Question 1

Which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being?

Accepted Answer

GDP only includes the value of goods and services produced by the market economy. Child-care services provided by stay-at-home parents are not a part of the market economy and are therefore excluded from GDP. This exclusion causes GDP to understate a nation's well-being because stay-at-home parents are providing a vital service that supports the economy by allowing others to work outside the home.

Question 2

The growth of GDP may understate changes in the economy's economic well-being over time if the

Accepted Answer

The quality of products and services improving means that even though the GDP may stay the same, people are getting better products and services which makes their life better.

Question 3

Real GDP is

Accepted Answer

Real GDP is the nominal value of all goods and services produced in the domestic economy, adjusted for inflation or deflation, to reflect the true value of economic output.

Question 4

A large underground economy results in an

Accepted Answer

A large underground economy consists of unreported economic activities, such as unreported income or black market transactions, which are not included in official GDP calculations. This results in an understated GDP because the actual economic activity is greater than what is being measured.

Question 5

GDP excludes

Accepted Answer

GDP only includes market value of goods and services produced in a country, so unpaid work in the home is excluded. B, C, and D are incorrect because GDP does include the production of services, nondurable goods, and positive changes in inventories.

Question 6

Assume that the size of the underground economy increases both absolutely and relatively over time.As a result,

Accepted Answer

GDP only measures economic activity that is officially recorded, which means that if the underground economy grows, it will not be fully captured by GDP. Therefore, GDP will tend to increasingly understate the level of output through time. This is because the increase in the size of the underground economy is not visible in the official statistics, leading to an increasingly inaccurate measurement of the economy's actual output.

Question 7

The GDP tends to

Accepted Answer

GDP understates economic welfare because it does not account for increases in leisure, which contribute to overall well-being and quality of life.

Question 8

In an economy experiencing a persistently falling price level,

Accepted Answer

The answer of In an economy experiencing a persistently falling...

Question 9

Historically, real GDP has increased less rapidly than nominal GDP because

Accepted Answer

Nominal GDP is measured using current prices, so it increases with inflation. Real GDP is adjusted for inflation, reflecting true growth in output.

Question 10

Environmental pollution is accounted for in

Accepted Answer

Environmental pollution is not accounted for in economic indicators like GDP, PI, or DI. These indicators only measure the monetary value of goods and services produced within a country and the income earned by individuals and corporations, but do not take into account the negative externalities associated with production activities, such as pollution and environmental degradation. Therefore, other measures like the Genuine Progress Indicator (GPI) or the Index of Sustainable Economic Welfare (ISEW) have been developed to better account for environmental and social factors that affect well-being and sustainability.

Question 11

If real GDP rises and the GDP price index has increased,

Accepted Answer

If real GDP rises and the GDP price index has increased, it means that prices have gone up while production has also increased. This implies that nominal GDP must have also increased. Therefore, the correct answer is C - nominal GDP must have increased.

Question 12

Suppose nominal GDP was $360 billion in 1990 and $450 billion in 2000.The appropriate price index (1985 = 100) was 120 in 1990 and 125 in 2000.Between 1990 and 2000, real GDP

Accepted Answer

Real GDP increased by $60 billion between 1990 and 2000. This is because nominal GDP increased by $90 billion (from $360 billion to $450 billion), but the price index also increased by 5 points (from 120 to 125). This means that the real value of GDP increased by less than the nominal value.

Question 13

Suppose a nation's 2010 nominal GDP was $972 billion and the general price index was 90.To make the 2010 GDP comparable with the base year GDP, the 2010 GDP must be

Accepted Answer

The answer of Suppose a nation's 2010 nominal GDP was...

Question 14

Which of the following activities is excluded from GDP, causing GDP to understate a nation's production?

Accepted Answer

The underground economy consists of all transactions that are not reported to the government, resulting in the exclusion from GDP. This could include activities such as illegal activities, unreported income, and transactions made with cash to avoid taxes. The other choices are typically included in GDP as they involve the provision of goods or services that are reported to the government.

Question 15

In determining real GDP, economists adjust the nominal GDP by using the

Accepted Answer

The GDP price index, also known as the implicit price deflator, is used to adjust nominal GDP for inflation and calculate real GDP. This index takes into account price changes across all goods and services produced in the economy, whereas the consumer price index only measures price changes for a specific basket of consumer goods. The wholesale price index reflects changes in the prices of goods at the producer level, but does not capture price changes for services. The national productivity index does not directly relate to calculating GDP.

Question 16

Suppose nominal GDP in 2009 was $100 billion and in 2010 it was $260 billion.The general price index in 2009 was 100 and in 2010 it was 180.Between 2009 and 2010, the real GDP rose by approximately

Accepted Answer

The answer of Suppose nominal GDP in 2009 was $100...

Question 17

(Advanced analysis) Only three goods are produced in an economy in the following amounts: A = 10, B = 30, C = 5.The current year per-unit prices of these three goods are A = $2, B = $3, and C = $1.If the per-unit prices of the three goods were each $1 in a base year used to construct a GDP price index, then the GDP price index in the current year is

Accepted Answer

The answer of (Advanced analysis) Only three goods are produced...

Question 18

The fact that nominal GDP has risen faster than real GDP

Accepted Answer

When nominal GDP rises faster than real GDP, it indicates that the prices of goods and services in the economy have increased, leading to a rise in the general price level. Real GDP is adjusted for inflation and reflects the actual growth in the volume of goods and services, while nominal GDP is not adjusted for inflation.

Question 19

If nominal GDP rises,

Accepted Answer

Nominal GDP measures the value of all goods and services produced in an economy at current market prices. Real GDP, on the other hand, measures the value of all goods and services produced in an economy adjusted for inflation. Thus, changes in nominal GDP can be due to changes in prices or changes in production. Therefore, nominal GDP rising does not necessarily mean real GDP has risen as well. Real GDP may either rise or fall depending on whether the increase in nominal GDP was driven by higher prices or an increase in production.

Question 20

In comparing GDP data over a period of years, a difference between nominal and real GDP may arise because

Accepted Answer

Real GDP accounts for changes in the price level over time, while nominal GDP does not, leading to differences between the two when prices change.

Quiz 27: Measuring Domestic Output and National Income