Q: If nominal GDP in 2022 is $$22,000$$ and real GDP in 2022 (in 2017 dollars) is $$20,000$$, what is the GDP deflator for 2022?

$$GDP\ deflator = \frac{22,000}{20,000} \times 100 = 110$$

Q: If real GDP increases from $$10,000 to$$ $$10,700$$ and the GDP deflator increases from $$110 to$$ $$118$$, what is the approximate inflation rate over this period?

$$\frac{118 - 110}{110} \times 100 = 7.27\%$$

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 only final goods and services included in the calculation of GDP?

Accepted Answer

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

Question 3

Suppose a U.S. company produces shoes in Vietnam and sells them in the United States. How is this production counted in GDP and GNP?

Accepted Answer

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

Question 4

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

Accepted Answer

A new house built and sold to a family.

Question 5

Given the following data for a country in a given year: Consumption ($$C$$) = $$500$$, Investment ($$I$$) = $$200$$, Government Purchases ($$G$$) = $$300$$, Exports = $$100$$, Imports = $$150. $$What is the value of GDP?

Accepted Answer

$$Y = 500 + 200 + 300 + (100 - 150) = 950$$

Question 6

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

Accepted Answer

GDP includes the value of illegal goods and services.

Question 7

If nominal GDP in 2022 is $$22,000$$ and real GDP in 2022 (in 2017 dollars) is $$20,000$$, what is the GDP deflator for 2022?

Accepted Answer

$$GDP\ deflator = \frac{22,000}{20,000} 	imes 100 = 110$$

Question 8

Which of the following would be considered an example of investment ($$I) in $$the calculation of GDP?

Accepted Answer

A firm building a new factory.

Question 9

A country has a large underground economy. What is a likely consequence for its measured GDP?

Accepted Answer

Measured GDP will understate the country's total production.

Question 10

If real GDP increases from $$10,000 to$$ $$10,700$$ and the GDP deflator increases from $$110 to$$ $$118$$, what is the approximate inflation rate over this period?

Accepted Answer

$$\frac{118 - 110}{110} 	imes 100 = 7.27\%$$

Question 11

Which of the following is included in government purchases ($$G) $$when calculating GDP?

Accepted Answer

Salaries paid to public school teachers.

Question 12

If a country’s imports exceed its exports, what is the effect on its net exports ($$NX) $$and GDP?

Accepted Answer

Net exports are negative, decreasing GDP.

Question 13

Which of the following best explains why GDP per capita is not a perfect measure of well-being?

Accepted Answer

It does not include the value of leisure, environmental quality, or income distribution.

Question 14

Suppose the price of all goods and services increases but the quantity produced remains the same. What happens to nominal GDP and real GDP?

Accepted Answer

Nominal GDP increases, real GDP remains unchanged.

Question 15

Which of the following is an example of a transfer payment, and how is it treated in GDP calculations?

Accepted Answer

A Social Security payment to a retiree; not included in GDP.

Question 16

If the GDP deflator in 2021 is $$110.2$$ and in 2022 is $$118.0$$, what is the inflation rate between these years?

Accepted Answer

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

Question 17

Which of the following would be counted as part of U.S. GDP?

Accepted Answer

A German company producing cars in South Carolina.

Question 18

If a country’s GDP increases from $$1,000$$ billion to $$1,100$$ billion in one year, but its population also increases from $$100$$ million to $$120$$ million, what happens to GDP per capita?

Accepted Answer

$$\frac{1,100}{120} = 9.17$$ thousand, which is a decrease from $$\frac{1,000}{100} = 10$$ thousand.

Question 19

Which of the following is a reason why the underground economy is larger in developing countries?

Accepted Answer

High taxes and strict regulations, along with weak property rights.

Question 20

If the value added by a manufacturer is $$500$$ and the value added by a retailer is $$200$$, what is the total value added to GDP by these two firms?

Accepted Answer

$$500 + 200 = 700$$

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

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