GDP Calculation 5 — Questions and Answers
Question 1: Which of the following best describes the output (production) approach to calculating GDP?
- Summing the market value of all final goods and services produced in a period (Correct answer)
- Adding all household incomes earned during the year
- Summing all spending by consumers, firms, government, and net exports
- Counting only goods produced by manufacturing firms
Correct answer: Summing the market value of all final goods and services produced in a period
The output approach sums the market value of every final good and service produced within a country's borders during the period.
Question 2: Real GDP per capita grew from $55,000 to $57,200. What was the approximate growth rate?
- 4% (Correct answer)
- 3%
- 5%
- 2%
Correct answer: 4%
Growth rate = ($57,200 - $55,000) / $55,000 × 100 = $2,200 / $55,000 × 100 = 4%.
Question 3: Which scenario involves 'double counting' that the value-added method avoids?
- Adding flour sales and bread sales separately to GDP (Correct answer)
- Counting only the bread's final retail price in GDP
- Subtracting intermediate goods from each firm's revenue
- Including only wages paid at each production stage
Correct answer: Adding flour sales and bread sales separately to GDP
Adding both flour and bread sales would count the flour's value twice; the value-added method avoids this by counting only each stage's added value.
Question 4: A country reports GDP of $2T in 2020 and $2.2T in 2021 (both in 2020 dollars). What does the $0.2T increase represent?
- Real economic growth, since the values are already inflation-adjusted (Correct answer)
- Nominal growth that may be entirely due to inflation
- A decline in purchasing power
- A trade surplus of $0.2T
Correct answer: Real economic growth, since the values are already inflation-adjusted
Because both figures use 2020 dollars (real GDP), the $0.2T difference reflects actual growth in output, not just price changes.
Question 5: Which adjustment converts GDP to GNI (Gross National Income)?
- GDP + Net factor income from abroad (Correct answer)
- GDP - Government transfer payments
- GDP + Trade surplus
- GDP - Depreciation
Correct answer: GDP + Net factor income from abroad
GNI = GDP + Net factor income from abroad (income earned by residents abroad minus income paid to foreigners domestically).
Question 6: Depreciation (consumption of fixed capital) is subtracted from GDP to arrive at:
- Net Domestic Product (NDP) (Correct answer)
- Real GDP
- GNI
- Per Capita GDP
Correct answer: Net Domestic Product (NDP)
NDP = GDP - Capital Depreciation, representing net output after accounting for worn-out or obsolete capital.
Question 7: Country A has C = $6T, I = $1.5T, G = $2T, X = $0.8T, M = $1.2T. Its GDP is closest to:
- $9.1T (Correct answer)
- $9.5T
- $10.3T
- $8.7T
Correct answer: $9.1T
GDP = $6T + $1.5T + $2T + ($0.8T - $1.2T) = $6T + $1.5T + $2T - $0.4T = $9.1T.
GDP Calculation 5
Which of the following best describes the output (production) approach to calculating GDP?