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

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

Question 1

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

Accepted Answer

The total market value of all final goods and services produced within a country's borders during a period of time, typically one year.

Question 2

Why are intermediate goods excluded from the calculation of GDP?

Accepted Answer

Because including them would result in double counting, as their value is already included in the value 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 Japanese company manufactures and sells cars in the United States.

Question 4

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

Accepted Answer

Transfer payments (T)

Question 5

Suppose the following data for a country in 2022: Consumption = $$10,000, Investment = 3$$,000, Government Purchases = $$2,000, Exports = 1$$,500, Imports = $2,500. What is the GDP for 2022?

Accepted Answer

$$14,000 - 1$$,000 = $13,000

Question 6

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

Accepted Answer

GDP does not include the value of leisure, household production, or the distribution of income.

Question 7

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

Accepted Answer

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

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

In the context of the circular flow model, what role does the financial system play?

Accepted Answer

It facilitates the flow of funds from savers to borrowers, enabling investment by firms and government.

Question 10

Which of the following would cause real GDP to increase while nominal GDP remains unchanged?

Accepted Answer

The quantity of goods and services produced increases while the price level falls.

Question 11

Which of the following is a shortcoming of using GDP per capita as a measure of standard of living?

Accepted Answer

It does not account for differences in the value of leisure or environmental quality.

Question 12

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

Accepted Answer

Measured GDP will understate the country's actual production.

Question 13

Which of the following best describes the difference between GDP and Gross National Product (GNP)?

Accepted Answer

GDP measures production within a country's borders, while GNP measures production by a country's citizens, including overseas production.

Question 14

A country’s nominal GDP increased from $$500 billion to 550 $$billion, while its real GDP (in base-year prices) increased from $$500 billion to 520 $$billion. What was the approximate percentage increase in the GDP deflator?

Accepted Answer

$$\frac{550}{520} 	imes 100 - 100 \approx 5.8\%$$

Question 15

Which of the following is an example of a government transfer payment?

Accepted Answer

A retired person receives Social Security benefits.

Question 16

If the value of imports exceeds the value of exports for a country, what is true about its net exports?

Accepted Answer

Net exports are negative.

Question 17

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

Accepted Answer

A firm builds a new factory.

Question 18

If a country’s GDP is $$1,000 billion and depreciation is 100 $$billion, what is its national income?

Accepted Answer

$$900$$ billion

Question 19

During a recession, which of the following typically occurs?

Accepted Answer

Total production and total employment decrease.

Question 20

Which of the following best explains why real GDP is preferred over nominal GDP for measuring economic growth?

Accepted Answer

Real GDP is not affected by changes in the price level, allowing for comparison of actual output over time.

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

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