GDP & Economic Growth

Review Questions

1. Let C represent consumption expenditure, S saving, I gross private domestic investment, G

government purchases of goods and services, and NX net exports of goods and services. Then GDP
equals
A) C + S + G + NX.
B) C + S + G – NX.
C) C + I + G + NX.
D) C + I + G – NX.

Government purchases of goods $240

and services
Depreciation 240
Gross private domestic investment 400
Personal income taxes 140
Net taxes 120
Net exports of goods and services 80
Personal consumption expenditures 640
Net interest 100
2. From the data in the above table, GDP equals GDP = C+I+G+(X-M)
A) $1,120.
B) $1,280.
C) $1,290.
D) $1,360.

3. Suppose that nominal GDP is $21,000 in 2002, the 1998 GDP deflator is 100, and the 2002
deflator is 105. The approximate real GDP in 2002 is
A) $20,000.
B) $21,000. Deflator = (Nominal GDP / Real GDP)X 100
C) $19,048.
105 = 21000 / Real GDP
D) $22,050.
Real GDP = 21000/1.05 = 20000
 A)

Real GDP= ∑ Q current Period X Prices Base Period

2010 base 2019 Real GDP Nominal GDP

2019 2019

Item Quantity Price Quantity Price

Movie 3 4X5 =20 4*7.5=30

tickets $5.00 $7.50
4

Bags of 5 2X3 = 6 2X3 =6

popcorn $3.00 $3.00
2

Drinks 2 4X1 =4 4X1.5 =6

of soda $1.00 $1.50
4

30 42

Calculate the real GDP in year

6. Which of the following is NOT included in real GDP? 2019...

A) Production of services, such as the services of doctors.

B) Production of goods that last more than one year, such as television sets.
C) Production of goods that do not last more than one year, such as gasoline.
D) Production in the home.

4. Which of the following is NOT a reason that real GDP is a poor measure of a nation’s economic
welfare?
 A) Real GDP omits measures of political freedom.
B) Real GDP does not take into account the value of people’s leisure time.
C) Real GDP does not include the underground economy.
D) Real GDP overvalues household production.

5. The underground economy exists for all of the following reasons EXCEPT the
A) production of illegal goods.
B) avoidance of taxes.
C) desire to maintain accurate records of economic transactions.
D) avoidance of government regulation.

6. All of the following household expenditures are included in consumption expenditure EXCEPT
A) payment to a dentist for filling a tooth.
B) purchase of corporate stock.
C) purchase of a new purse.
D) purchase of hair styling.