GDP Real vs. Nominal GDP 5

Question 1

If a country's real GDP growth rate is negative for two consecutive quarters, economists call this a:

Accepted Answer

Recession

Answer

A technical recession is commonly defined as two consecutive quarters of negative real GDP growth.

Question 2

The implicit price deflator (GDP deflator) is called 'implicit' because:

Accepted Answer

It is derived from the ratio of nominal to real GDP rather than measured directly

Answer

The GDP deflator is calculated as (Nominal GDP / Real GDP) × 100, meaning it is inferred from the GDP data rather than constructed from a pre-set basket.

Question 3

Nominal GDP in the US in 2023 was approximately $27.4 trillion. If the GDP deflator was approximately 121 (base year 2017), real GDP was closest to:

Accepted Answer

$22.6 trillion

Answer

Real GDP ≈ $27.4T / 121 × 100 ≈ $22.6 trillion, reflecting 2017 prices.

Question 4

Which of the following represents a limitation of using real GDP to compare living standards across countries?

Accepted Answer

Real GDP does not reflect income distribution, leisure time, or environmental quality

Answer

Real GDP measures total output but ignores how evenly income is distributed, hours worked per person, or sustainability of production.

Question 5

A government reports that real GDP grew 2.5% while nominal GDP grew 2.5% in the same year. What does this imply about inflation?

Accepted Answer

Inflation was approximately 0%

Answer

Equal nominal and real GDP growth rates imply the GDP deflator was unchanged, meaning there was essentially zero inflation that year.

GDP - Gross Domestic Product Practice Test

GDP - Gross Domestic Product Practice Test

GDP Real vs. Nominal GDP 5