Q: Suppose a country produces only two goods: apples and computers. In 2020, it produced 100 apples at $$1 each and 10 computers at 500 $$each. In 2021, it produced 120 apples at $$2 each and 12 computers at 600 $$each. What is the real GDP for 2021 using 2020 as the base year?

$$(120 \times 1) + (12 \times 500) = 120 + 6000 = 6120$$

Q: If nominal GDP in 2022 is $$20,000$$ and real GDP in 2022 (using 2010 as the base year) is $$16,000$$, what is the GDP deflator for 2022?

$$\frac{20,000}{16,000} \times 100 = 125$$

Question 1

Which of the following best describes the circular flow model in macroeconomics?

Accepted Answer

It shows how money and goods flow between households and firms, with households providing factors of production and purchasing goods and services, while firms pay for factors and sell goods.

Question 2

Which of the following is included in the calculation of Gross Domestic Product (GDP)?

Accepted Answer

The purchase of a newly constructed house by a family.

Question 3

Suppose a country produces only two goods: apples and computers. In 2020, it produced 100 apples at $$1 each and 10 computers at 500 $$each. In 2021, it produced 120 apples at $$2 each and 12 computers at 600 $$each. What is the real GDP for 2021 using 2020 as the base year?

Accepted Answer

$$(120 	imes 1) + (12 	imes 500) = 120 + 6000 = 6120$$

Question 4

Which of the following best explains why intermediate goods are excluded from GDP calculations?

Accepted Answer

To avoid double counting, since their value is already included in the value of final goods.

Question 5

If nominal GDP in 2022 is $$20,000$$ and real GDP in 2022 (using 2010 as the base year) is $$16,000$$, what is the GDP deflator for 2022?

Accepted Answer

$$\frac{20,000}{16,000} 	imes 100 = 125$$

Question 6

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

Accepted Answer

Transfer payments such as Social Security benefits.

Question 7

A country has the following data for a given year: Consumption = $$8,000$$, Investment = $$2,000$$, Government Purchases = $$3,000$$, Exports = $$1,500$$, Imports = $$2,500. $$What is the GDP?

Accepted Answer

$$8,000 + 2,000 + 3,000 + (1,500 - 2,500) = 12,000$$

Question 8

Which of the following best describes the difference between nominal GDP and real GDP?

Accepted Answer

Nominal GDP is measured in current prices, while real GDP is adjusted for changes in the price level.

Question 9

Which of the following would increase a country's net exports?

Accepted Answer

An increase in exports with imports remaining constant.

Question 10

If a country experiences a trade deficit, which of the following is true?

Accepted Answer

The value of imports exceeds the value of exports.

Question 11

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

Accepted Answer

A bakery buys flour for $$100 and sells bread for 300$$; the value added by the bakery is $200.

Question 12

Which of the following best describes depreciation in the context of GDP accounting?

Accepted Answer

It is the reduction in the value of capital goods due to wear and tear or obsolescence.

Question 13

Personal disposable income is best defined as:

Accepted Answer

Personal income minus income taxes.

Question 14

During a recession, which of the following typically occurs?

Accepted Answer

Real GDP declines for at least six consecutive months.

Question 15

Which of the following is a shortcoming of using GDP as a measure of welfare?

Accepted Answer

It does not account for non-market activities such as household work and childcare.

Question 16

If a country’s gross investment is $$500$$ and depreciation is $$200$$, what is its net investment?

Accepted Answer

$$500 - 200 = 300$$

Question 17

Which of the following would be counted in the calculation of U.S. GDP for 2023?

Accepted Answer

A new car produced in Michigan in 2023 and sold to a Canadian buyer.

Question 18

Which of the following equations correctly represents the expenditure approach to calculating GDP?

Accepted Answer

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

Question 19

If the GDP deflator increases from 110 to 120 between two years, what does this indicate?

Accepted Answer

The overall price level of goods and services included in GDP has increased.

Measuring a Nation’s Product and Income: Macroeconomic Concepts and Applications

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