Q: Suppose the nominal GDP in 2010 was $$14,526.5$$ billion and the real GDP (in 2005 dollars) was $$13,088.0$$ billion. What was the GDP deflator for 2010?

$$\frac{14,526.5}{13,088.0} \times 100 = 111.0$$

Q: Using Table 2-6, calculate the percentage change in the price level (GDP deflator) between 1960 and 1970.

$$\frac{24.3 - 18.6}{18.6} \times 100 = 30.6\%$$

Q: Suppose a worker’s income was $$15,000 in 1960 and 45$$,000 in 2010. Using the GDP deflator (18.6 for 1960 and 111.0 for 2010), calculate the worker’s real income in 2010 dollars for both years. Did the worker’s real income increase or decrease?

Real income in 1960: $$15,000 \times \frac{111.0}{18.6} = 89$$,516; Real income in 2010: $45,000. Real income increased.

Question 1

Which of the following best explains the difference between GDP and GNP for the United States?

Accepted Answer

GDP includes the value of all goods and services produced within U.S. borders, including by foreign-owned firms, while GNP includes the value produced by U.S. residents and firms, regardless of location.

Question 2

Suppose the nominal GDP in 2010 was $$14,526.5$$ billion and the real GDP (in 2005 dollars) was $$13,088.0$$ billion. What was the GDP deflator for 2010?

Accepted Answer

$$\frac{14,526.5}{13,088.0} 	imes 100 = 111.0$$

Question 3

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

Accepted Answer

The value of a used car sold by one consumer to another.

Question 4

If a country receives large amounts of foreign investment, how will its GDP compare to its GNP?

Accepted Answer

GDP will be larger than GNP.

Question 5

Which of the following best describes the GDP deflator?

Accepted Answer

A measure of the ratio of nominal GDP to real GDP, reflecting changes in the aggregate price level.

Question 6

Using Table 2-6, calculate the percentage change in the price level (GDP deflator) between 1960 and 1970.

Accepted Answer

$$\frac{24.3 - 18.6}{18.6} 	imes 100 = 30.6\%$$

Question 7

Which of the following is a problem with using real GDP as a measure of economic performance over time?

Accepted Answer

Changing the base year can alter the weights given to different sectors, rewriting economic history.

Question 8

Which of the following is included in the calculation of personal disposable income?

Accepted Answer

Transfer payments received by households.

Question 9

If the government increases transfer payments and keeps taxes constant, what happens to personal disposable income?

Accepted Answer

It increases.

Question 10

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

Accepted Answer

Imports are not produced domestically and would otherwise be counted in consumption, investment, or government purchases.

Question 11

Suppose a worker’s income was $$15,000 in 1960 and 45$$,000 in 2010. Using the GDP deflator (18.6 for 1960 and 111.0 for 2010), calculate the worker’s real income in 2010 dollars for both years. Did the worker’s real income increase or decrease?

Accepted Answer

Real income in 1960: $$15,000 	imes \frac{111.0}{18.6} = 89$$,516; Real income in 2010: $45,000. Real income increased.

Question 12

Which of the following is the correct formula for calculating personal disposable income?

Accepted Answer

$$Y_d \equiv Y - T$$

Question 13

Which of the following is a leading indicator of inflation, according to the study materials?

Accepted Answer

Producer Price Index (PPI)

Question 14

Which of the following is NOT a component of GDP as measured by the expenditure approach?

Accepted Answer

Transfer payments

Question 15

If nominal GDP increases but real GDP remains constant, what does this imply?

Accepted Answer

The price level has increased.

Question 16

Which of the following best describes potential output?

Accepted Answer

The maximum output the economy can produce when all resources are fully employed.

Question 17

Which of the following is a reason why potential output is difficult to measure?

Accepted Answer

It requires knowing the exact level of resource utilization at all times.

Question 18

Which of the following is true about the Consumer Price Index (CPI)?

Accepted Answer

It measures the retail prices of a fixed market basket purchased by households.

Question 19

Given the national income accounting identity $$Y \equiv C + S + T$$, if consumption (C) is $$8,000$$, savings (S) is $$2,000$$, and net taxes (T) are $$1,000$$, what is the value of national income (Y)?

Accepted Answer

$$Y = 8,000 + 2,000 + 1,000 = 11,000$$

Measurement of Macroeconomic Variables: National Income, GDP, and Price Indices

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