BASIC ECONOMICS

TUTORIAL 8
Measuring a Nation’s Income

THE TUTORIAL
This week’s tutorial looks at Measuring a Nation’s Income. Please prepare these
problems prior to attending tutorials.
§ Quick Quiz (Text book)
- Chapter 23
§ Problems and Applications (Text book)
- Chapter 23 (1, 2, 5, 6)
§ True/False
§ Multiple choice

READING GUIDE
Review Chapter 23 of Principles of Economics (9th edition) – N. Gregory Mankiw as
preparation for this tutorial. You should also look overcarefully your lectures notes for
Week 8.

CHAPTER 23 - SUMMARY

Income and Expenditure

1

§ Gross Domestic Product (GDP) measures the total income of everyone in the
economy
§ GDP also measures the total expenditure on the economy’s output of goods and
services.

For the economy as a whole, income equals

expenditure because every dollar a buyer spends is
a dollar of income for the seller
 Gross Domestic Product (GDP)
2

Gross Domestic Product (GDP) is...

...the market value of all final goods and services produced within a country in a

given period of time.

- market value: Goods are valued at their market prices, so: All goods
measured in the same units (e.g. dollars, pounds). But: Things that don’t
have a market value are excluded, e.g., housework you do for yourself.
- final goods: GDP records only the value of final goods, not intermediate
goods (the value is counted only once).
- goods and services; GDP includes tangible goods (like DVDs, muontain
bikes, beer) and intangible services (drying cleaning, concerts, cell phone
service).
- produced: GDP includes currently produced goods, not goods produced in
the past
- within a country: GDP measures the value of production that occurs within
a country’s borders, whether done by its own citizens or by foreigners
located there.
- given period of time: usually a year or a quarter (3 months)

The Components of GDP

3

- GDP (denoted Y)
- Consumption (C)
- Investment (I)
- Government Purchases (G)
- Net Exports (NX)

These components add up to GDP: Y = C + I + G + NX

 Real versus Norminal GDP
4

§ Norminal GDP: values output using current prices (current price x quantity)
§ Real GDP: values output using the prices of base year (price in the base year x
quantity)
§ Real GDP shows how the economy’s overall production of goods and
services changes over time
§ Real GDP uses constant base-year prices to value the economy’s production
of goods and services. Because price changes do not affect real GDP,
changes in real GDP reflect only changes in the quantities produced. Thus,
real GDP measures the economy’s production of goods and services.
 The GDP Deflator
5

- The GDP delator is a measure of the overall level of prices.

- Definition:

- The GDP delator tells us the rise in nominal GDP that is attributable to a rise
in prices rather than a rise in the quantities produced.
- One way to measure the economy’s inflation rate is to compute the
percentage increase in the GDP deflator from one year to the next year
- Inflation rate using GDP deflator:

Gross National Product (GNP)

6

- Gross National Product (GNP): Total income earned by the nation’s factors
of production, regardless of where located
- GNP = GDP + (Factor payments from abroad) – (Factor payments to abroad)

GDP & Economic well-being

7

- GDP is a good measure of the economic well-being of a society

- GDP per person tells us the income and expenditure of the average person in
the economy.
- Higher GDP per person indicates a higher standard of living
- GDP is not a perfect measure of the happiness or quality of life.
- Some things that contribute to well-being are not included in GDP
+ The value of leisure (WHY)
+ The value of a clean environment
+ Non-market activity, such as the child care a parent provides his or her
child at home
+ An equitable distribution of income
 TRUE/FALSE

TRUE FALSE
1. GDP is the market value of all final goods and services produced by
x
a country’s citizens in a given period of time
2. U.S. GDP excludes the production of most illegal goods x
3. U.S. GDP includes estimates of the value of items that are produced
x
and consumed at home, such as housework and car maintenance
4. GDP includes only the value of final goods because the value of
x
intermediate goods is already included in the prices of the final goods
5. When an American doctor opens a practice in Bermuda, his
x
production there is part of U.S. GDP
6. Expenditures by households on education are included in the
x
consumption component of GDP
7. New home construction is included in the consumption component
x
of GDP
8. Changes in inventory are included in the investment component of GDP x
9. The government purchases component of GDP includes salaries
x
paid to soldiers but not Social Security benefits paid to the elderly
10. If someone in the United States buys a surfboard produced in
Australia, then that purchase is included in both the consumption x
component of U.S. GDP and the net exports component of U.S. GDP
11. If consumption is $4000, exports are $300, government purchases are
x
$1000, imports are $400, and investment is $800, then GDP is $5700
12. In 2007, government purchases was the largest component of U.S. GDP x
13. If total spending rises from one year to the next, then the economy
x
must be producing a larger output of goods and services
14. An increase in nominal U.S. GDP necessarily implies that the
x
United States is producing a larger output of goods and services
15. Real GDP evaluates current production using prices that are fixed at
past levels and therefore shows how the economy’s overall x
production of goods and services changes over time
 16. Changes in real GDP reflect only changes in the amounts being produced x
17. Changes in the GDP deflator reflect only changes in the prices of
x
goods and services
18. If nominal GDP is $12,000 and the GDP deflator is 80, then real
x
GDP is $15,000
19. If the GDP deflator in 2004 was 150 and the GDP deflator in 2005
x
was 120, then the inflation rate in 2005 was 25%.
20. Recessions are associated with lower incomes, rising
x
unemployment, and falling profits

MULTIPLE CHOICE

1. Gross domestic product measures two things at once:

Ⓐ the total spending of everyone in the Ⓒ the value of the economy's output
economy and the total saving of of goods and services for
everyone in the economy domestic citizens and the value of
the economy's output of goods
and services for the rest of the .........
world
Ⓑ the total income of everyone in the Ⓓ the total income of households in
economy and the total expenditure on the economy and the total profit of
the economy's output of goods and firms in the economy
services

2. For an economy as a whole, income must equal expenditure because

Ⓐ the number of firms is equal to the Ⓒ every dollar of spending by some
number of households in an buyer is a dollar of income for
economy some seller
.........
Ⓑ international law requires that Ⓓ every dollar of saving by some
income equal expenditure consumer is a dollar of spending
by some other consumer

3. If an economy’s GDP rises, then it must be the case that the economy’s
Ⓐ income rises and saving falls Ⓒ income rises and expenditure falls
.........
Ⓑ income and saving both rise Ⓓ income and expenditure both rise
4. GDP is defined as
Ⓐ the market value of all goods and Ⓒ the market value of all final goods
services produced within a country and services produced within a
in a given period of time country in a given period of time
Ⓑ the market value of all goods and Ⓓ the market value of all final goods .........
services produced by the citizens of and services produced by the
a country, regardless of where they citizens of a country, regardless
are living, in a given period of time of where they are living, in a
given period of time
5. In computing GDP, market prices are used to value final goods and services
because
Ⓐ market prices do not change much Ⓒ if market prices are out of line
over time, so it is easy to make with how people value goods, the
comparisons between years government sets price ceilings .........
and price floors
Ⓑ market prices reflect the values of Ⓓ None of the above is correct;
goods and services market prices are not used in
computing GDP

7. James owns two houses. He rents one house to the Johnson family for $10,000
per year. He lives in the other house. If he were to rent the house in which he
lives, he could earn $12,000 per year in rent by doing so. How much do the
housing services provided by the two houses contribute to GDP? .........
Ⓐ $0 Ⓒ $12,000
Ⓑ $10,000 Ⓓ $22,000

8. Estimates of the values of which of the following non-market goods or services

are included in GDP?
Ⓐ the value of unpaid housework Ⓒ the estimated rental value of
owner-occupied homes .........
Ⓑ the value of vegetables and other Ⓓ All of the above are included in
foods that people grow in their GDP
gardens
9. Over the last few decades, Americans have chosen to cook less at home and eat
more at restaurants. This change in behavior, by itself, has
Ⓐ reduced measured GDP Ⓒ increased measured GDP only to
the extent that the value of the
restaurant meals exceeded the .........
value of meals previously cooked
at home
Ⓑ not affected measured GDP Ⓓ increased measured GDP by the
full value of the restaurant meals

10. Which of the following is not included in GDP?

Ⓐ carrots grown in your garden and Ⓒ carrots purchased at a grocery
eaten by your family store and eaten by your family .........
Ⓑ carrots purchased at a farmer’s Ⓓ More than one of the above is not
market and eaten by your family included in GDP
11. A professional gambler moves from a state where gambling is illegal to a state
where gambling is legal. Most of his income was, and continues to be, from
gambling. His move
Ⓐ necessarily raises GDP Ⓒ doesn't change GDP because
gambling is never included in .........
GDP
Ⓑ necessarily decreases GDP Ⓓ doesn't change GDP because in
either case his income is included

12. Spots, Inc. produces ink and sells it to Write on Target, which makes pens. The
ink produced by Spots, Inc. is called
Ⓐ an inventory good Ⓒ a preliminary good .........
Ⓑ a transitory good Ⓓ an intermediate good

13. Which of the following statements is correct?

Ⓐ The value of intermediate goods is Ⓒ The value of intermediate goods
always included in GDP is included in GDP only if those
goods are added to firms’
inventories to be used or sold at a .........
later date
Ⓑ The value of intermediate goods is Ⓓ The value of intermediate goods
included in GDP only if those goods is never included in GDP
were produced in the previous year
14. Grapes are
Ⓐ always counted as an intermediate Ⓒ counted as an intermediate good
good only if they are consumed
Ⓑ counted as an intermediate good Ⓓ counted as an intermediate good, .........
only if they are used to produce whether they are used to produce
another good, such as wine another good or consumed
15. A steel company sells some steel to a bicycle company for $150. The bicycle
company uses the steel to produce a bicycle, which it sells for $250. Taken
together, these two transactions contribute
Ⓐ $150 to GDP Ⓒ between $250 and $400 to GDP,
depending on the profit earned by .........
the bicycle company when it sold
the bicycle
Ⓑ $250 to GDP Ⓓ $400 to GDP

17. Which of the following domestically produced items is not included in GDP?
Ⓐ a bottle of shampoo Ⓒ a haircut
Ⓑ a hairdryer Ⓓ All of the above are included in .........
GDP

18. Gross domestic product includes all

Ⓐ legal and illegal goods, but it excludes Ⓒ legal goods and services, but it
all legal and illegal services excludes illegal goods and
services .........
Ⓑ legal and illegal goods and all legal and Ⓓ legal and illegal goods and legal
illegal services services, but it excludes illegal
services
19. Which of the following events would cause GDP for 2007 to increase?
Ⓐ In February 2007, Amanda sells a Ⓒ In December 2007, Isabella eats
1996 Honda Accord to Isabella onions that she harvested from her
backyard garden in October 2007 .........
Ⓑ In February 2007, Amanda buys a Ⓓ All of the above are correct
ticket to visit a zoo in Florida. She
visits the zoo in April 2007
20. Consider two cars manufactured by Chevrolet in 2007. During 2007, Chevrolet
sells one of the two cars to Sean for $24,000. Later in the same year, Sean sells
the car to Kati for $19,000. The second automobile, with a market value of
$30,000, is unsold at the end of 2007 and it remains in Chevrolet’s inventory. The .........
transactions just described contribute how much to GDP for 2007?
Ⓐ $24,000 Ⓒ $54,000
Ⓑ $43,000 Ⓓ $73,000
21. Anna, a U.S. citizen, works only in Germany. The value she adds to production in
Germany is included
Ⓐ in both German GDP and U.S. GDP Ⓒ in U.S. GDP, but it is not included in
German GDP .........
Ⓑ in German GDP, but it is not Ⓓ in neither German GDP nor U.S.
included in U.S. GDP GDP
22. An American company operates a fast food restaurant in Romania. Which of the
following statements is accurate?
Ⓐ The value of the goods and services Ⓒ The value of the goods and
produced by the restaurant is services produced by the
included in both Romanian GDP and restaurant is included in Romanian
U.S. GDP GDP, but not in U.S. GDP .........
Ⓑ One-half of the value of the goods Ⓓ The value of the goods and
and services produced by the services produced by the
restaurant is included in Romanian restaurant is included in U.S.
GDP, and the other one-half of the GDP, but not in Romanian GDP
value is included in U.S. GDP
23. Quality Motors is a Japanese-owned company that produces automobiles; all of its
automobiles are produced in American plants. In 2007, Quality Motors produced
$20 million worth of automobiles, with $12 million in sales to Americans, $6
million in sales to Canadians, and $2 million worth of automobiles added to
Quality Motors’ inventory. The transactions just described contribute how much .........
to U.S. GDP for 2007?
Ⓐ $12 million Ⓒ $20 million
Ⓑ $14 million Ⓓ $34 million

24. Which of the following items is included in U.S. GDP?

Ⓐ goods produced by foreign citizens Ⓒ known illegal activities
working in the United States
Ⓑ the difference in the price of the sale Ⓓ None of the above is included in .........
of an existing home and its original U.S. GDP
purchase price
25. Which of the following items is included in U.S. GDP?
Ⓐ final goods and services that are Ⓒ goods and services produced by
purchased by the U.S. federal foreign citizens working in the
government U.S .........
Ⓑ intermediate goods that are produced Ⓓ All of the above are included in
in the U.S. but that are unsold at the U.S. GDP
end of the GDP accounting period
26. Which of the following is not included in U.S. GDP?
Ⓐ unpaid cleaning and maintenance of Ⓒ the estimated rental value of
houses owner-occupied housing .........
Ⓑ services such as those provided by Ⓓ production of foreign citizens
lawyers and hair stylists living in the United States

27. Which of the following examples of production of goods and services would be
included in U.S. GDP?
Ⓐ Samantha, a Canadian citizen, grows Ⓒ Leo, an American citizen, grows
sweet corn in Minnesota and sells it marijuana in his Seattle home and
to a grocery store in Canada sells it to his friends and .........
neighbors
Ⓑ Ian, an American citizen, grows Ⓓ None of the above examples of
peaches for his family in the back production would be included in
yard of their Atlanta home U.S. GDP

28. Which of the following transactions adds to U.S. GDP for 2006?
Ⓐ In 2006, Ashley sells a car that she Ⓒ When John and Jennifer were
bought in 2002 to William for both single, they lived in separate
$5,000 apartments and each paid $750 in
rent. John and Jennifer got
married in 2006 and they bought
a house that, according to reliable .........
estimates, could be rented for
$1,600 per month
Ⓑ An American management consultant Ⓓ None of the above transactions
works in Mexico during the summer adds to U.S. GDP for 2006
of 2006 and earns the equivalent of
$30,000 during that time
29. U.S. GDP and U.S. GNP are related as follows:
Ⓐ GNP = GDP + Value of exported Ⓒ GNP = GDP + Income earned by
goods - Value of imported goods foreigners in the U.S. - Income
earned by U.S. citizens abroad
.........
Ⓑ GNP = GDP - Value of exported Ⓓ GNP = GDP - Income earned by
goods + Value of imported goods foreigners in the U.S. + Income
earned by U.S. citizens abroad

30. Darla, a Canadian citizen, works only in the United States. The value of the
output she produces is
Ⓐ included in both U.S. GDP and U.S. Ⓒ included in U.S. GNP, but it is not
GNP included in U.S. GDP .........
Ⓑ included in U.S. GDP, but it is not Ⓓ included in neither U.S. GDP nor
included in U.S. GNP U.S. GNP

31. An Italian company operates a pasta restaurant in the U.S. The value of the output
produced by this pasta restaurant is included in
Ⓐ U.S. GNP and Italian GNP Ⓒ U.S. GDP and Italian GNP .........
Ⓑ U.S. GNP and Italian GDP Ⓓ U.S. GDP and Italian GDP

32. Household spending on education is counted in which component or

subcomponent of GDP?
Ⓐ consumption of durable goods Ⓒ consumption of services .........
Ⓑ consumption of nondurable goods Ⓓ investment
33. Which of the following is included in the consumption component of U.S. GDP?
Ⓐ purchases of staplers, paper clips, Ⓒ purchases of newly constructed
and pens by U.S. business firms homes by U.S. households .........
Ⓑ purchases of natural gas by U.S. Ⓓ All of the above are correct
households
34. If you buy a burger and fries at your favorite fast food restaurant,
Ⓐ then neither GDP nor consumption Ⓒ then GDP will be unchanged, but
will be affected because you would consumption spending will be
have eaten at home had you not higher
bought the meal at the restaurant .........
Ⓑ then GDP will be higher, but Ⓓ then both GDP and consumption
consumption spending will be spending will be higher
unchanged
35. For the purpose of calculating GDP, investment is spending on
Ⓐ stocks, bonds, and other financial Ⓒ capital equipment, inventories, and
assets structures, including household
purchases of new housing
.........
Ⓑ real estate and financial assets such Ⓓ capital equipment, inventories, and
as stocks and bonds structures, excluding household
purchases of new housing

36. Which of the following is included in the investment component of GDP?

Ⓐ households’ purchases of newly Ⓒ firms’ purchases of capital
constructed homes equipment .........
Ⓑ net additions to firms’ inventories Ⓓ All of the above are correct

37. Consider two items that might be included in GDP: (1) the estimated rental value
of owner-occupied housing and (2) purchases of newly-constructed homes. How
are these two items accounted for when GDP is calculated?
Ⓐ Both item (1) and item (2) are Ⓒ Item (1) is included in the
included in the consumption investment component of GDP,
component of GDP while item (2) is included in the .........
consumption component of GDP
Ⓑ Item (1) is included in the Ⓓ Only item (2) is included in GDP,
consumption component of GDP, and it is included in the
while item (2) is included in the investment component
investment component of GDP
38. A Minnesota farmer buys a new tractor made in Iowa by a German company. As
a result,
Ⓐ U.S. investment and GDP increase, Ⓒ U.S. investment, U.S. GDP, and
but German GDP is unaffected German GDP are unaffected,
because tractors are intermediate .........
goods
Ⓑ U.S. investment and German GDP Ⓓ U.S. investment, U.S. GDP, and
increase, but U.S. GDP is unaffected German GDP all increase
39. Goods that go into inventory and are not sold during the current period are
Ⓐ counted as intermediate goods and so Ⓒ included in current period GDP as
are not included in current period inventory investment
GDP .........
Ⓑ counted in current period GDP only Ⓓ included in current period GDP as
if the firm that produced them sells consumption
them to another firm
40. The local Chevrolet dealership has an increase in inventory of 25 cars in 2006. In
2007, it sells all 25 cars. Which of the following statements is correct?
Ⓐ The value of the cars in inventory Ⓒ The value of the cars in inventory
will be counted as part of 2006 GDP, will be counted as part of 2006
and the value of the cars sold in 2007 GDP, and the value of the cars
will not increase 2007 GDP sold in 2007 will increase 2007 .........
GDP
Ⓑ The value of the cars in inventory Ⓓ The value of the cars in inventory
will not affect 2006 GDP, and the will not affect 2006 GDP, and the
value of the cars sold in 2007 will value of the cars sold in 2007 will
increase 2007 GDP not increase 2007 GDP

41. Government purchases include spending on goods and services by

Ⓐ federal governments, but not by state Ⓒ federal, state, and local
or local governments governments
Ⓑ federal and state governments, but Ⓓ federal, state, and local governments, .........
not by local governments as well household spending by
employees of those governments
42. Which of the following items is counted as part of government purchases?
Ⓐ The federal government pays the Ⓒ The city of Las Vegas, Nevada
salary of a Navy officer pays a private firm to collect
garbage in that city .........
Ⓑ he state of Nevada pays a private firm Ⓓ All of the above are correct
to repair a Nevada state highway

43. A transfer payment is

Ⓐ a payment for moving expenses a worker
receives when he or she is transferred by
an employer to a new location
Ⓑ a payment that is automatically
transferred from your bank account
to pay a bill or some other obligation
Ⓒ a form of government spending that
is not made in exchange for a
currently produced good or service
Ⓓ the benefit that a person receives .........
from an expenditure by
government minus the taxes that
were collected by government to
fund that expenditure
44. Transfer payments are
Ⓐ included in GDP because they Ⓒ not included in GDP because they
represent income to individuals are not payments for currently
produced goods or services .........
Ⓑ included in GDP because they Ⓓ not included in GDP because
eventually will be spent on taxes will have to be raised to pay
consumption for them
45. Which of the following represents a transfer payment?
Ⓐ You transfer $1,000 from your bank Ⓒ The bank transfers $10 in
account to a mutual fund quarterly interest to your savings
account
Ⓑ The government sends your Ⓓ Your employer automatically .........
grandfather his Social Security check transfers $100 each month from
A transfer payment is a payment made by the government to your wages to a non-taxable
an individual or household for which no good or service is
provided in return. The government sends your grandfather his medical spending account
Social Security check, so it represents a transfer payment.

46. Unemployment compensation is

Ⓐ part of GDP because it represents Ⓒ not part of GDP because it is a
income transfer payment .........
Ⓑ part of GDP because the recipients Ⓓ not part of GDP because the
must have worked in the past to qualify payments reduce business profits

47. To encourage formation of small businesses, the government could provide

subsidies; these subsidies
Ⓐ would be included in GDP because Ⓒ would not be included in GDP
they are part of government because they are transfer
purchases payments .........
Ⓑ would be included in GDP because Ⓓ would not be included in GDP
they are part of investment because the government raises
expenditures taxes to pay for them
48. The U.S. government pays an economist at the U.S. Department of Commerce
$50,000 in salary in 2006. The economist then retires. In 2007, the government
pays him $30,000 in retirement benefits. Which of the following is correct?
Ⓐ The 2006 payment is included in Ⓒ The 2006 payment is included in
2006 GDP as government purchases, 2006 GDP as government
and the 2007 payment is included in purchases, and the 2007 payment
2007 GDP as government purchases is included in 2007 GDP as
government transfer payments .........
Ⓑ The 2006 payment is included in Ⓓ The 2006 payment is included in
2006 GDP as government purchases, 2006 GDP as government purchases,
but the 2007 payment is not included and the 2007 payment is allocated to
in 2007 GDP previous years' GDP according to the
amount of work performed by the
economist each year

49. If a U.S. citizen buys a television made in Korea by a Korean firm, then

Ⓐ U.S. net exports decrease and U.S. Ⓒ U.S. net exports are unaffected
GDP decreases and U.S. GDP is unaffected .........
Ⓑ U.S. net exports are unaffected and Ⓓ U.S. net exports decrease and
U.S. GDP decreases U.S. GDP is unaffected

50. If a U.S. citizen buys a dress made in Nepal by a Nepalese firm, then

Ⓐ U.S. consumption increases, U.S. net Ⓒ U.S. consumption decreases, U.S.

exports decrease, and U.S. GDP net exports increase, and U.S.
decreases GDP increases .........
Ⓑ U.S. consumption increases, U.S. net Ⓓ U.S. consumption decreases, U.S.
exports decrease, and U.S. GDP is net exports increase, and U.S.
unaffected GDP is unaffected
51. The U.S. Air Force pays a Turkish citizen $30,000 to work on a U.S. base in
Turkey. As a result,
Ⓐ U.S. government purchases increase Ⓒ U.S. government purchases, net
by $30,000; U.S. net exports exports, and GDP are unaffected
decrease by $30,000; and U.S. GDP
is unaffected .........
Ⓑ U.S. government purchases increase Ⓓ U.S. government purchases are
by $30,000; U.S. net exports are unaffected; U.S. net exports
unaffected; and U.S. GDP increases decrease by $30,000; and U.S.
by $30,000 GDP decreases by $30,000
52. An Iowan receives a Social Security check for $500, which he uses to purchase a
$480 television made in Japan by a Japanese firm and a $20 dinner at a local
restaurant. As a result, U.S. GDP
.........
Ⓐ does not change Ⓒ increases by $520
Ⓑ increases by $20 Ⓓ increases by $1000

53. In the economy of Wrexington in 2008, consumption was $1000, exports were
$100, government purchases were $450, imports were $150, and investment was
$350. What was Wrexington’s GDP in 2008?
.........
Ⓐ $1750 Ⓒ $1900
Ⓑ $1850 Ⓓ $2050

The table 1 below contains data for the country of Wrexington for the year 2008
Household purchases of durable goods $1293
Household purchases of nondurable goods $1717
Household purchases of services $301
Household purchases of new housing $704
Purchases of capital equipment $310
Inventory changes $374
Purchases of new structures $611
Depreciation $117
Salaries of government workers $1422 .........
Government expenditures on public works $553
Transfer payments $777
Foreign purchases of domestically produced goods $88
Domestic purchases of foreign goods $120
54. Refer to Table 1. What was Wrexington’s consumption in 2008?

Ⓐ $2018 Ⓒ $3311
Ⓑ $3010 Ⓓ $4015
55. Refer to Table 1. What was Wrexington’s investment in 2008?

Ⓐ $1178 Ⓒ $1882 .........

Ⓑ $1295 Ⓓ $1999

56. Refer to Table 1. What were Wrexington’s government purchases in 2008?

Ⓐ $553 Ⓒ $1975 .........

Ⓑ $1198 Ⓓ $2752
57. Refer to Table 1. What were Wrexington’s exports in 2008?

Ⓐ -$32 Ⓒ $88 .........

Ⓑ $32 Ⓓ $120

58. Refer to Table 1. What were Wrexington’s imports in 2008?

Ⓐ -$32 Ⓒ $88 .........

Ⓑ $32 Ⓓ $120

59. Refer to Table 1. What were Wrexington’s net exports in 2008?

Ⓐ -$32 Ⓒ $88 .........

Ⓑ $32 Ⓓ $120

60. Refer to Table 1. What was Wrexington’s GDP in 2008?

Ⓐ $6359 Ⓒ $7253 .........

Ⓑ $7136 Ⓓ $8147

61. When studying changes in the economy over time, economists want a measure of
the total quantity of goods and services the economy is producing that is not
affected by changes in the prices of those goods and services. In other words,
economists want to study .........
Ⓐ nominal GDP Ⓒ GNP
Ⓑ real GDP Ⓓ the GDP deflator

62. Which of the following is correct?

Ⓐ Nominal GDP measures base-year Ⓒ Nominal GDP measures current

production using base-year prices,
whereas real GDP measures current
production using current prices
Ⓑ Nominal GDP measures current
production using base-year prices,
whereas real GDP measures current
production using current prices
production using current prices,
whereas real GDP measures base-
year production using base-year
prices .........
Ⓓ Nominal GDP measures current
production using current prices,
whereas real GDP measures
current production using base-
year prices
63. Which of the following is correct?
Ⓐ Nominal GDP never equals real GDP
Ⓑ Nominal GDP always equals real
GDP
64. Changes in nominal GDP reflect
Ⓐ only changes in prices
Ⓑ only changes in the amounts being
produced
65. Changes in real GDP reflect
Ⓐ only changes in prices
Ⓑ only changes in the amounts being
produced
66. Which of the following statements about nominal GDP and real GDP is correct?
Ⓐ Nominal GDP is a better gauge of
economic well-being than is real
GDP
Ⓑ Real GDP is a better gauge of
economic well-being than is nominal
GDP
67. Changes in the GDP deflator reflect
Ⓐ only changes in prices
Ⓑ only changes in the amounts being
produced
68. In the base year, the GDP deflator is always
Ⓐ -1
Ⓑ0
Ⓒ Nominal GDP equals real GDP in
the base year .........
Ⓓ Nominal GDP equals real GDP in
all years but the base year
Ⓒ both changes in prices and changes
in the amounts being produced .........
Ⓓ neither changes in prices nor changes
in the amounts being produced
Ⓒ both changes in prices and changes
in the amounts being produced .........
Ⓓ neither changes in prices nor changes
in the amounts being produced
Ⓒ Real GDP and nominal GDP are
equally good measures of
economic well-being .........
Ⓓ Nominal GDP reflects the
economy’s ability to satisfy
people’s needs and desires, but
Real GDP does not
Ⓒ both changes in prices and changes
in the amounts being produced .........
Ⓓ neither changes in prices nor changes
in the amounts being produced
Ⓒ1 .........
Ⓓ 100
69. The inflation rate in year 2 equals

Ⓐ Ⓒ
.........
Ⓑ Ⓓ

70. If nominal GDP doubles and the GDP deflator doubles, then real GDP

Ⓐ remains constant Ⓒ triples .........

Ⓑ doubles Ⓓ quadruples

71. In the economy of Wrexington in 2008, real GDP was $5 trillion and the GDP
deflator was 200. What was Wrexington’s nominal GDP in 2008?
.........
Ⓐ $2.5 trillion Ⓒ $40 trillion
Ⓑ $10 trillion Ⓓ $100 trillion
72. In the economy of Wrexington in 2008, nominal GDP was $18 billion and the
GDP deflator was 120. What was Wrexington’s real GDP in 2008?

Ⓐ $6.7 billion Ⓒ $21.6 billion .........

Ⓑ $15 billion Ⓓ $38 billion

73. In the economy of Wrexington in 2008, nominal GDP was $10 trillion and real
GDP was $4 trillion. What was Wrexington’s GDP deflator in 2008?

Ⓐ 25 Ⓒ 250 .........

Ⓑ 40 Ⓓ 400

74. If nominal GDP is $8 trillion and real GDP is $10 trillion, then the GDP deflator is

Ⓐ 80, and this indicates that the price
level has decreased by 20 percent
since the base year
Ⓑ 80, and this indicates that the price
level has increased by 80 percent
since the base year
Ⓒ 125, and this indicates that the
price level has increased by 25
percent since the base year .........
Ⓓ 125, and this indicates that the
price level has increased by 125
percent since the base year
75. Suppose an economy produces only eggs and ham. In 2005, 100 dozen eggs are
sold at $3 per dozen and 50 pounds of ham are sold at $4 per pound. In 2004, the
base year, eggs sold at $1.50 per dozen and ham sold at $5 per pound. For 2005,

Ⓐ nominal GDP is $400, real GDP is Ⓒ nominal GDP is $500, real GDP is .........
$500, and the GDP deflator is 80 $400, and the GDP deflator is 80
Ⓑ nominal GDP is $400, real GDP is Ⓓ nominal GDP is $500, real GDP is
$500, and the GDP deflator is 125 $400, and the GDP deflator is 125

76. A country reported nominal GDP of $100 billion in 2008 and $75 billion in 2007.
It also reported a GDP deflator of 125 in 2008 and 120 in 2007. Between 2007
and 2008,
.........
Ⓐ real output and the price level both rose Ⓒ real output fell and the price level rose
Ⓑ real output rose and the price level fell Ⓓ real output and the price level both fell
The table 2 below contains data for the country of Dachsland, which produces only
pretzels and books. The base year is 2005
Year Price Quantity Price Quantity
of of of of
Pretzels Pretzels Books Books
2005 $4.00 90 $1.50 150
2006 $4.00 100 $2.00 180
2007 $5.00 120 $2.50 200
2008 $6.00 150 $3.50 200

.........
77. Refer to Table 2. In 2005, Dachsland’s

Ⓐ nominal GDP was greater than real Ⓒ nominal GDP was less than real
GDP, and the GDP deflator was GDP, and the GDP deflator was
greater than 100 less than 100
Ⓑ nominal GDP was equal to real GDP, Ⓓ nominal GDP was equal to real
and the GDP deflator was equal to 1 GDP, and the GDP deflator was
equal to 100
78. Refer to Table 2. In 2006, Dachsland’s

Ⓐ nominal GDP was $585, real GDP Ⓒ nominal GDP was $760, real GDP
was $660, and the GDP deflator was was $660, and the GDP deflator
88.6 was 115.2 .........
Ⓑ nominal GDP was $585, real GDP Ⓓ nominal GDP was $760, real GDP
was $670, and the GDP deflator was was $670, and the GDP deflator
87.3 was 113.4
79. Refer to Table 2. In 2007, Dachsland’s

Ⓐ nominal GDP was $585, real GDP Ⓒ nominal GDP was $1100, real
was $780, and the GDP deflator was GDP was $780, and the GDP
75 deflator was 141.0 .........
Ⓑ nominal GDP was $585, real GDP Ⓓ nominal GDP was $1100, real
was $825, and the GDP deflator was GDP was $825, and the GDP
70.9 deflator was 133.3
80. Refer to Table 2. In 2008, Dachsland’s

Ⓐ nominal GDP was $585, real GDP
was $900, and the GDP deflator was
65
Ⓑ nominal GDP was $585, real GDP
was $1065, and the GDP deflator
was 54.9
Ⓒ nominal GDP was $1600, real
GDP was $900, and the GDP
deflator was 177.8 .........
Ⓓ nominal GDP was $1600, real
GDP was $1065, and the GDP
deflator was 150.2

81. Refer to Table 2. Dachsland’s real GDP was

Ⓐ $585 in 2006, $585 in 2007, and Ⓒ $670 in 2006, $780 in 2007, and
$585 in 2008 $900 in 2008 .........
Ⓑ $660 in 2006, $825 in 2007, and Ⓓ $760 in 2006, $1100 in 2007, and
$1065 in 2008 $1600 in 2008
82. Refer to Table 23-4. Dachsland’s output grew

Ⓐ 29.9% from 2005 to 2006 Ⓒ 24.3% from 2006 to 2007 .........

Ⓑ 33.3% from 2006 to 2007 Ⓓ 15.4% from 2007 to 2008
83. Refer to Table 2. Dachsland’s inflation rate from 2006 to 2007 was

Ⓐ 16.4% Ⓒ 41.0% .........

Ⓑ 24.3%. Ⓓ 44.7%
84. Refer to Table 2. Dachsland’s inflation rate from 2007 to 2008 was

Ⓐ 15.4%. Ⓒ 45.5% .........

Ⓑ 26.1% Ⓓ 77.8%

85. GDP does not reflect

Ⓐ the value of leisure Ⓒ the quality of the environment

.........
Ⓑ the value of goods and services Ⓓ All of the above are correct
produced at home
86. Suppose that twenty-five years ago a country had nominal GDP of $1,000, a GDP
deflator of 200, and a population of 100. Today it has nominal GDP of $3,000, a
GDP deflator of 400, and population of 150. What happened to the real GDP per
person? .........
Ⓐ It more than doubled Ⓒ It was unchanged
Ⓑ It increased, but it less than doubled Ⓓ It decreased