GDP Concept and Indicators 2

Question 1

Which of the following is NOT counted in U.S. GDP?

Accepted Answer

A U.S. company's factory output in Mexico

Answer

GDP measures output produced within a country's borders, so a U.S. company's output in Mexico is excluded.

Question 2

The GDP deflator is best described as:

Accepted Answer

The ratio of nominal GDP to real GDP multiplied by 100

Answer

The GDP deflator equals (Nominal GDP / Real GDP) × 100, capturing the overall price level of all goods in the economy.

Question 3

In the expenditure approach to GDP, net exports equal:

Accepted Answer

Exports minus imports

Answer

Net exports (NX) = Exports − Imports; a trade deficit means NX is negative, reducing GDP.

Question 4

Which scenario would INCREASE measured GDP?

Accepted Answer

A restaurant hires a new chef and increases sales

Answer

Market transactions for final goods and services are counted; unreported cash transactions and household production are not.

Question 5

Potential GDP refers to:

Accepted Answer

The level of output when all resources are fully and efficiently employed

Answer

Potential GDP is the economy's maximum sustainable output when labor and capital are fully utilized without generating excess inflation.

GDP - Gross Domestic Product Practice Test