GDP Calculation Methods 3 — Questions and Answers
Question 1: How does the Bureau of Economic Analysis (BEA) treat inventory accumulation in GDP calculations?
- It is excluded as unsold goods
- It is counted as part of gross private investment (Correct answer)
- It is added to government spending
- It reduces net exports
Correct answer: It is counted as part of gross private investment
Changes in business inventories are included in the investment (I) component of GDP because production occurred in the current period even if goods are not yet sold.
Question 2: In GDP accounting, 'net exports' equal negative $200 billion. This means:
- Exports exceeded imports by $200 billion
- Imports exceeded exports by $200 billion (Correct answer)
- The trade balance is exactly zero
- Government spending exceeded revenue by $200 billion
Correct answer: Imports exceeded exports by $200 billion
Net exports = Exports − Imports; a negative value indicates a trade deficit where imports exceed exports.
Question 3: Which adjustment converts GDP to GNP (Gross National Product)?
- Add depreciation, subtract taxes
- Add income earned abroad by residents, subtract income earned domestically by foreigners (Correct answer)
- Subtract government transfer payments
- Add imports, subtract exports
Correct answer: Add income earned abroad by residents, subtract income earned domestically by foreigners
GNP = GDP + income received by U.S. residents from abroad − income paid to foreign residents in the U.S.
Question 4: Consumption of fixed capital (depreciation) is subtracted from GDP to arrive at:
- Real GDP
- Gross National Product
- Net Domestic Product (NDP) (Correct answer)
- Nominal GDP
Correct answer: Net Domestic Product (NDP)
NDP = GDP − Consumption of Fixed Capital (depreciation), giving a measure of net economic output after accounting for capital wear.
Question 5: In the production approach, an intermediate good is defined as:
- A good sold directly to final consumers
- A good used as an input in producing another good or service (Correct answer)
- A good produced by the government sector
- A good imported from abroad
Correct answer: A good used as an input in producing another good or service
Intermediate goods are inputs consumed in the production process and are excluded from GDP to avoid double-counting.
Question 6: If nominal GDP grows 6% and the GDP deflator rises 4%, approximately what is real GDP growth?
- 10%
- 6%
- 2% (Correct answer)
- 4%
Correct answer: 2%
Real GDP growth ≈ Nominal GDP growth − Inflation rate = 6% − 4% = 2%.
Question 7: Which of the following is NOT included in the investment (I) component of U.S. GDP?
- Residential construction
- Business equipment purchases
- Purchase of corporate stocks and bonds (Correct answer)
- Changes in business inventories
Correct answer: Purchase of corporate stocks and bonds
Financial investments like stock and bond purchases are not included in GDP's investment component because they are asset transfers, not production of new goods.
GDP Calculation Methods 3
How does the Bureau of Economic Analysis (BEA) treat inventory accumulation in GDP calculations?