Question 1

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

Accepted Answer

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

Question 2

Why are only final goods and services included in the calculation of GDP?

Accepted Answer

To avoid double counting the value of intermediate goods.

Question 3

A lumberjack sells logs to a lumber company for $$1 each. The lumber company sells plywood made from those logs to a carpenter for 10. $$The carpenter uses the plywood to make a table, which is sold for $100. What amount is added to GDP from these transactions?

Accepted Answer

$100, because only the value of the final good (the table) is counted.

Question 4

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

Accepted Answer

A car produced in Mexico by a U.S. company.

Question 5

Which equation correctly represents the expenditure approach to calculating GDP?

Accepted Answer

$$GDP = C + I + G + X - M$$

Question 6

If consumption expenditure ($$C) is$$ $$5,000, investment (I$) is 2$$,000, government expenditure ($$G) is$$ $$1,500, exports (X$) are 1$$,000, and imports ($$M) $$are $1,200, what is GDP?

Accepted Answer

$$GDP = 5,000 + 2,000 + 1,500 + 1,000 - 1,200 = 8,300$$

Question 7

Which of the following is an example of investment ($$I) in $$the GDP calculation?

Accepted Answer

A delivery company buying a new van for its fleet.

Question 8

Gross investment differs from net investment because:

Accepted Answer

Gross investment includes both new and replacement capital, while net investment subtracts depreciation.

Question 9

If gross investment is $$500$$ and depreciation is $$200$$, what is net investment?

Accepted Answer

$$Net\ investment = Gross\ investment - Depreciation = 500 - 200 = 300$$

Question 10

Which of the following is an example of government expenditure ($$G) in $$GDP?

Accepted Answer

The government building a new school.

Question 11

If a country exports $$500$$ worth of goods and imports $$700$$, what are its net exports ($$X-M$$)?

Accepted Answer

$$Net\ exports = 500 - 700 = -200$$

Question 12

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

Accepted Answer

Nominal GDP values output at current prices, while real GDP values output at base-year prices.

Question 13

Why is real GDP per person a better measure of standard of living than nominal GDP?

Accepted Answer

It adjusts for both changes in price level and population size.

Question 14

Which of the following is a limitation of using real GDP to compare standards of living across countries?

Accepted Answer

Differences in price levels between countries can distort comparisons.

Question 15

What is the purpose of using purchasing power parity (PPP) when comparing GDP across countries?

Accepted Answer

To adjust for differences in price levels and better reflect actual living standards.

Question 16

Which of the following activities would NOT be counted in GDP?

Accepted Answer

A parent cooking dinner for their family at home.

Question 17

Which of the following is an example of underground economic activity?

Accepted Answer

A plumber being paid cash under the table to avoid taxes.

Question 18

Suppose real GDP in a country increases, but the population grows even faster. What happens to real GDP per person?

Accepted Answer

Real GDP per person decreases.

Question 19

Which of the following is NOT a reason why real GDP may understate the true standard of living?

Accepted Answer

It includes the value of all intermediate goods.

Monitoring the Value of Production: GDP (Gross Domestic Product)

Study Guide - Practice Questions

Study Guide - Flashcards