Question 1

A country reported nominal GDP of $200 billion in 2015 and $180 billion in 2014 and reported a GDP deflator of 125 in 2015 and 105 in 2014. What happened to real output and prices from 2014 to 2015?

Accepted Answer

The answer of A country reported nominal GDP of $200...

Question 2

Suppose an economy produces only cranberries and maple syrup. Last year, 50 units of cranberries are sold at $20 per unit, and 100 units of maple syrup are sold at $10 per unit. If the price of cranberries was $10 per unit and the price of maple syrup was $15 per unit in the base year, what can we conclude?

Accepted Answer

To find the real GDP in the base year, we need to use the base year prices to calculate the value of goods and services produced.

Real GDP (base year) = (Quantity of cranberries x Price of cranberries in base year) + (Quantity of maple syrup x Price of maple syrup in base year)
Real GDP (base year) = (50 x $10) + (100 x $15)
Real GDP (base year) = $2000

To find nominal GDP, we use current year prices to calculate the value of goods and services produced.

Nominal GDP = (Quantity of cranberries x Price of cranberries) + (Quantity of maple syrup x Price of maple syrup)
Nominal GDP = (50 x $20) + (100 x $10)
Nominal GDP = $2000 + $1000
Nominal GDP = $3000

To find the GDP deflator, we use the formula:

GDP deflator = (Nominal GDP / Real GDP) x 100

GDP deflator = ($3000 / $2000) x 100
GDP deflator = 150

Therefore, the correct answer is C. Nominal GDP is $3000, real GDP is $2000, and the GDP deflator is 150.

Question 3

Which statement supports the idea of using GDP as a measure of well-being?

Accepted Answer

The presence of more schools in countries with higher GDP suggests that there is a greater investment in education, which can lead to higher levels of human capital and potentially better overall well-being for citizens.

Question 4

How are nominal GDP and real GDP related?

Accepted Answer

Nominal GDP is calculated using the current year's prices, which can be affected by inflation or deflation, making it a measure of the current economic output at current prices. Real GDP, on the other hand, is calculated using the prices of a base year, which allows for the measurement of economic output adjusted for price changes, providing a more accurate reflection of an economy's size and how it's growing over time.

Question 5

If a small country has current nominal GDP of $30 billion and the GDP deflator is 40, what is its real GDP?

Accepted Answer

The answer of If a small country has current nominal...

Question 6

Suppose Nova Scotia produces only cheese and fish. Last year, 20 units of cheese are sold at $5 each and 8 units of fish are sold at $50 each. If in the base year the price of cheese was $10 per unit and the price of fish was $75 per unit, what can we conclude?

Accepted Answer

Nominal GDP is calculated using current prices, so it's 20 units of cheese * $5 + 8 units of fish * $50 = $100 + $400 = $500. Real GDP uses base year prices, so it's 20 units of cheese * $10 + 8 units of fish * $75 = $200 + $600 = $800. The GDP deflator is (Nominal GDP / Real GDP) * 100 = ($500 / $800) * 100 = 62.5.

Question 7

A country reported a nominal GDP of $100 billion in 2015 and $75 billion in 2014 and reported a GDP deflator of 125 in 2015 and 120 in 2014. What happened to real output and prices from 2014 to 2015?

Accepted Answer

The answer of A country reported a nominal GDP of...

Question 8

What prices are used to compute real GDP?

Accepted Answer

Real GDP is calculated using constant prices, also known as inflation-adjusted prices, which are adjusted for changes in price levels over time. This allows us to accurately compare the economic output of different years without the distortion caused by inflation.

Question 9

A country reported a nominal GDP of $115 billion in 2015 and $125 billion in 2014 and reported a GDP deflator of 85 in 2015 and 100 in 2014. What happened to real output and prices from 2014 to 2015?

Accepted Answer

The answer of A country reported a nominal GDP of...

Question 10

-Refer to the Table 5-4. Using 2014 as the base year, what can we conclude for 2013?

Accepted Answer

The answer of 
-Refer to the Table 5-4. Using 2014...

Question 11

If a small country has current nominal GDP of $20 billion and the GDP deflator is 125, what is its real GDP?

Accepted Answer

Real GDP = Nominal GDP / GDP deflator
Real GDP = $20 billion / 1.25 (125/100)
Real GDP = $16 billion

Question 12

-Refer to the Table 5-4. What is the nominal GDP for 2014?

Accepted Answer

The answer of 
-Refer to the Table 5-4. What is...

Question 13

If the GDP deflator is 400 and nominal GDP is $2 trillion billion, what is real GDP?

Accepted Answer

Real GDP = Nominal GDP/GDP deflator
Real GDP = $2 trillion billion/400 = $500 billion.

Question 14

-Refer to the Table 5-4. Using 2013 as the base year, what can we conclude for 2014?

Accepted Answer

The answer of 
-Refer to the Table 5-4. Using 2013...

Question 15

When economists talk about growth in the economy, how do they measure that growth?

Accepted Answer

Economists typically measure growth in the economy by comparing the percentage change in real GDP (gross domestic product) over time. Real GDP takes into account changes in prices and inflation, so comparing real GDP from two different periods can give a more accurate reflection of actual economic growth. Absolute changes in GDP (nominal or real) may not be as useful for measuring growth because they don't account for changes in population or inflation.

Question 16

-Refer to the Table 5-4. Using the GDP deflator to measure the average level of prices and using 2013 as the base year, what is the economy's inflation rate?

Accepted Answer

The answer of 
-Refer to the Table 5-4. Using the...

Question 17

An economy produces only eggs and ham. Last year, it produced 100 units of eggs at $3 each and 50 units of ham at $4 each. If in the base year eggs sold for $1.50 per unit and ham sold for $5 per unit, what can we conclude?

Accepted Answer

Nominal GDP is calculated using current year prices: (100 eggs * $3) + (50 hams * $4) = $300 + $200 = $500. Real GDP is calculated using base year prices: (100 eggs * $1.50) + (50 hams * $5) = $150 + $250 = $400. The GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. GDP deflator = (Nominal GDP / Real GDP) * 100 = ($500 / $400) * 100 = 125.

Question 18

-Refer to the Table 5-4. What is the nominal GDP?

Accepted Answer

Nominal GDP is calculated by multiplying the quantity of goods and services produced in a country by their current market price. Therefore, for 2013, the nominal GDP is calculated as $190 (Q1) x $4 (P1) + $90 (Q2) x $8 (P2) + $60 (Q3) x $10 (P3) + $420 (Q4) x $1 (P4) = $760. Similarly, for 2014, nominal GDP is $200 (Q1) x $4 (P1) + $100 (Q2) x $8 (P2) + $80 (Q3) x $10 (P3) + $500 (Q4) x $1 (P4) = $1100. And for 2015, it is $240 (Q1) x $4 (P1) + $120 (Q2) x $8 (P2) + $100 (Q3) x $10 (P3) + $680 (Q4) x $1 (P4) = $1600. Therefore, the correct answer is option C.

Question 19

If nominal GDP is $1 trillion and real GDP is $0.9 trillion, what is the GDP deflator?

Accepted Answer

The answer of If nominal GDP is $1 trillion and...

Question 20

What best defines the GDP deflator?

Accepted Answer

The GDP deflator is defined as the ratio of nominal GDP to real GDP multiplied by 100. It is a measure of the level of prices of all new, domestically produced, final goods and services in an economy.

Quiz 5: Measuring a Nations Income