$$\text{GDP per capita} = \frac{\text{GDP}}{\text{Population}}$$

$$\frac{112 - 110}{110} \times 100 = 1.82\%$$

Question 1

Which of the following best describes the business cycle?

Accepted Answer

Alternating periods of economic expansion and recession.

Question 2

Suppose a Canadian firm produces mountain bikes and sells them to a retailer in the United States. How is this transaction reflected in Canada’s GDP?

Accepted Answer

It increases net exports and GDP.

Question 3

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

Accepted Answer

The value of housework performed by a homeowner.

Question 4

If Sarah spends $1800 on a new laptop for her business, and the laptop was built in China, what is the effect on Canada’s GDP?

Accepted Answer

Investment rises by $$1800, net exports fall by 1800$$, GDP is unchanged.

Question 5

Which formula correctly represents the expenditure approach to calculating GDP?

Accepted Answer

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

Question 6

What is the main difference between nominal GDP and real GDP?

Accepted Answer

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

Question 7

Which of the following would be considered an intermediate good in GDP calculation?

Accepted Answer

Paper purchased by a publisher to make textbooks.

Question 8

A country’s GDP per capita is calculated as:

Accepted Answer

$$	ext{GDP per capita} = \frac{	ext{GDP}}{	ext{Population}}$$

Question 9

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.

Question 10

If the GDP deflator increases from 110 to 112, what is the inflation rate?

Accepted Answer

$$\frac{112 - 110}{110} 	imes 100 = 1.82\%$$

Question 11

Which component of GDP would include spending on a new factory by a Canadian company?

Accepted Answer

Investment ($$I)$$

Question 12

Why does GDP not include transfer payments such as Social Security?

Accepted Answer

Because they are not payments for goods or services.

Question 13

If nominal GDP in 2014 is $$7800 and real GDP in 2014 (using 2007 prices) is 6680$$, what is the GDP deflator for 2014?

Accepted Answer

$$\frac{7800}{6680} 	imes 100 = 116.77$$

Question 14

Which of the following would cause GDP to decrease, even if well-being increases?

Accepted Answer

An economics professor retires and enjoys more leisure.

Question 15

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

Accepted Answer

A new highway built by the federal government.

Question 16

If a shirt is sold for $$30 and the value added by each firm in the production process sums to 30$$, what does this illustrate?

Accepted Answer

GDP can be measured by the sum of value added at each stage of production.

Question 17

Which of the following would NOT be counted as part of Canada’s GDP?

Accepted Answer

A Canadian company produces cars in Mexico.

Question 18

If the underground economy increases, what is the likely effect on measured GDP?

Accepted Answer

Measured GDP will underestimate actual production.

Question 19

Which of the following best explains why GDP is positively correlated with life expectancy and literacy?

Accepted Answer

Countries with higher GDP can afford better healthcare and education.

Question 20

If a consumer buys a pizza for $20, which GDP component does this transaction affect?

Accepted Answer

Consumption ($$C)$$

Measuring a Nation’s Income: Gross Domestic Product (GDP) and Its Components

Study Guide - Practice Questions