Chapter 12, Assignment 3

A

"If nominal GDP is less than real GDP, then the price level must have fallen during the year." A) Disagree. Nominal GDP is less than real GDP of the current price level is less than the base year price level. A fall in the price level during the year is neither necessary nor sufficient to cause nominal GDP to be less than real GDP. B) Agree. Real GDP will be less than nominal GDP if the price level falls and is lower than the base year's prices. C) Agree. Nominal GDP will be less than real GDP if the price level falls and is higher than the base year's prices. D) Disagree. Real GDP will be equal to nominal GDP if the price level increases and is equal to the base year's prices.

B

"Whenever real GDP declines, nominal GDP must also decline." A) Agree. Both real GDP and nominal GDP decline if price falls and output remains constant. B) Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise. C) Agree. Both real GDP and nominal GDP decline if output falls and prices remain constant. D) Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices fall.

B

An article in the New York Times discussed the views of then Canadian Minister of Finance Joe Oliver in the effect of falling oil prices on the Canadian economy. According to the article, Oliver argued that "lower oil prices would have a broadly neutral impact on real...gross domestic product, but have a negative effect on nominal GDP." Oliver must be expecting the effect of lower oil prices to A) raise the inflation rate, which would offset the reduction in nominal GDP. B) lower the inflation rate, which would offset the reduction in nominal GDP. C) raise the inflation rate, which would raise real GDP. D) not affect the inflation rate, which would keep real GDP the same.

A

As of 2019, 19 countries in Europe had adopted the euro as their common currency. These countries are called the euro zone. According to an article in the Wall Street Journal, "The European Union's statistics agency said the combined GDP of the euro zone's 19 members increased by an annualized 1.5% in the three months through March." Is it likely that the article is referring to the growth in nominal GDP or the growth in real GDP? Briefly explain. A) Real GDP, because it shows how the economy's overall production of goods and services changes over time. B) Nominal GDP, because it does a better job of separating the economy's production of goods from services. C) Nominal GDP, because it uses current prices to place a value on the economy's production of goods and services. D) Real GDP, because it does a better job of determining how much the prices of goods and services have changed in an economy.

D

How does real GDP deal with the problem inflation causes with nominal GDP? A) By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced. B) Real GDP separates price changes from quantity changes. C) Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years. D) All of the above. E) A and C only.

A

How is the GDP deflator calculated? A) GDP deflator = Nominal GDP / Real GDP • 100 B) GDP deflator = Real GDP / Nominal GDP • 100 C) GDP deflator = (Nominal GDP + Real GDP) • 100 D) GDP deflator = (Nominal GDP - Real GDP) • 100

B

If prices rise over time, then real GDP will be A) smaller than nominal GDP in the base year. B) larger than nominal GDP in years before the base year. C) larger than nominal GDP in years after the base year. D) smaller than nominal GDP in years before the base year.

A

In an economy with rising prices, compared to the base year, A) nominal GDP is larger than real GDP in years after the base year. B) nominal GDP is equal to real GDP in years after the base year. C) nominal GDP is larger than real GDP in years before the base year. D) nominal GDP is equal to real GDP in years before the base year.

Is equal to

In the base year, nominal GDP _________________ real GDP.

Is greater than

In years after the base year, nominal GDP _________________ real GDP.

Is less than

In years prior to the base year, nominal GDP _________________ real GDP.

C

Suppose the base year is 2001. Looking at GDP data from the United States from 2001 to the present, what would be true of the relationship between nominal GDP and real GDP? A) RGDP > NGDP because prices are falling. B) RGDP = NGDP because prices are stable. C) RGDP < NGDP because prices are rising. D) The relationship is uncertain without more information on prices.

C

Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next? A) GDP is a measure of production in quantity terms. B) Nominal GDP separates increases in GDP as a result of price changes from increases in GDP as a result of quantity changes. C) When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities. D) All of the above E) A and B only