$$100 \times \frac{10,000}{8,000} = 125$$

$$100 \times \frac{126 - 120}{120} = 5\%$$

Question 1

Which of the following best describes what GDP measures in an economy?

Accepted Answer

The market value of all final goods and services produced within a country in a given period of time.

Question 2

In the circular-flow diagram, which of the following is NOT explicitly included?

Accepted Answer

The government sector collecting taxes and buying goods and services.

Question 3

Which of the following transactions would be included in the calculation of U.S. GDP for 2025?

Accepted Answer

A U.S. resident purchases a new car produced in the U.S. in 2025.

Question 4

Which of the following is an example of an intermediate good?

Accepted Answer

A tire sold to a car manufacturer for use in a new car.

Question 5

Suppose nominal GDP in 2023 is $$10,000 and real GDP in 2023 is 8$$,000. What is the GDP deflator for 2023?

Accepted Answer

$$100 	imes \frac{10,000}{8,000} = 125$$

Question 6

Which of the following is NOT included in the 'Investment' component of GDP?

Accepted Answer

The purchase of stocks and bonds.

Question 7

If a U.S. consumer buys a laptop produced in China, how does this affect U.S. GDP and its components?

Accepted Answer

Consumption increases, Net Exports decrease, GDP is unchanged.

Question 8

Which of the following best explains why GDP is not a perfect measure of economic well-being?

Accepted Answer

GDP does not account for the value of leisure or non-market activities.

Question 9

If nominal GDP increases by 10% and the GDP deflator increases by 4%, what is the approximate percentage increase in real GDP?

Accepted Answer

6\%

Question 10

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

Accepted Answer

The city of Boston pays a contractor to build a new bridge.

Question 11

Suppose the GDP deflator was 120 in 2024 and 126 in 2025. What was the inflation rate between 2024 and 2025?

Accepted Answer

$$100 	imes \frac{126 - 120}{120} = 5\%$$

Question 12

Which of the following would cause both U.S. GDP and investment (I) to increase?

Accepted Answer

A U.S. firm builds a new factory in Texas.

Question 13

Why are imports subtracted when calculating GDP using the expenditure approach?

Accepted Answer

Because imports are included in consumption, investment, and government purchases but are not produced domestically.

Question 14

Which of the following is an example of a non-market activity not included in GDP?

Accepted Answer

A parent caring for their own child at home.

Question 15

If a firm produces $$500 million worth of cars but only sells 470 $$million, how is the unsold inventory accounted for in GDP?

Accepted Answer

It is counted as investment.

Question 16

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

Accepted Answer

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

Question 17

Which of the following would NOT be included in the calculation of U.S. GDP?

Accepted Answer

A U.S. company produces shoes in Vietnam and sells them in Europe.

Question 18

Which of the following is a limitation of using GDP as a measure of economic well-being, according to Joseph Stiglitz?

Accepted Answer

GDP does not account for environmental degradation.

Question 19

If real GDP per capita increases, which of the following is most likely true?

Accepted Answer

The average standard of living in the country has improved.

Question 20

Which of the following best explains why GDP only includes final goods and not intermediate goods?

Accepted Answer

To avoid double counting the value of goods.

Measuring Economic Activity: GDP and Its Components

Study Guide - Practice Questions