Question 1

Real GDP is not a perfect measure of economic well being because it excludes the value of all of the following EXCEPT:

Accepted Answer

Real GDP includes the value of all goods and services produced within the market economy. It does not, however, include nonmarket economic activity such as household production, nor does it include the value of goods and services produced in the underground economy (illegal activities, unreported income, etc.). It also does not take into account leisure time, which can contribute to overall well-being. Therefore, the only answer choice that is excluded from real GDP is nonmarket economic activity.

Question 2

Assume an economy produces only hamburgers and hotdogs and the base year is 2005. $\begin{array}{lcccc} 
&& {\text { Quantities Produced }} && {\text { Prices }} \
 & 2005 & 2006 & 2005 & 2006 \
\text { Hamburgers } & 2,000 & 3,000 & \$ 2 & \$ 3 \
\text { Hotdogs } & 3,000 & 4,000 & \$ 1 & \$ 1.50
\end{array}$ Given the data in the table above, what is the value of nominal GDP in 2006?

Accepted Answer

Nominal GDP in 2006 is calculated using the 2006 prices and quantities: (3,000 hamburgers * $3) + (4,000 hotdogs * $1.50) = $9,000 + $6,000 = $15,000.

Question 3

Peg's Manicure Manor did 4,000 sets of nails in 2010 and 4,500 sets of nails in 2011. The price of a set of nails was $20 in 2010 and $22 in 2011. If 2010 is the base year, Peg's contribution to nominal GDP in 2010 was ______ and to real GDP in 2010 was _____.

Accepted Answer

The answer of Peg's Manicure Manor did 4,000 sets of...

Question 4

Assume an economy produces only footballs and baseballs and the base year is 2005. $\begin{array}{lllll} 
& {\text { Quantities Produced }} && {\text { Prices }} \
 & 2005 & 2006 & 2005 & 2006 \
\text { Footballs } & 200 & 300 & \$ 20 & \$ 25 \
\text { Baseballs } & 500 & 600 & \$ 10 & \$ 15
\end{array}$

Given the data in the table above, what is the value of real GDP in 2006?

Accepted Answer

Real GDP in 2006 is calculated using the quantities from 2006 and the prices from the base year 2005. For footballs: 300 * $20 = $6,000. For baseballs: 600 * $10 = $6,000. Total real GDP = $6,000 + $6,000 = $12,000.

Question 5

Bob's Barber Shop cut 3,000 heads of hair in 2009 and 3,100 in 2010. The price of a haircut was $7 in 2009 and $8 in 2010. If 2009 is the base year, what was Bob's contribution to nominal GDP in the year 2010?

Accepted Answer

To calculate nominal GDP for 2010 using 2009 as the base year, we need to use the quantity of haircuts in 2010 and multiply it by the price of haircuts in 2009 (the base year).

Nominal GDP = (quantity in current year x price in base year) + (quantity in current year x price in current year)

Nominal GDP for 2010 = (3,100 x $7) + (3,100 x $8) = $21,700

Therefore, the correct answer is choice letter D.

Question 6

In the base year, real GDP ______ nominal GDP.

Accepted Answer

In the base year, the price level used to calculate nominal GDP is the same as the price level used to calculate real GDP (i.e. the GDP deflator is 100), so real GDP is equal to nominal GDP.

Question 7

Nominal GDP measures the ______ of production.

Accepted Answer

Nominal GDP measures the current dollar value of production, without adjusting for inflation or changes in the price level.

Question 8

Assume an economy produces only hamburgers and hotdogs and the base year is 2005. $$\begin{array} { l c c c c } 
&&{ \text { Quantities Produced } } & & { \text { Prices } } \
& \underline { 2005 } & \underline { 2006 } & \underline { 2005 } & \underline { 2006 } \
\text { Hamburgers } & 2,000 & 3,000 & \$ 2 & \$ 3 \
\text { Hotdogs } & 3,000 & 4,000 & \$ 1 & \$ 1.50
\end{array}$$ Given the data in the table above, what is the value of real GDP in 2006?

Accepted Answer

Real GDP in 2006 is calculated using the quantities from 2006 and the prices from the base year 2005. For hamburgers: 3,000 * $2 = $6,000. For hotdogs: 4,000 * $1 = $4,000. Total real GDP = $6,000 + $4,000 = $10,000.

Question 9

The table below gives the quantities and prices for 2000 and 2010 for an economy that produces just two goods: sailboats and coconuts. $$\begin{array} { | l | c | c | c | c | } 
\hline& { \text { Quantity produced } } && { \text { Price } } \
\hline & \mathbf { 2 0 0 0 } & \mathbf { 2 0 1 0 } & \mathbf { 2 0 0 0 } & \mathbf { 2 0 1 0 } \
\hline \text { Sailboats } & 10 & 20 & \$ 500 & \$ 525 \
\hline \text { Coconuts } & 2,000 & 2,400 & \$ 1 & \$ 2 \
\hline
\end{array}$$ For this economy that produces just sailboats and coconuts, and with 2000 is the base year, real GDP was approximately ______ times larger in 2010 than it was in 2000.

Accepted Answer

The answer of The table below gives the quantities and...

Question 10

If prices in the current year are higher on average than in the base year, real GDP in the current year ______ nominal GDP in the current year.

Accepted Answer

If prices in the current year are higher on average than in the base year, this means that the GDP deflator (which measures the price level) is greater than 100. This makes nominal GDP (which is calculated using current year prices) higher than real GDP (which is calculated using base year prices adjusted for inflation). Therefore, real GDP in the current year is less than nominal GDP in the current year.

Question 11

The table below gives the quantities and prices for 2000 and 2010 for an economy that produces just two goods: sailboats and coconuts. $$\begin{array} { | l | c | c | c | c | } 
\hline & &{ \text { Quantity produced } } & & { \text { Price } } \
\hline & \mathbf { 2 0 0 0 } & \mathbf { 2 0 1 0 } & \mathbf { 2 0 0 0 } & \mathbf { 2 0 1 0 } \
\hline \text { Sailboats } & 10 & 20 & \$ 500 & \$ 525 \
\hline \text { Coconuts } & 2,000 & 2,400 & \$ 1 & \$ 2 \
\hline
\end{array}$$ For this economy that produces just sailboats and coconuts, and with 2000 is the base year, nominal GDP was approximately ______ times larger in 2010 than it was in 2000.

Accepted Answer

To calculate nominal GDP, we need to multiply the quantities produced by their respective prices and sum them up.

Nominal GDP in 2000:

10 sailboats x $500/sailboat = $5,000
2,000 coconuts x $1/coconut = $2,000

Nominal GDP in 2000 = $5,000 + $2,000 = $7,000

Nominal GDP in 2010:

20 sailboats x $525/sailboat = $10,500 
2,400 coconuts x $2/coconut = $4,800

Nominal GDP in 2010 = $10,500 + $4,800 = $15,300

The ratio of nominal GDP in 2010 to nominal GDP in 2000 is:

$15,300/$7,000 = 2.19

Therefore, Option D is correct.

Question 12

Peg's Manicure Manor did 4,000 sets of nails in 2010 and 4,500 sets of nails in 2011. The price of a set of nails was $20 in 2010 and $22 in 2011. If 2010 is the base year, Peg's contribution to real GDP in 2010 was ______ and in 2011 was _____.

Accepted Answer

The answer of Peg's Manicure Manor did 4,000 sets of...

Question 13

Peg's Manicure Manor did 4,000 sets of nails in 2010 and 4,500 sets of nails in 2011. The price of a set of nails was $20 in 2010 and $22 in 2011. If 2010 is the base year, Peg's contribution to nominal GDP in 2010 was ______ and in 2011 was _______.

Accepted Answer

To calculate nominal GDP, we multiply the quantity of goods and services produced in each year by their current market price and then sum up the total. Thus, for 2010, the contribution to nominal GDP was $20 x 4,000 = $80,000, and for 2011, it was $22 x 4,500 = $99,000. Therefore, the correct answer is C.

Question 14

A measure of GDP in which quantities produced are valued at current-year prices is called:

Accepted Answer

Nominal GDP is a measure of economic output that values goods and services at current prices. It does not account for inflation or changes in the prices of goods and services over time.

Question 15

Assume an economy produces only footballs and baseballs and the base year is 2005. $\begin{array}{llcll} 
& {\text { Quantities Produced }} & &{\text { Prices }} \
\text { Footballs } & 200 & 300 & \$ 20 & \$ \$ 25 \
\text { Baseballs } & 500 & 600 & \$ 10 & \$ 15
\end{array}$
 Given the data in the table above, what is the value of nominal GDP in 2006?

Accepted Answer

Nominal GDP in 2006 is calculated using the quantities and prices of that year: (300 footballs * $25) + (600 baseballs * $15) = $7,500 + $9,000 = $16,500.

Question 16

Real GDP measures the ______ of production.

Accepted Answer

Real GDP measures the market value of production using the prices of in a base year rather than current prices.

Question 17

Bob's Barber Shop cut 3,000 heads of hair in 2009 and 3,100 in 2010. The price of a haircut was $7 in 2009 and $8 in 2010. If 2009 is the base year, what was Bob's contribution to real GDP in 2009?

Accepted Answer

To calculate real GDP, we need to find the value of output (in this case, the number of haircuts) at the constant price of the base year (2009). 
Value of output in 2009 = 3,000 haircuts x $7 per haircut = $21,000 
Since 2009 is the base year, its value of output is already in constant prices, so there is no need to adjust for inflation. Therefore, Bob's contribution to real GDP in 2009 is $21,000.

Question 18

Bob's Barber Shop cut 3,000 heads of hair in 2009 and 3,100 in 2010. The price of a haircut was $7 in 2009 and $8 in 2010. If 2009 is the base year, what was Bob's contribution to real GDP in the year 2010?

Accepted Answer

Real GDP is calculated using base year prices. In 2010, Bob cut 3,100 heads of hair at the 2009 price of $7, resulting in a real GDP contribution of $21,700 (3,100 x $7).

Question 19

Bob's Barber Shop cut 3,000 heads of hair in 2009 and 3,100 in 2010. The price of a haircut was $7 in 2009 and $8 in 2010. If 2009 is the base year, what was Bob's contribution to nominal GDP in the year 2009?

Accepted Answer

Nominal GDP for 2009 is calculated by multiplying the number of haircuts by the price per haircut in 2009: 3,000 haircuts * $7 = $21,000.

Question 20

Peg's Manicure Manor did 4,000 sets of nails in 2010 and 4,500 sets of nails in 2011. The price of a set of nails was $20 in 2010 and $22 in 2011. If 2010 is the base year, Peg's contribution to real GDP in 2011 was ______ and to nominal GDP in 2011 was _____.

Accepted Answer

To calculate the contribution to real GDP, we need to use constant prices from the base year (2010) to eliminate the effect of price changes. Therefore, we need to calculate the value of 4,500 sets of nails in 2010 dollars.

Value in 2010 dollars = quantity x price in base year = 4,500 x $20 = $90,000

Therefore, Peg's contribution to real GDP in 2011 was $90,000.

To calculate the contribution to nominal GDP, we simply multiply the quantity of sets of nails by the current price.

Nominal GDP = quantity x current price = 4,500 x $22 = $99,000

Therefore, Peg's contribution to nominal GDP in 2011 was $99,000.

Quiz 4: Macroeconomics: the Birds-Eye View of the Economy