Economics – 192– GDP

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1. The inflation rate is the expenditure on the economy’s output of goods

a. absolute change in real GDP from one period to and services.
another. b. Money continuously flows from households to
firms and then back to households, and GDP
b. percentage change in real GDP from one period
measures this flow of money.
to another.
c. GDP is generally regarded as the best single
c. absolute change in the price level from one period measure of a society’s economic well-being.
to another. d. All of the above are correct.
d. percentage change in the price level from one
7. In computing GDP, market prices are used
period to another.
to value final goods and services because
2. Changes in nominal GDP reflect
a. market prices do not change much over time, so
a. only changes in prices. it is easy to make comparisons between years.
b. only changes in the amounts being produced. b. market prices reflect the values of goods and
c. both changes in prices and changes in the services.
amounts being produced. c. if market prices are out of line with how people
d. neither changes in prices nor changes in the value goods, the government sets price ceilings
amounts being produced. and price floors.
3. When economists talk about growth in the d. None of the above is correct; market prices are
economy, they measure that growth as not used in computing GDP.
the 8. Which of the following statements is
a. absolute change in nominal GDP from one period correct?
to another. a. The value of intermediate goods is always
b. percentage change in nominal GDP from one included in GDP.
period to another. b. The value of intermediate goods is included in
c. absolute change in real GDP from one period to GDP only if those goods were produced in the
another. previous year.
d. percentage change in real GDP from one period c. The value of intermediate goods is included in
to another. GDP only if those goods are added to firms’
4. Suppose the government passes a law inventories to be used or sold at a later date.
eliminating holidays and, as a result, the d. The value of intermediate goods is never included
production of goods and services in GDP.
increases because people work more 9. Consider two cars manufactured by
days per year (and thus enjoy less leisure Chevrolet in 2007. During 2007, Chevrolet
per year). Based on this scenario, which sells one of the two cars to Sean for
of the following statements is correct? $24,000. Later in the same year, Sean
a. GDP would definitely increase, despite the fact sells the car to Kati for $19,000. The
that GDP includes leisure. second automobile, with a market value of
b. GDP would definitely increase because GDP $30,000, is unsold at the end of 2007 and
excludes leisure. it remains in Chevrolet’s inventory. The
c. GDP could either increase or decrease because transactions just described contribute
GDP includes leisure. how much to GDP for 2007?
d. GDP could either increase or decrease because a. $24,000
GDP excludes leisure. b. $43,000
5. Otherwise legal transactions that go c. $54,000
unreported or unrecorded are called d. $73,000
a. the underground economy. 10. GDP and GNP are related as follows:
b. the shadow economy. a. GNP = GDP + Value of exported goods - Value of
c. the informal economy. imported goods.
d. All of the above are correct. b. GNP = GDP - Value of exported goods + Value of
6. Which of the following statements about imported goods.
GDP is correct? c. GNP = GDP + Income earned by foreigners in the
U.S. - Income earned by U.S. citizens abroad.
a. GDP measures two things at once: the total
income of everyone in the economy and the total d. GNP = GDP - Income earned by foreigners +
Income earned by Country citizens abroad.
 11. In the economy of Wrexington in 2008, goods that they produce for themselves.
consumption was $5000, exports were For example, busy people with high
$100, government purchases were $900, incomes, rather than cleaning their own
imports were $200, and investment was houses, hire people to clean their houses.
$1000. What was Wrexington’s GDP in By itself, this change has
2008? a. caused measured GDP to fall.
a. $6700 b. not caused any change in measured GDP.
b. $6800 c. caused measured GDP to rise.
c. $7000 d. probably changed measured GDP, but in an
d. $7200 uncertain direction; the direction of the change
12. In the economy of Wrexington in 2008, depends on the difference in the quality of the
cleaning that has resulted.
consumption was $200, exports were $50,
GDP was $325, government purchases 14. If a state made a previously-illegal activity,
were $100, imports were $125, and such as gambling or prostitution, legal,
investment was $100. What were then, other things equal, GDP
Wrexington’s net exports in 2008? a. necessarily decreases.
a. -$75 b. necessarily increases.
b. -$50 c. doesn't change because both legal and illegal
c. $50 production are included in GDP.
d. $75 d. doesn't change because these activities are never
included in GDP.
13. Over time, people have come to rely more
on market-produced goods and less on

15. Given an economy with two products, 2018 is a base year, find the following items. Give your
comments.
2018 2019 2020
Q P Q P Q P
Rice 1000 5 1200 6 1000 7
Computer 200 200 220 220 240 240

Nominal GDP

Real GDP

Real Growth

Cost of Basket

CPI

Inflation (CPI)

Deflator

Inflation (deflator)