GDP Real vs. Nominal GDP 3 — Questions and Answers
Question 1: In the United States, which agency is primarily responsible for publishing official GDP estimates including real GDP?
- Bureau of Economic Analysis (BEA) (Correct answer)
- Federal Reserve
- Congressional Budget Office
- Bureau of Labor Statistics
Correct answer: Bureau of Economic Analysis (BEA)
The BEA, part of the Department of Commerce, produces the official National Income and Product Accounts including real and nominal GDP.
Question 2: The chain-weighting method used by the BEA to calculate real GDP differs from a fixed-base-year approach because it:
- Updates price weights continuously rather than anchoring to one year (Correct answer)
- Uses consumer prices instead of producer prices
- Excludes government spending
- Only measures final goods
Correct answer: Updates price weights continuously rather than anchoring to one year
Chain-weighting uses adjacent-year price weights averaged together, avoiding the substitution bias of a fixed base year.
Question 3: If the BEA shifts the base year for real GDP from 2012 to 2017, which of the following is true?
- The growth rates of real GDP remain largely unchanged even though the level differs (Correct answer)
- All historical real GDP values become invalid
- Nominal GDP figures also change
- The new base year makes real GDP equal to nominal GDP only in 2012
Correct answer: The growth rates of real GDP remain largely unchanged even though the level differs
Changing the base year rescales GDP levels but does not materially alter the growth rates that economists rely on for analysis.
Question 4: A country produces only apples. In 2020 (base year) it produces 100 apples at $1 each. In 2025 it produces 120 apples at $1.50 each. What is real GDP in 2025?
- $120 (Correct answer)
- $150
- $180
- $100
Correct answer: $120
Real GDP uses base-year prices: 120 apples × $1 (2020 price) = $120.
Question 5: An economy's nominal GDP doubles over a decade while its real GDP increases by only 40%. The most accurate conclusion is:
- About 60 percentage points of nominal growth was due to inflation (Correct answer)
- Real GDP is a flawed measure
- The economy experienced deflation
- Population growth explains the difference
Correct answer: About 60 percentage points of nominal growth was due to inflation
The gap between 100% nominal growth and 40% real growth indicates roughly 60 percentage points was driven by rising price levels.
Question 6: Which best describes the relationship between the GDP deflator and the CPI when measuring inflation?
- The GDP deflator covers all domestically produced goods; the CPI covers a fixed consumer basket (Correct answer)
- The CPI is broader than the GDP deflator
- They are identical measures
- The GDP deflator excludes services
Correct answer: The GDP deflator covers all domestically produced goods; the CPI covers a fixed consumer basket
The GDP deflator reflects prices of everything produced domestically, while the CPI tracks a fixed basket of goods and services bought by consumers.
Question 7: Real GDP per capita is considered a better welfare measure than total real GDP because:
- It accounts for how output is distributed across the population (Correct answer)
- It removes inflation more effectively
- It includes household production
- It is calculated monthly
Correct answer: It accounts for how output is distributed across the population
Dividing real GDP by population size adjusts for how many people share the output, making cross-country and over-time comparisons of living standards more meaningful.
GDP Real vs. Nominal GDP 3
In the United States, which agency is primarily responsible for publishing official GDP estimates including real GDP?