GDP Calculation 3 — Questions and Answers
Question 1: Nominal GDP differs from Real GDP in that Nominal GDP:
- Is measured at current prices without adjusting for inflation (Correct answer)
- Removes the effect of price changes over time
- Uses a fixed base-year price level
- Counts only physical output quantities
Correct answer: Is measured at current prices without adjusting for inflation
Nominal GDP uses current-year prices and therefore reflects both output changes and price level changes.
Question 2: If Nominal GDP is $22T and the GDP deflator is 110, what is Real GDP?
- $20T (Correct answer)
- $24.2T
- $22T
- $19.8T
Correct answer: $20T
Real GDP = (Nominal GDP / GDP Deflator) × 100 = ($22T / 110) × 100 = $20T.
Question 3: The GDP deflator is calculated as:
- (Nominal GDP / Real GDP) × 100 (Correct answer)
- (Real GDP / Nominal GDP) × 100
- Nominal GDP - Real GDP
- Real GDP + CPI
Correct answer: (Nominal GDP / Real GDP) × 100
The GDP deflator = (Nominal GDP ÷ Real GDP) × 100, measuring the overall price level relative to a base year.
Question 4: If real GDP grew from $18T to $19.8T, what was the real GDP growth rate?
- 10% (Correct answer)
- 8%
- 12%
- 9%
Correct answer: 10%
Growth rate = ($19.8T - $18T) / $18T × 100 = 10%.
Question 5: Which best describes the difference between GDP and GNP?
- GDP counts output within borders; GNP counts output by a country's residents regardless of location (Correct answer)
- GNP counts output within borders; GDP counts output by residents abroad
- GDP and GNP are always equal
- GNP excludes government spending while GDP includes it
Correct answer: GDP counts output within borders; GNP counts output by a country's residents regardless of location
GDP is location-based (within borders), while GNP (now called GNI) is residency-based (citizens/firms wherever they produce).
Question 6: A steel company sells $400 of steel to an automaker, which sells $1,200 of cars to consumers. Using the value-added method, GDP contribution is:
- $1,200 (Correct answer)
- $1,600
- $400
- $800
Correct answer: $1,200
GDP counts only the final value of $1,200 (or equivalently, $400 value added by steel + $800 value added by automaker = $1,200).
Question 7: Per capita GDP is calculated by:
- Dividing total GDP by the total population (Correct answer)
- Multiplying GDP by the labor force participation rate
- Subtracting imports from GDP per person
- Adding net exports to household income
Correct answer: Dividing total GDP by the total population
Per capita GDP = GDP ÷ Population, providing a rough measure of average living standards.
GDP Calculation 3
Nominal GDP differs from Real GDP in that Nominal GDP: