3.1.1: Real GDP

GNP is a better measure of total economic output in the U.S. than GDP. Select one: True False

False GDP measures all economic output in the U.S. regardless of who produces it. GNP is a measure of production by U.S. citizens at home and abroad and is not an accurate measure of the U.S. economy.

In order to compare GDP from one year to the next, it is necessary to "deflate" the GDP figure from the later year. Select one: True False

True The GDP deflator compares one year's GDP with another by holding prices constant. In this way, it is possible to "deflate" the higher prices to a level that allows comparison.

Nominal GDP Select one: a. equals price times quantity. b. uses a base year to hold prices constant. c. equals real GDP divided by the GDP deflator. d. measures inflation.

a. Simply defined, nominal GDP equals price times quantity for each year. Nominal GDP is a measure of output in actual dollar values.

Which of the following would be included in U.S. GNP? Select one: a. The value of Canadian oil imported into the U.S. b. The value of a car produced at an American-owned factory in Germany c. The output of a Japanese factory in Chicago d. The box office revenue of an Italian film shown in the U.S.

b. Because the car factory is American owned, the value of the factory's output is included in U.S. GNP, regardless of the country in which the factory operates.

Changes in real GDP indicate Select one: a. inflation. b. either inflation or deflation. c. how the actual physical output of the economy has changed. d. nothing about the economy.

c. Because real GDP measures output in terms of physical goods and services, changes in real GDP indicate how actual output of the economy has changed.

Gross domestic product is Select one: a. the sum of all employees' compensation, corporate profits, and interest income. b. personal consumption expenditures and gross private domestic investment. c. the market value of all final goods and services produced within a country in one year. Correct d. the market value of all final goods and services produced by a country's citizens within one year.

c. GDP is the market value of all final goods and services produced within a country in a year. GNP is the market value of all final goods and services produced by a country's citizens no matter where they live. In the U.S., the two figures are very close.

Nominal GDP measures output in terms of ________________, while real GDP measures output in terms of _____________. Select one: a. physical goods and services; actual dollar value b. production; prices c. base year production; base year prices d. actual dollar value; physical goods and services

d. Nominal GDP measures output in terms of dollar values, while real GDP measures output in terms of physical goods and services.

The GDP deflator Select one: a. measures how the overall price level has changed relative to the base year. b. equals real GDP divided by nominal GDP times 100. c. equals nominal GDP divided by real GDP times 100. d. A and C only.

d. The GDP deflator is a good indicator of the changes in the overall price level relative to the base year. To calculate the GDP deflator, divide nominal GDP by real GDP and multiply by 100.

Which of the following would be included in U.S. GDP? Select one: a. The value of a Japanese camera brought into the U.S. by an American tourist b. The total value of all exports from the U.S. c. The value of clean air d. The output of a family-owned farm in the Midwestern U.S.

d. The value of all output from a family-owned farm in the U.S. is the only component that is included in GDP. The camera is included in Japanese GDP; the value of exports alone is not included; and, the value of clean air is not calculated in GDP.

If nominal GDP is $7 million and the GDP deflator is 140, real GDP equals ______. Select one: a. $20,000 b. $50,000 c. $2,000,000 d. $5,000,000

d. To calculate real GDP: ($7,000,000/140) × 100 = $5,000,000.

If nominal GDP is $6 billion and real GDP is $5 billion, the GDP deflator is equal to _____. Select one: a. .83 b. 1.2 c. 83.3 d. 120

d. To calculate the GDP deflator: ($6 billion/$5 billion) × 100 = 120