ECON 202 Chapter 6 Practice Questions & Formulas

GDP is not a perfect measure of social welfare and the society's economic well-being because a) it does not say anything about the distribution of income. b) GDP accounting rules do not adjust for production that causes negative externalities. c) it does not include all economic activities in the economy. d) all of the above. e) None of the above is correct.

All of the above (- does not say anything about distribution of income - GDP accounting rul.es does not adjust for production that causes negative externalities - does not include all economic activities in the economy )

Nominal GDP was $600 billion in 2005 and $800 billion in 2013. If prices doubled between 2005 and 2013, then: a) nominal GDP in 2005 must have been $300 billion. b) real 2005 GDP (in 2005 prices) was $400 billion. c) real 2005 GDP (in 2005 prices) was $300 billion. d) real 2013 GDP (in 2005 prices) was $400 billion. e) none of the above is correct.

real 2013 GDP (in 2005 prices) was $400 billion (Assuming year 2005 is the base year, the price index for 2005 = 100. If prices doubled between 2005 and 2013, then the price index for 2013 must be 200. Real 2005 GDP (in 2005 prices) = (nominal 2005 GDP/the price index for 2005)*100 = (600/100)*100 = $600 billion. Real 2013 GDP (in 2005 prices) = (nominal 2013 GDP/the price index for 2013)*100 = (800/200)*100 = $400 billion)

The value of what KFC produces in Japan is included in the U.S. ________ and in the Japanese ________. a) GDP; GDP b) GNP; GNP c) GNP; GDP d) GDP; GNP

GNP ; GDP (because it is a U.S. product sold internationally (GNP), and sold in Japan (contributing to Japan's GDP))

Real GDP

calculated using constant prices/dollars (adjusted for inflation) - Uses base years price and current years salary

Nominal GDP

measured in current dollars - price & quantity/production can go up, nominal still increases

GDP includes: a) the value of all intermediate goods and services. b) the value of all final goods and services. c) the value of both intermediate and final goods and services. d) the value of all transactions.

the value of all final goods & services

Assume that total output consists of 5 apples and 6 oranges and that apples cost $1 each while oranges cost $0.50 each. In this case, the value of GDP is: a) 11 pieces of fruit. b) $8. c) $10. d) $7.

$8 (5 + (0.50 x 6))

GDP Deflator Formula

(Nominal GDP/ Real GDP ) x100

According to the table above, the contribution to GDP from the production of a loaf of bread is:

0.75 (cause its the final value)

Assume that apples cost $0.50 in 2012 and $1 in 2020, whereas oranges cost $1 in 2012 and $1.50 in 2020. If 8 apples were produced in 2012 and 9 in 2020, while 4 oranges were produced in 2012 and 5 in 2020, then real GDP (in 2012 prices) in 2020 was : a) $9.50. b) $15. c)$6.50. d)$11. e)none of the above

$9.50

Per capita gross national income (GNI) decreases when a) GNI and the population increase at the same rate. b) GNI does not change and the population increases. c) GNI and the population decrease at the same rate. d) GNI increases and the population does not change.

GNI does not change and population increases (while more people are being born, less people are contributing to the economy)

Real GDP Formula

Real GDP (year x) = nominal gdp (year x )/ the price index ( year x of current index) all x 100

Which of the following would be counted in 2020's GDP? a) The value of a loan you take in 2020 b) The value of a TV that was produced in 2015 but not sold until 2020 c) The bonus check a stockbroker gets from his/her company in 2020 d) The value of a bond sold by the federal government in 2020 e) All of the above would be counted in 2020's GDP.

The bonus check a stockbroker gets from his/her company in 2020 (final value/worth of something, & does not change, so the check )

Which of the following is included in both the U.S. GDP and GNP? a) The value of all cars produced by Ford in Mexico. b) The value of all cars produced by General Motors in the U.S. c) The value of all cars produced by Toyota in the U.S. d) The value of cars produced by Nissan in Japan and the U.S.

The value of all cars produced by General Motors in the U.S. (sold and made in the U.S.)

Real GDP is gross domestic product measured a) in the prices of a base year. b) in current dollars. c) at a constant output level but at current prices. d) as the difference between the current year's GDP and last year's GDP.

in the prices of a base year.

The total value added in the table above is the same as: a) the value of the wheat before the miller turned it into flour. b) the retail value of the loaf of bread minus the wholesale value of the bread. c) the sum of all sales transactions. d) the final retail price of the loaf of bread. e) the wholesale value of the loaf of bread plus the final market value of the bread.

the final retail price of the loaf of bread

"Double counting" in the calculation of GDP occurs when: a) the value of intermediate inputs - such as flour for baking pastries - is included. b) gross investment is not adjusted for losses due to depreciation. c) the expenditure approach equals the income approach. d) economists play hopscotch. e) None of the above is correct.

the value of intermediate inputs - such as flour for baking pastries - is included. (the value is already added as you progress in production)

The GDP deflator in year 2 is 110 using year 1 as a base year. This means that, on average, the price of goods and services is a) 10% higher in year 2 than in year 1. b) 5% higher in year 1 than in year 2. c) 110% higher in year 2 than in year 1. d) 110% higher in year 1 than in year 2. e) none of the above.

10% higher in year 2 than in year 1

If nominal GDP is $8 trillion and real GDP is $6 trillion, the GDP deflator is a) 48. b) 75. c)133.33 d)480. e) none of the above.

133.33 (Formula: Real GDP = (nominal GDP/the price index (also called the GDP deflator))*100) he GDP deflator = (8/6)*100 ≈ 133.33

Which of the following is an example of a final good or service? a) Wheat a bakery purchases to make bread b) Coffee beans Starbucks purchases to make coffee c) Lumber purchased by a construction company to use in building houses d) A computer purchased by Federal Express to track shipments e) None of the above is an example of a final good or service.

A computer purchased by the Federal Express to track shipments

GDP Formula

GDP = C + I + G + NX (GDP = consumption expenditures (C) + gross private domestic investments (I) + govt. consumption & gross investment + net exports (NX))

Nominal GDP Formula

Nominal GDP = P x Q

According to the table above, the value added by the grocer is a) $0.10. b) $0.35. c)$0.65. d)$0.75. e) none of the above.

0.10 (subtract the retail - the baker selling bread, 0.75 - 0.65)

Based on the above information, real 2021 GDP in 2000 prices was: a)$275 billion b)$350 billion c)$400 billion d)$425 billion e)$500 billion

400 billion (Real 2021 GDP (in year 2000 prices) = (nominal 2021 GDP/the price index for 2021)*100 = (500/125)*100 = $400 billion.)

Net Exports Formula

NX = EX - IM (Net Exports = Exports - Imports)

Gross Domestic Product measured in current dollars is called _________ GDP. a) current b) real c) weighted d) inflation-adjusted e) nominal

Nominal.

In the U.S., the single largest expenditure component in GDP is: a) government spending. b) investment. c) consumption. d) net exports.

consumption.