ECON 121 Fall 2018 Loujaina Abdelwahed

Worksheet 2 : GDP

Question 1: Indicate how the following activities will affect the current year’s GDP:
You need to say if they affect the current year’s GDP or not, and if yes, which component of
the GDP they affect (C, I, G, or NX)
1. You sold a 10-year-old used car for $2000
2. You teaches English in China, and you receive $1000 of income
3. A Chinese teacher who teaches Chinese in the U.S, and receives $500 of income that he
spends on rent.
4. Your mum bought a vintage vase that was made in 1820s.
5. IBM sold some of its inventory that was manufactured in December 2016 to the Mexican
government.
6. The government gives food vouchers to families with annual income that is less the
$10,000.
7. American Airlines buying a new aircraft.
8. Mr X donates $500 to his town’s junior college scholarship fund
9. Mr Y pays $500 to fix the front end of his car that was damaged in a recent accident
10. Mr Z pays $5,000 to purchase shares of Microsoft stocks

Question 2: Multiple Choice Questions:

1. If you want to measure whether output of an economy was increasing or decreasing across
time periods, you would use the real GDP rather than the nominal GDP because
a. Exports are excluded from real GDP but not nominal
b. Real GDP incorporates the impact of federal budget deficits and surpluses, but nominal
GDP does not
c. Real GDP reflects the impact of transfer payments on the economy, but nominal GDP
does not
d. Real GDP adjusts for changes in the general level of prices, but nominal GDP does not

2. When comparing nation's economic position with other one should see its
a. Nominal GDP
b. Real GDP
c. Nominal Per Capita GDP
d. Real Per Capita GDP
e. Currency in circulation
f. None of the above

3. Which of the following is true about gross domestic product?

a. It includes output at all stages of production (that is, intermediate goods as well as final
goods).
b. It is expressed in terms of physical quantities, not values.
c. It includes services as well as goods.
d. All of the above
ECON 121 Fall 2018 Loujaina Abdelwahed

4. In the economy described in the table, real GDP for year 3 is

Year Nominal GDP Price Index

1 $550 $140
2 560 135
3 576 120
4 586 117
5 604 108
a. $512.
b. $428.
c. $480.
d. $691.

5. Suppose nominal GDP increased by 2% during a given year, but real GDP decreased by 3%.
Which of the following best explains this event?
a. The money supply decreased by approximately 5%.
b. Price fell by approximately 5%
c. Prices increased by approximately 5%
d. The real productive capacity of the economy decreased by 5%.

6. An economy starts the year with $1 million worth of capital. During the year, gross
investment is $150,000 and depreciation is $50,000. How big is the economy’s capital stock
at the end of the year?
a. $1,150,000
b. $1,100,000
c. $1,000,000
d. $850,000
e. $800,000

7. Which of the following would increase the US GDP?

a. The city government of New York buying filing cabinets from Mexico
b. A Mexican citizen buys a stock in an American company
c. A Japanese automobile company produces cars in the US
d. A US automobile company produces cars in a foreign country

8. Underground activity:
a. includes illegal activity.
b. includes activity not reported in order to evade taxes.
c. is sizable for many countries.
d. all of the above.

9. Consumer purchases of GDP include consumer purchases of:

a. durable goods.
b. non-durable goods.
c. services.
d. all of the above.
ECON 121 Fall 2018 Loujaina Abdelwahed

10. If the base year of the GDP deflator is year 2000 and the value of the GDP deflator in 2003
was 107. This indicates that
a. Was approximately 7 percent lower in 2003 than in 2000
b. Declined between 2000 and 2003
c. Was approximately 7% higher in 2003 than 2000
d. Was approximately 107% higher in 2003 than 2000

11. Suppose the GDP = $100 million. If personal consumption is $80 million, gross private
investment is $15 million, government spending is $10 million and government transfer
payments are $10 million, then net exports must equal to
a. $-15 million
b. $-5 million
c. 0
d. $ 5 million
e. $ 15 million

12. The income of an American pilot who works for Emirates Airlines is counted in the US GDP
and in the Emirati GNP
a. True
b. False

13. A firm purchases $600,000 worth of raw materials and pays wages and salaries of $100,000
and dividends of $200,000. If the firm sells its output for $1 million, then the firm’s value
added to GDP is:
a. $300,000
b. $400,000
c. $900,000
d. $1,000,000
ECON 121 Fall 2018 Loujaina Abdelwahed

Question 3: Country A produces only three types of goods: bananas, cars, and coconut. In the
base year, the production and price data were as follows:
Good Quantity Price per unit
Bananas 4000 pounds $0.1
Cars 1000 car $10,000
Coconuts 500 bags $10

In the current year, the price and production are as follows:

Good Quantity Price per unit
Bananas 6000 pounds $0.2
Cars 2000 car $10,500
Coconuts 100 bags $5

a. What is the Nominal GDP of base year and of the current year?
b. What is the Real GDP of base year and the current year?
c. Compute the growth rate of nominal GDP
d. Compute the growth rate of real GDP

Question 4: Below is the US GDP in consecutive 3 years. Fill in the table:

Year Nominal GDP GDP Deflator Real GDP
2013 $16.663 106.93
2014 $17.348 $15.962
2015 109.77 $16.349

Compute the nominal growth rate of this economy in 2014 and 2015
Compute the real growth rate of this economy in 2014 and 2015. Comment on the
differences.

Question 5: Assume that a grower of flower bulbs sells its annual output of bulbs to an internet
retailer for $70,000. The retailer in turn brings in $160,000 from selling the bulbs directly to
customers. What amount would these two transactions add to the GDP of the year?