Week 2 Quiz

In the illustrative expenditure account (billions of dollars; constructed for this course, not real data), consumption C = 700, investment I = 200, government purchases G = 250, exports X = 100, and imports IM = 150. What is this economy's GDP?

Select one.

• 1,200 billion dollars
• 1,100 billion dollars
• 1,250 billion dollars
• 1,400 billion dollars

The same illustrative account has nominal GDP of 1,100 and real GDP of 1,000 (billions of dollars). Which statement correctly gives and reads its GDP deflator?

Select one.

• 110, so prices sit 10 percent above the base year
• 110, so real output sits 10 percent above the base year
• 100, so nominal and real GDP are the same this year
• 10, the amount by which the index rose

Select every purchase that counts in this year's GDP.

Select every option that applies.

• A family buys a house that was built this year
• A city pays a public-school teacher's salary
• A retiree receives a Social Security check
• A student buys a used car from a neighbor
• A bakery buys flour to bake bread for sale
• A worker buys shares of stock

A retiree receives a Social Security check from the government. How does GDP accounting treat the check itself?

Select one.

• As government purchases, because the government paid it
• As consumption, because a household received it
• As a transfer payment, left out of G and out of GDP
• As investment, because it funds a retirement

An illustrative two-good economy (dollars) makes 40 pizzas at 5 and 100 coffees at 1 in the base year, and 44 pizzas at 5.50 and 110 coffees at 1.10 in year 2. What is year-2 real GDP?

Select one.

• 363 dollars
• 300 dollars
• 33 dollars
• 330 dollars

In the same illustrative two-good economy, GDP is 300 dollars in the base year, nominal GDP is 363 dollars in year 2, and real GDP is 330 dollars in year 2. By what percent did the economy's output grow?

Select one.

• 21 percent
• 10 percent
• 11 percent
• 20 percent

In the base year, the GDP deflator equals 100, because nominal GDP and real GDP are measured at the same prices and are equal.

True or false.

• True
• False

In an illustrative bread chain, a farm sells wheat to a mill for 1 dollar, the mill sells flour to a bakery for 2 dollars, and the bakery sells a loaf to a family for 5 dollars. How much does this chain add to GDP?

Select one.

• 5 dollars
• 8 dollars
• 3 dollars
• 7 dollars

Why can economists measure a whole economy's output by adding up spending on new final goods and services?

Select one.

• Because total spending always equals the money supply in circulation
• Because only the government's spending is recorded
• Because each dollar spent on new output is someone's income
• Because households spend every dollar they earn

Which statement about GDP is normative rather than positive?

Select one.

• A trade deficit makes net exports negative
• Nominal GDP can rise when only prices rise
• Real GDP values a year's output at fixed base-year prices
• A country ought to make raising GDP its top goal