Question 1

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

Accepted Answer

The market value of all final goods and services produced within a country during a year.

Question 2

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

Accepted Answer

A used house sold to a new owner.

Question 3

GDP can be measured using the expenditure approach. Which equation correctly represents this approach?

Accepted Answer

$$GDP = C + I + G + NX$$

Question 4

Which of the following is an example of 'Investment' (I) in the GDP expenditure categories?

Accepted Answer

A company building a new factory.

Question 5

Why is GDP not a perfect measure of economic well-being?

Accepted Answer

All of the above.

Question 6

Suppose the price of butter in 2012 was $$2 and 30 units were produced, while in 2026 the price was 4 $$and 40 units were produced. If 2012 is the base year, what is the real GDP for butter in 2026?

Accepted Answer

$$2 	imes 40 = 80$$

Question 7

Which of the following would be counted in the 'Government Purchases' (G) component of GDP?

Accepted Answer

A government pays for the construction of a new bridge.

Question 8

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

Accepted Answer

Either the quantity produced, prices, or both increased.

Question 9

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 10

The underground economy is excluded from GDP calculations. Which of the following best describes the underground economy?

Accepted Answer

Goods and services that are illegal or concealed from the government.

Question 11

Which of the following best explains why real GDP is a better measure of economic output over time than nominal GDP?

Accepted Answer

Real GDP is adjusted for inflation, while nominal GDP is not.

Question 12

If a country’s GDP increases but its Gini index also increases, what does this imply?

Accepted Answer

The country’s income distribution is becoming more unequal.

Question 13

Which of the following transactions would increase U.S. net exports (NX)?

Accepted Answer

A U.S. company sells tractors to a firm in Brazil.

Question 14

Which of the following is true about the relationship between GDP and GDI?

Accepted Answer

GDP and GDI should be equal in theory, but may differ due to measurement errors.

Question 15

A country produces only two goods: guns and butter. In 2012 (base year), the price of butter is $$2 and 30 units are produced; the price of guns is 5 $$and 80 units are produced. In 2026, the price of butter is $$4 and 40 units are produced; the price of guns is 6 $$and 100 units are produced. What is the nominal GDP in 2026?

Accepted Answer

$$(4 	imes 40) + (6 	imes 100) = 160 + 600 = 760$$

Question 16

Which of the following would NOT be considered a final good in GDP calculations?

Accepted Answer

Steel purchased by a car manufacturer.

Question 17

If the government increases spending on infrastructure, which component of GDP is directly affected?

Accepted Answer

Government Purchases (G)

Question 18

Which of the following best describes why GDP does not measure how the 'pie is divided'?

Accepted Answer

GDP measures total production but not income distribution.

Question 19

If a country’s real GDP increases but its population grows faster, what happens to real GDP per capita?

Accepted Answer

Real GDP per capita decreases.

Gross Domestic Product (GDP): Measuring Total Production and Income

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