Q: If nominal GDP in 2022 is $\$21,622$ billion and real GDP is $\$19,650$ billion, what is the GDP deflator for 2022?

$GDP\ deflator = \frac{21,622}{19,650} \times 100 = 110.0$

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 GDP calculations?

Accepted Answer

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

Question 3

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

Accepted Answer

It is included in Mexican GDP and U.S. GNP.

Question 4

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

Accepted Answer

Transfer payments such as Social Security.

Question 5

Given the GDP formula $Y = C + I + G + NX$, what does 'NX' represent?

Accepted Answer

Net exports, calculated as exports minus imports.

Question 6

If nominal GDP in 2022 is $\$21,622$ billion and real GDP is $\$19,650$ billion, what is the GDP deflator for 2022?

Accepted Answer

$GDP\ deflator = \frac{21,622}{19,650} 	imes 100 = 110.0$

Question 7

Which of the following is a shortcoming of GDP as a measure of well-being?

Accepted Answer

It does not account for pollution and other negative effects of production.

Question 8

During the COVID-19 pandemic, U.S. real GDP in the second quarter of 2020 declined by 29.9%. What does this indicate about the business cycle?

Accepted Answer

The economy was in a period of recession.

Question 9

Which of the following would be counted as investment in the GDP calculation?

Accepted Answer

A firm purchasing new machinery for a factory.

Question 10

If a country has a large informal (underground) sector, what is the likely impact on its measured GDP?

Accepted Answer

Measured GDP will understate actual production.

Question 11

Which of the following best explains the difference between nominal GDP and real GDP?

Accepted Answer

Nominal GDP uses current-year prices, while real GDP uses base-year prices.

Question 12

A shirt is produced and sold for $\$30$. The value added by the manufacturer is $\$15$, by the retailer is $\$10$, and by the cotton supplier is $\$5$. What is the total value added in the production of the shirt?

Accepted Answer

$Total\ value\ added = 15 + 10 + 5 = \$30$

Question 13

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

Accepted Answer

A parent cooking dinner for their family.

Question 14

If real GDP increases from $\$5,540$ billion to $\$6,680$ billion between 2017 and 2025, what is the percentage growth in real GDP over this period?

Accepted Answer

$\frac{6,680 - 5,540}{5,540} 	imes 100 = 20.6\%$

Question 15

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

Accepted Answer

A shift from household production to market production.

Question 16

Disposable personal income is best defined as:

Accepted Answer

Personal income minus personal tax payments.

Question 17

If the GDP deflator increases from 110.2 to 118.0 in one year, what is the inflation rate for that year?

Accepted Answer

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

Question 18

Which of the following is a reason why GDP per capita may not accurately reflect the standard of living?

Accepted Answer

It excludes the distribution of income.

Question 19

A country has the following GDP components: $C = \$8,000$ billion, $I = \$2,000$ billion, $G = \$3,000$ billion, $Exports = \$1,500$ billion, $Imports = \$2,000$ billion. What is the country's GDP?

Accepted Answer

$GDP = 8,000 + 2,000 + 3,000 + (1,500 - 2,000) = \$12,500$ billion

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

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