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Calculation Methods Flashcards

7 cards from real GDP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. The GDP deflator differs from CPI primarily because the GDP deflator:

    Answer: Covers all goods and services in GDP, not just consumer goods

    The GDP deflator reflects price changes for all domestically produced goods and services, while CPI only tracks a fixed basket of consumer goods.

  2. A country produces only cars worth $30,000 each. In year 1, it makes 100 cars at $30,000; in year 2, it makes 110 cars at $33,000. What is real GDP growth from year 1 to year 2?

    Answer: 10%

    Real GDP growth measures only the quantity change: 110 vs. 100 cars = 10% growth, holding prices constant.

  3. In the income approach to GDP, 'mixed income' typically refers to:

    Answer: Income of self-employed individuals that blends labor and capital returns

    Mixed income is earned by the self-employed and unincorporated enterprises, where it is difficult to separate returns to labor from returns to capital.

  4. Statistical discrepancy in GDP accounts arises because:

    Answer: The expenditure, income, and output approaches use different data sources and may not align perfectly

    The three GDP approaches should theoretically yield identical results, but data collection imperfections cause small differences requiring a statistical discrepancy adjustment.

  5. Which best describes 'chain-weighting' used in U.S. real GDP calculations?

    Answer: Weighting each good's price change by its GDP share in consecutive years

    Chain-weighting updates the price weights used to compute real GDP each year, reducing the substitution bias present in fixed-base-year methods.

  6. Gross private domestic investment in the expenditure approach includes all of the following EXCEPT:

    Answer: Consumer spending on appliances

    Consumer purchases of appliances are classified under consumption (C), not investment (I), even though appliances last many years.

  7. If a foreign-owned car plant in Ohio produces $500 million in vehicles, this output is:

    Answer: Included in U.S. GDP but not U.S. GNP

    GDP counts all production within U.S. borders regardless of ownership, while GNP excludes foreign-owned production and adds U.S.-owned foreign production.