$$ GDP\ deflator = \frac{7800}{6680} \times 100 = 116.8 $$

$$ \frac{109.0 - 108.8}{108.8} \times 100 = 0.18\% $$

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 period of time, 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 the value of intermediate goods is already included in the value of final goods.

Question 3

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

Accepted Answer

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

Question 4

Which of the following transactions would be included in Canada’s GDP for 2023?

Accepted Answer

A new house built and sold in Toronto in 2023.

Question 5

Which formula correctly represents the expenditure approach to calculating GDP?

Accepted Answer

$$ Y = C + I + G + Nx $$

Question 6

If nominal GDP in 2023 is $$7800 and real GDP (using 2012 as the base year) is 6680$$, what is the GDP deflator for 2023?

Accepted Answer

$$ GDP\ deflator = \frac{7800}{6680} 	imes 100 = 116.8 $$

Question 7

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

Accepted Answer

GDP does not account for the value of leisure time.

Question 8

A country’s GDP per capita increases, but pollution and crime rates also rise. What does this scenario illustrate about GDP?

Accepted Answer

GDP does not account for negative externalities or social problems.

Question 9

If the GDP deflator rises from 108.8 to 109.0 between 2019 and 2020, what is the inflation rate for that period?

Accepted Answer

$$ \frac{109.0 - 108.8}{108.8} 	imes 100 = 0.18\% $$

Question 10

Which of the following best explains why GDP growth may exaggerate the increase in actual total production over long periods?

Accepted Answer

Because some household production is replaced by paid services, which are counted in GDP.

Question 11

Which of the following is NOT included in the calculation of Canada’s GDP?

Accepted Answer

A Canadian firm’s production in France.

Question 12

Suppose in 2023, Canada’s nominal GDP increased by 5% and the GDP deflator increased by 2%. What is the approximate growth rate of real GDP?

Accepted Answer

3%

Question 13

Which of the following best describes the informal economy?

Accepted Answer

Economic activity that is not reported to the government to avoid taxes or regulations.

Question 14

If Statistics Canada finds a statistical discrepancy between the income and expenditure approaches to GDP, what do they do?

Accepted Answer

They split the difference, adding half to the lower estimate and subtracting half from the higher estimate.

Question 15

Which of the following is an example of value added in the production process?

Accepted Answer

The difference between the value of a finished diamond ring and the cost of the raw diamond and other inputs.

Question 16

Which of the following is NOT a component of the expenditure approach to GDP?

Accepted Answer

Transfer payments (T)

Question 17

If Canada legalizes a previously illegal market (such as recreational cannabis), what is the likely effect on measured GDP?

Accepted Answer

Measured GDP will increase because previously uncounted economic activity is now included.

Question 18

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

Accepted Answer

Real GDP is adjusted for changes in the price level, isolating changes in actual production.

Question 19

Which of the following would cause nominal GDP to increase but not real GDP?

Accepted Answer

An increase in the price level with no change in output.

Question 20

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

Accepted Answer

It does not account for the distribution of income within a country.

GDP: Measuring Total Production and Income – Chapter 4 Study Notes

Study Guide - Practice Questions