$$GDP\ deflator = 100 \times \frac{15,000}{14,000} = 107.14$$

$$Inflation\ rate = 100 \times \frac{121 - 110}{110} = 10\%$$

Question 1

Which of the following best describes what Gross Domestic Product (GDP) measures?

Accepted Answer

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

Question 2

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

Accepted Answer

A U.S. company produces and sells new computers in California.

Question 3

Which component of GDP would be directly affected if the government builds a new highway?

Accepted Answer

Government Purchases (G)

Question 4

Suppose Sarah spends $1800 on a new laptop for her publishing business. The laptop was built in China. How does this transaction affect U.S. GDP?

Accepted Answer

Investment increases by $$1800, Net Exports decrease by 1800$$, GDP is unchanged.

Question 5

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

Accepted Answer

The value of housework performed by a homeowner for themselves.

Question 6

If nominal GDP in 2024 is $$15,000 and real GDP in 2024 (using 2023 as the base year) is 14$$,000, what is the GDP deflator for 2024?

Accepted Answer

$$GDP\ deflator = 100 	imes \frac{15,000}{14,000} = 107.14$$

Question 7

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

Accepted Answer

GDP does not account for environmental degradation or income distribution.

Question 8

If the GDP deflator rises from 110 to 121 between 2024 and 2025, what is the inflation rate for this period?

Accepted Answer

$$Inflation\ rate = 100 	imes \frac{121 - 110}{110} = 10\%$$

Question 9

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 10

If General Motors produces $$500 million worth of cars but only sells 470 $$million worth, how is the remaining $30 million accounted for in GDP?

Accepted Answer

It is counted as an increase in inventories under Investment (I).

Question 11

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

Accepted Answer

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

Question 12

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

Accepted Answer

A U.S. company sells software to a firm in Germany.

Question 13

Which of the following is an example of a government transfer payment, and how is it treated in GDP calculations?

Accepted Answer

A Social Security payment; it is excluded from GDP.

Question 14

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 15

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 non-market activities such as home childcare.

Measuring Economic Activity: GDP and Its Components

Study Guide - Practice Questions