Q: Given the following data for 2020: Nominal GDP = $$2204.9$$ billion, Real GDP (2012 prices) = $$1988.7$$ billion. Calculate the GDP deflator for 2020.

$$\frac{2204.9}{1988.7} \times 100 = 110.8$$

Question 1

Which of the following best explains why value-added calculations are used when measuring GDP?

Accepted Answer

To avoid the problem of double counting by subtracting the cost of intermediate goods from sales revenue.

Question 2

A Canadian farmer pays $$100 for seeds and sells beets to a distributor for 1$$,000. The distributor sells the beets to a restaurant for $$1,300, and the restaurant sells beet salads for 2$$,500. What is the total value added to Canadian GDP from this production chain?

Accepted Answer

$2,400

Question 3

Which of the following transactions would be included in the 'Investment' (I) component of GDP using the expenditure approach?

Accepted Answer

A firm purchases new machinery for its factory.

Question 4

Given the following data for 2020: Nominal GDP = $$2204.9$$ billion, Real GDP (2012 prices) = $$1988.7$$ billion. Calculate the GDP deflator for 2020.

Accepted Answer

$$\frac{2204.9}{1988.7} 	imes 100 = 110.8$$

Question 5

Which of the following is NOT included in the calculation of GDP using the income approach?

Accepted Answer

Interest paid by government on its debt

Question 6

If a Canadian retailer imports $$400,000 worth of toys from China and sells them for 1 $$million, what is the value added to Canadian GDP?

Accepted Answer

$$600,000$$

Question 7

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

Accepted Answer

Real GDP is measured using base-year prices, while nominal GDP uses current prices.

Question 8

Suppose the GDP deflator increases from 100 to 110 over one year. What does this indicate?

Accepted Answer

The average price level of all goods and services has increased by 10%.

Question 9

Which of the following is an example of a government purchase (G) in the expenditure approach to GDP?

Accepted Answer

The government pays salaries to public school teachers.

Question 10

Why must the three approaches to measuring GDP (expenditure, income, and value-added) yield the same result?

Accepted Answer

Because all value added in production is ultimately paid out as income and spent on final goods and services.

Question 11

Which of the following is omitted from official measures of GDP?

Accepted Answer

Home production such as unpaid housework

Question 12

Aunt Jane buys a new house. Which GDP expenditure component is affected and how?

Accepted Answer

Investment increases

Question 13

If you buy a new Ford Mustang that was manufactured in the prior year, how does this transaction affect current GDP?

Accepted Answer

It does not affect current GDP.

Question 14

Which of the following best explains why imports are subtracted in the net exports calculation for GDP?

Accepted Answer

Because imports are not produced domestically and are already included in C, I, and G.

Question 15

Using the income approach, which of the following is added to net domestic income at factor cost to arrive at GDP?

Accepted Answer

Depreciation and indirect taxes less subsidies

Question 16

If the GDP deflator in 2010 is 95.7 and in 2015 is 102.8, what is the percentage increase in the price level over this period?

Accepted Answer

$$\frac{102.8 - 95.7}{95.7} 	imes 100 \approx 7.4\%$$

Question 17

Which of the following best describes the GDP deflator?

Accepted Answer

It is the ratio of nominal GDP to real GDP, multiplied by 100.

Question 18

Which of the following would NOT be counted as part of GDP using the expenditure approach?

Accepted Answer

A used car sold by a private individual

Question 19

If the government increases its purchases of goods and services by $100 billion, what is the immediate effect on GDP, all else equal?

Accepted Answer

GDP increases by $100 billion.

Question 20

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

Accepted Answer

GDP does not account for leisure, home production, or the underground economy.

Measuring National Income and Output: GDP Concepts and Methods

Study Guide - Practice Questions

Study Guide - Flashcards