GDP and Growth Flashcards

Which of the following transactions would be counted in U.S. GDP?

Answer: A U.S. firm sells machinery to a German company

U.S. GDP includes exports (goods produced domestically and sold abroad), while stock sales, transfer payments, and imports of foreign goods are excluded.

If nominal GDP rises from $18 trillion to $20 trillion and the GDP deflator rises from 100 to 110, real GDP has:

Answer: Increased by about 1.8%

Real GDP = (Nominal GDP / GDP deflator) × 100; $20T/110 × 100 ≈ $18.18T, a rise of roughly 1.8% from $18T.

Which component of GDP is most volatile over the business cycle?

Answer: Gross private domestic investment

Business investment in structures, equipment, and inventories swings sharply with economic expectations, making it the most volatile GDP component.

The underground economy (unreported cash transactions) causes official GDP to:

Answer: Understate true output

Because illegal and unreported transactions are not captured in official statistics, measured GDP understates the economy's actual production.

In the expenditure approach, which formula correctly represents GDP?

Answer: GDP = C + I + G + NX

The expenditure approach sums Consumption (C), Investment (I), Government purchases (G), and Net Exports (NX = Exports − Imports).

Which of the following best explains why GDP is an imperfect measure of a nation's well-being?

Answer: GDP ignores the distribution of income and non-market activities like leisure

GDP counts total output but says nothing about how income is distributed, volunteer work, household production, or environmental quality.

A country's real GDP per capita grew from $30,000 to $33,000 over 10 years. Using the Rule of 70, approximately how many more years would be needed for income to double from its current $33,000 level, given the same growth rate?

Answer: 35 years

Growth rate ≈ 1% per year (($33k–$30k)/$30k ÷ 10); Rule of 70: 70/2 ≈ 35 years to double.