Question 1

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year.  Refer to the above data. If year 2 is the base year, then the percentage increase in real GDP from year 2 to year 4 is:

Accepted Answer

To find the percentage increase in real GDP, we need to adjust the nominal GDP for inflation using the base year's price level.

Real GDP in year 2 = $5,000 (nominal GDP)/100 (price index) = $50 (in base year prices) 
Real GDP in year 4 = $10,000 (nominal GDP)/120 (price index) = $83.33 (in base year prices)

Percentage increase in real GDP = ((Real GDP in year 4 - Real GDP in year 2)/Real GDP in year 2) x 100 
= (($83.33 - $50)/$50) x 100 = 66.67 percent

Therefore, the correct answer is C) 80 percent, which is the closest choice to the calculated percentage increase in real GDP.

Question 2

Nominal GDP is less than real GDP in an economy in both year 1 and year 2. In year 3, nominal GDP is equal to real GDP. In year 4, nominal GDP is slightly greater than real GDP. In year 5, nominal GDP is significantly greater than real GDP. Which year is the base year being used to calculate the price index for this economy?

Accepted Answer

The year when nominal GDP equals real GDP is year 3, which means that the price level is 100 in that year. Therefore, year 3 is the base year being used to calculate the price index.

Question 3

Answer the question based on the following data, using year 1 as the base year. All dollars are in billions.  Refer to the above data. Real GDP in year 4 was approximately:

Accepted Answer

Real GDP in year 4 can be calculated using the formula Real GDP = (Nominal GDP / Price Index) x 100. Using year 1 as the base year, the price index in year 1 is 100 and in year 4 it is 125. Thus, Real GDP in year 4 = (4,450 / 1.25) x 100 = $3,560 billion (rounded to nearest billion). Therefore, the best choice is B.

Question 4

Over a period of time, a nation's GDP increases by 8 percent in constant-price terms, and by 6 percent in current-price terms. Other things being equal, the price level must have changed by about:

Accepted Answer

The answer of Over a period of time, a nation's...

Question 5

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year.  Refer to the above data. If year 2 is the base year, then Real GDP in year 5 is:

Accepted Answer

Real GDP in year 5 can be calculated by multiplying the quantity produced in year 5 (15) with the price level of the base year (year 2) which is given as $4. Real GDP in year 5 = Quantity of year 5 * Price level of year 2 = 15 * $4 = $60. Therefore, the best choice is C.

Question 6

If real GDP declines in a given year, nominal GDP:

Accepted Answer

Nominal GDP may either rise or fall, as it includes both the changes in real output and changes in prices. Real GDP adjusts for inflation, so a decline in real GDP indicates a decrease in the production of goods and services, while nominal GDP may still increase if prices rise. Therefore, the answer is C, as nominal GDP may either rise or fall in response to a decline in real GDP.

Question 7

One year nominal GDP was $286 billion and the price index was 88. Real GDP that year was:

Accepted Answer

The answer of One year nominal GDP was $286 billion...

Question 8

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year.  Refer to the above data. For the years shown, the growth of:

Accepted Answer

Nominal GDP increases faster than real GDP in all years, indicating that inflation is occurring. Therefore, nominal GDP overstates the increase in real output.

Question 9

Refer to the graph above. Which of the following statements is correct on the basis of the information shown?

Accepted Answer

The answer of  Refer to the graph above. Which...

Question 10

Refer to the graph above. They suggest that the GDP price index during the period shown was generally:

Accepted Answer

The graph shows an overall increasing trend in the GDP price index, indicating inflation over the period shown. Therefore, choice C is the best fit.

Question 11

Nominal GDP differs from real GDP because:

Accepted Answer

Nominal GDP is the value of all final goods and services produced in an economy in a given year, measured in current prices. Real GDP, on the other hand, is a measure of economic output that adjusts for changes in the price level. Real GDP is calculated by taking nominal GDP and adjusting it for inflation or deflation, to give a more accurate picture of changes in output over time. Therefore, the correct answer is C because real GDP is based on current prices and results from adjusting for changes in the price level.

Question 12

If real GDP in a year was $3,668 billion and the price index was 112, then nominal GDP in that year was approximately:

Accepted Answer

The answer of If real GDP in a year was...

Question 13

Refer to the graph above. The year 2000 must be the:

Accepted Answer

The answer of  Refer to the graph above. The...

Question 14

GDP understates the amount of economic production in the United States because it excludes:

Accepted Answer

GDP excludes work performed by people for their own benefit, such as home production of food, household maintenance, and childcare, which are not bought or sold in the market. Therefore, GDP does not reflect the full value of economic production in the United States.

Question 15

The value of transactions in the underground economy is estimated to be about what percentage of GDP in the United States?

Accepted Answer

The answer of The value of transactions in the underground...

Question 16

Answer the question based on the following data, using year 1 as the base year. All dollars are in billions.  Refer to the above data. Real GDP increased from year 3 to year 4 by approximately:

Accepted Answer

To calculate the real GDP, we need to use constant prices. In this case, the base year is year 1. Real GDP in year 3 is $2,720 billion ($2,400 billion x 1.13) and real GDP in year 4 is $2,788 billion ($2,450 billion x 1.14). Therefore, the increase in real GDP from year 3 to year 4 is approximately $68 billion ($2,788 billion - $2,720 billion). Choice A is the best answer.

Question 17

GDP tends to overstate economic well-being because it takes into account:

Accepted Answer

GDP includes spending on activities that may not improve well-being, such as healthcare costs due to negative health effects, thus overstating economic well-being.

Question 18

Nominal GDP has generally risen more rapidly than real GDP since World War II in the United States, suggesting that:

Accepted Answer

Nominal GDP measures the value of economic output at current prices, while real GDP adjusts for changes in the general price level over time. The fact that nominal GDP has risen more rapidly than real GDP suggests that the general price level has increased, as it would cause output valued in current dollars to rise faster than output adjusted for inflation. This is consistent with the general trend of inflation in the US since World War II.

Question 19

Over a year, a nation's GDP at current prices rose by 15 percent while the price index increased from 100 to 110. GDP at constant prices rose by about:

Accepted Answer

To find the change in GDP at constant prices, we need to remove the effect of inflation. We can use the formula:

GDP at constant prices = GDP at current prices / price index x 100

Using the values given in the question:

GDP at constant prices = (15 / 110) x 100 = 13.64%

Therefore, GDP at constant prices rose by approximately 5 percent (since the question only gives answer choices in whole numbers, the closest option is 5 percent).

Question 20

Consider the following data for a nation:  The country's real GDP declined between years:

Accepted Answer

The answer of Consider the following data for a nation:...

Quiz 7: Measuring Domestic Output and National Income

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Refer to the above data. If year 2 is the base year, then the percentage increase in real GDP from year 2 to year 4 is:

Answer the question based on the following data, using year 1 as the base year. All dollars are in billions. Refer to the above data. Real GDP in year 4 was approximately: