Q: If the GDP deflator increases from 120 to 132 between two years, what is the percentage increase in the overall price level?

$$ \frac{132 - 120}{120} \times 100 = 10\% $$

Q: Suppose nominal GDP in 2024 is $$20$$ trillion and real GDP in 2024 (using 2017 as the base year) is $$18$$ trillion. What is the GDP deflator for 2024?

$$ \frac{20}{18} \times 100 = 111.1 $$

Question 1

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

Accepted Answer

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

Question 2

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

Accepted Answer

It is included in Mexican GDP because the production occurs in Mexico.

Question 3

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

Accepted Answer

A business purchases new machinery for its factory.

Question 4

A consumer purchases a used laptop from another individual through an online marketplace. How does this transaction affect GDP?

Accepted Answer

It does not affect GDP because the laptop was already counted when it was new.

Question 5

Which of the following is an example of a government purchase included in GDP?

Accepted Answer

The government builds a new highway.

Question 6

If the GDP deflator increases from 120 to 132 between two years, what is the percentage increase in the overall price level?

Accepted Answer

$$ \frac{132 - 120}{120} 	imes 100 = 10\% $$

Question 7

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

Accepted Answer

GDP accurately measures underground economic activity.

Question 8

A U.S. company exports $$10 million worth of software to Europe and imports 8 $$million worth of electronics from Asia. What is the value of net exports for the U.S. in this scenario?

Accepted Answer

$$2$$ million

Question 9

Which of the following best explains why only final goods and services are included in GDP calculations?

Accepted Answer

To avoid double counting the value of intermediate goods.

Question 10

Suppose nominal GDP in 2024 is $$20$$ trillion and real GDP in 2024 (using 2017 as the base year) is $$18$$ trillion. What is the GDP deflator for 2024?

Accepted Answer

$$ \frac{20}{18} 	imes 100 = 111.1 $$

Question 11

Which of the following would be considered part of the underground economy?

Accepted Answer

A babysitter is paid cash and does not report the income to tax authorities.

Question 12

If a country has a large informal sector, what is a likely consequence for its measured GDP and economic growth?

Accepted Answer

Measured GDP will be lower and growth rates may be understated.

Question 13

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.

Question 14

Which formula correctly represents the expenditure approach to calculating GDP?

Accepted Answer

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

Question 15

Suppose the government increases spending on building new schools. Which component of GDP does this affect?

Accepted Answer

Government purchases

Question 16

If nominal GDP increases from one year to the next, which of the following must be true?

Accepted Answer

Either the price level, real GDP, or both have increased.

Question 17

Which of the following best explains why GDP per capita is not a perfect measure of a country's standard of living?

Accepted Answer

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

Question 18

A U.S. firm purchases cardboard boxes to use for shipping its products. How is this transaction treated in GDP calculations?

Accepted Answer

It is not counted because it is an intermediate good.

Question 19

Suppose in 2025, the nominal GDP is $$22$$ trillion and the GDP deflator is $$110. $$What is the real GDP for 2025?

Accepted Answer

$$ \frac{22}{110} 	imes 100 = 20 $$ trillion

Question 20

During a recession, which of the following typically occurs?

Accepted Answer

Total production and total employment decrease.

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

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