Clicker Quiz 1- GDP

How is real GDP different from nominal GDP? a. Real GDP is adjusted for inflation, and nominal GDP is just measured in current prices b. Real GDP includes goods and services, and nominal GDP only includes goods c. Real GDP averages income over time, and nominal GDP is just for this year

Correct answer: A "Real" means inflation-adjusted. Real GDP is found by adjusting nominal GDP for inflation.

What is the biggest component of GDP? a. Consumption [C] b. Investment [I] c. Government Purchases [G] d. Net Exports [NX]

Correct answer: A Consumption is much bigger than the other components at $10 trillion each year. Net exports is actually negative since we import more than we export.

Which of the following would not be included in GDP? a. Bob hires a construction company to build his home b. Michael pays the neighbor kid to mow his yard c. Alex buys some cheese and dough to bake a pizza at home d. Elyse buys some shoes

Correct answer: B You could probably imagine that this is a cash transaction. Even if Michael pays the kid with a check, it's not going to be taxed or reported to the government.

Why doesn't GDP count expenditures on intermediate goods? a. To make GDP calculations easier b. Because intermediate goods are used by firms instead of consumers c. To avoid double counting d. Intermediate goods have no market value

Correct answer: C If we count intermediate goods, and then count final goods (which are created from intermediate goods), we would be double counting. We don't count the cheese, pepperoni, sauce, and also the pizza. We just count the final pizza.