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

Suppose Bob the Lumberjack sells a log to Lumber Co for $$1, Lumber Co sells plywood to Christine for 10$$, and Christine sells a finished cornhole board for $100. What is the contribution to GDP from these transactions?

Accepted Answer

$100

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 a country’s consumption expenditure is $$500 billion, investment is 200 $$billion, government expenditure is $$300 billion, exports are 100 $$billion, and imports are $150 billion, what is its GDP?

Accepted Answer

$$950$$ billion

Question 7

Which of the following best describes the difference between gross investment and net investment?

Accepted Answer

Net investment equals gross investment minus depreciation.

Question 8

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

Accepted Answer

The government builds a new highway.

Question 9

If U.S. exports are $$300 billion and imports are 400 $$billion, what are net exports?

Accepted Answer

$$-100$$ billion

Question 10

Which of the following is the best definition of nominal GDP?

Accepted Answer

The value of final goods and services produced in a given year, valued at the prices of that year.

Question 11

Why is real GDP preferred over nominal GDP when comparing economic output over time?

Accepted Answer

Real GDP controls for changes in prices, allowing for a more accurate comparison of output.

Question 12

If real GDP in a country is $20 trillion and the population is 250 million, what is real GDP per person?

Accepted Answer

$$80,000$$

Question 13

Which of the following best describes potential GDP?

Accepted Answer

The highest level of GDP that is sustainable in the long run, given available factors of production.

Question 14

During which phase of the business cycle does real GDP reach a temporary high point?

Accepted Answer

Peak

Question 15

Why is real GDP per person at purchasing power parity (PPP) a better measure for comparing living standards across countries than real GDP per person at market exchange rates?

Accepted Answer

PPP adjusts for differences in price levels between countries.

Question 16

Which of the following is a limitation of using real GDP as a measure of economic well-being?

Accepted Answer

It does not account for household production or underground economic activity.

Question 17

Suppose the following data for a country: $$C = 400$$, $$I = 100$$, $$G = 200$$, $$X = 50$$, $$M = 70. If $$aggregate income $$Y is $$unknown, what is the value of $$Y$$?

Accepted Answer

$$Y = 400 + 100 + 200 + 50 - 70 = 680$$

Question 18

Which of the following would cause GDP to understate the true level of production in an economy?

Accepted Answer

A large amount of household production and underground economic activity.

Question 19

A Big Mac costs $$5.79 in the US and 26.50 yuan in China (about 3.95 at $$the market exchange rate). What does this example illustrate about comparing GDP across countries?

Accepted Answer

Differences in price levels can make market exchange rate comparisons misleading.

Question 20

Which of the following is an example of an expenditure that would be counted as investment (I) in GDP?

Accepted Answer

A delivery company purchases a new van for its fleet.

Monitoring the Value of Production: GDP – Principles of Macroeconomics Study Notes

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