$$GDP\ deflator = \frac{20,000}{18,000} \times 100 = 111.1$$

Question 1

Which component of GDP is best represented by the first image (government building with money flowing out)?

Accepted Answer

Government Purchases (G)

Question 2

The second image (clothes, burger, ticket, book, syringe, car) best illustrates which GDP component?

Accepted Answer

Consumption (C)

Question 3

Which formula correctly represents the expenditure approach to calculating GDP?

Accepted Answer

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

Question 4

The third image (laptop, boxes, construction, factory) best represents which GDP component?

Accepted Answer

Investment (I)

Question 5

The fourth image (globe with boat and airplane) best represents which GDP component?

Accepted Answer

Net Exports (NX)

Question 6

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

Accepted Answer

Welfare payments to individuals

Question 7

If a country exports $$500$$ million worth of goods and imports $$400$$ million, what is its Net Exports (NX)?

Accepted Answer

$$NX = 100$$ million

Question 8

Which image best represents the concept of non-market production, which is a shortcoming of GDP?

Accepted Answer

Image 11 (person cooking at home)

Question 9

Which image best represents the underground economy, another shortcoming of GDP?

Accepted Answer

Image 12 (person selling goods secretly)

Question 10

Which image best represents a negative byproduct of production, not captured by GDP?

Accepted Answer

Image 13 (factory with pollution)

Question 11

If nominal GDP in 2018 is $$20,000$$ and real GDP in 2018 (base year 2010) is $$18,000$$, what is the GDP deflator for 2018?

Accepted Answer

$$GDP\ deflator = \frac{20,000}{18,000} 	imes 100 = 111.1$$

Question 12

Which of the following best describes the value-added approach to GDP?

Accepted Answer

Summing the value added at each stage of production for all final goods and services

Question 13

Which image best represents leisure, a factor not captured by GDP?

Accepted Answer

Image 9 (person relaxing with a book and coffee)

Question 14

Which of the following is a reason why GDP may not accurately reflect a nation's well-being?

Accepted Answer

GDP does not account for the distribution of income

Question 15

If a bakery buys flour for $$5$$ and sells bread for $$7.50$$, what is the value added by the bakery?

Accepted Answer

$$2.50$$

Question 16

During a recession, what typically happens to unemployment and inflation?

Accepted Answer

Unemployment rises, inflation falls

Question 17

Which of the following is an example of a durable good?

Accepted Answer

A car

Question 18

Which of the following is NOT a cause of business cycles?

Accepted Answer

Changes in the weather

Question 19

Which image best represents the distribution of income, a shortcoming of GDP?

Accepted Answer

Image 8 (one person with money, one without)

Question 20

Which of the following is included in the calculation of GDP using the income approach?

Accepted Answer

Corporate profits

Measuring a Nation's Production and Income: GDP and Its Components

Study Guide - Practice Questions