Q: If the nominal GDP in 2022 is $$21,622$$ billion and the real GDP in 2022 is $$19,660$$ billion, what is the GDP deflator for 2022?

$$GDP\ deflator = \frac{21,622}{19,660} \times 100 = 110.0$$

Q: Suppose the price level increased from 110.2 to 118.0 between 2021 and 2022. What is the inflation rate over this period?

$$\frac{118.0 - 110.2}{110.2} \times 100 = 7.1\%$$

Question 1

Which of the following best describes Gross Domestic Product (GDP)?

Accepted Answer

The market value of all final goods and services produced within a country during a specific period, typically one year.

Question 2

Why are intermediate goods excluded from the calculation of GDP?

Accepted Answer

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

Question 3

Which of the following transactions would be included in the calculation of U.S. GDP for 2023?

Accepted Answer

A German company produces and sells machinery in the United States.

Question 4

Which formula correctly represents the expenditure approach to calculating GDP?

Accepted Answer

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

Question 5

If the nominal GDP in 2022 is $$21,622$$ billion and the real GDP in 2022 is $$19,660$$ billion, what is the GDP deflator for 2022?

Accepted Answer

$$GDP\ deflator = \frac{21,622}{19,660} 	imes 100 = 110.0$$

Question 6

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

Accepted Answer

GDP includes transfer payments such as Social Security.

Question 7

Suppose the price level increased from 110.2 to 118.0 between 2021 and 2022. What is the inflation rate over this period?

Accepted Answer

$$\frac{118.0 - 110.2}{110.2} 	imes 100 = 7.1\%$$

Question 8

Which of the following is an example of household production that is NOT included in GDP?

Accepted Answer

A parent cooks dinner for their family at home.

Question 9

What is the main difference between nominal GDP and real GDP?

Accepted Answer

Nominal GDP is measured using current-year prices, while real GDP is measured using base-year prices.

Question 10

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

Accepted Answer

An increase in household production replaced by market services.

Question 11

If a country has a large informal sector (underground economy), what is a likely consequence for its measured GDP?

Accepted Answer

Measured GDP will underestimate the actual total production.

Question 12

Which of the following is included in the 'investment' component of GDP?

Accepted Answer

Spending by firms on new factories and machinery.

Question 13

Which of the following best explains why imports are subtracted in the GDP calculation?

Accepted Answer

Imports are counted in consumption, but they are not produced domestically.

Question 14

If the GDP deflator in the base year is always 100, what does this imply about nominal and real GDP in the base year?

Accepted Answer

Nominal GDP equals real GDP in the base year.

Question 15

Which of the following is NOT a component of GDP according to the expenditure approach?

Accepted Answer

Transfer payments such as unemployment benefits.

Question 16

Suppose in 2020, real GDP fell by 29.9% in the second quarter and rose by 35.3% in the third quarter. What does this indicate about the business cycle?

Accepted Answer

The economy experienced a sharp recession followed by a rapid expansion.

Question 17

Which of the following is true about the relationship between GDP and Gross National Product (GNP)?

Accepted Answer

GNP includes production by a country's citizens both domestically and abroad, while GDP includes only production within the country's borders.

Question 18

Disposable personal income is best defined as:

Accepted Answer

Personal income minus personal tax payments.

Question 19

If a country’s GDP per capita decreases due to lower spending on police and prisons as a result of reduced crime, what does this imply about GDP as a measure of well-being?

Accepted Answer

GDP may decrease even though actual well-being improves.

GDP: Measuring Total Production and Income – Macroeconomics Chapter 8 Study Notes

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