$$\frac{118-110}{110} \times 100 = 7.27\%$$

$$\frac{7,800}{130} \times 100 = 6,000$$

Question 1

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

Accepted Answer

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

Question 2

Suppose a U.S. company manufactures cars in Mexico and sells them in the United States. How is this production counted in GDP?

Accepted Answer

It is included in Mexican GDP because the production occurs in Mexico.

Question 3

Which of the following transactions would NOT be included in the calculation of GDP?

Accepted Answer

A person sells a used laptop to another person through an online marketplace.

Question 4

If the GDP deflator increases from 110 to 118 between two years, what is the percentage increase in the overall price level?

Accepted Answer

$$\frac{118-110}{110} 	imes 100 = 7.27\%$$

Question 5

Which component of GDP is affected when a state government builds a new highway?

Accepted Answer

Government purchases

Question 6

Why are intermediate goods excluded from GDP calculations?

Accepted Answer

Their value is already included in the value of final goods.

Question 7

Which formula correctly expresses GDP using the expenditure approach?

Accepted Answer

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

Question 8

A business purchases cardboard boxes for shipping its products. How is this transaction treated in GDP calculations?

Accepted Answer

It is not counted directly, as it is an intermediate good.

Question 9

Which of the following is a shortcoming of GDP as a measure of well-being?

Accepted Answer

GDP does not account for the value of leisure.

Question 10

If nominal GDP in 2025 is $7,800 and the GDP deflator is 130, what is real GDP for 2025?

Accepted Answer

$$\frac{7,800}{130} 	imes 100 = 6,000$$

Question 11

Which of the following would increase GDP but might not improve economic well-being?

Accepted Answer

A rise in crime leading to increased spending on security services.

Question 12

Which of the following best explains why GDP per capita may exaggerate increases in actual production over long periods?

Accepted Answer

Household production is increasingly replaced by paid services.

Question 13

Which of the following is considered investment in GDP calculations?

Accepted Answer

A business purchases new delivery trucks.

Question 14

If a country has a large informal sector, what is a likely consequence for its measured GDP?

Accepted Answer

Measured GDP will underestimate actual total production.

Question 15

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

Accepted Answer

Social Security payments; not included in GDP.

Question 16

Suppose the value of exports is $$500 billion and the value of imports is 600 $$billion. What is the value of net exports?

Accepted Answer

$$500 - 600$$ = -$$100$$ billion

Question 17

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

Accepted Answer

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

Question 18

Which of the following would be considered a shortcoming of GDP as a measure of total production?

Accepted Answer

It omits household production such as childcare and cleaning.

Question 19

If the GDP deflator in 2024 is 127 and in 2025 is 135, what is the inflation rate between these years?

Accepted Answer

$$\frac{135-127}{127} 	imes 100 = 6.30\%$$

Measuring Total Production and Income: Principles of Macroeconomics (ECON 1104, Chapter 8)

Study Guide - Practice Questions