t is$$ $$P_t$$ and at time $$t+1 is$$ $$P_{t+1}$$, what is the formula for the rate of inflation?

Accepted Answer

$$\frac{P_{t+1} - P_t}{P_t}$$

Question 16

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

Accepted Answer

An increase in inflation greater than the increase in nominal GDP.

Question 17

Which of the following is included in the calculation of GDP using the income approach?

Accepted Answer

Wages, rents, interest, and profits.

Question 18

If a country’s exports are $$100$$ billion and imports are $$120$$ billion, what is the value of net exports ($$NX$$)?

Accepted Answer

$$-20$$ billion

Question 19

Which of the following best explains why median income may be a better indicator of typical wellbeing than average income?

Accepted Answer

Median income is less affected by extreme values and income inequality.

Question 20

A country’s GDP is $$1,000$$ billion, consumption is $$600$$ billion, investment is $$200$$ billion, government purchases are $$150$$ billion, and net exports are $$50$$ billion. Which component is most likely incorrect?

Accepted Answer

Consumption

GDP: Measuring the Economy – Key Concepts and Methods

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