Measuring a Nation’s Income 5731
14. Which of the following statements about nominal GDP and real GDP is correct?
a. Nominal GDP is a better gauge of economic well-being than real GDP.
b. Real GDP is a better gauge of economic well-being than nominal GDP.
c. Real GDP and nominal GDP are equally good measures of economic well-being.
d. Neither nominal nor real GDP provide a measure of economic well-being.
15. When economists talk about growth in the economy, they measure that growth as the
a. absolute change in nominal GDP from one period to another.
b. percentage change in nominal GDP from one period to another.
c. absolute change in real GDP from one period to another.
d. percentage change in real GDP from one period to another.
16. The GDP deflator is the ratio of
a. real GDP to nominal GDP multiplied by 100.
b. real GDP to the inflation rate multiplied by 100.
c. nominal GDP to real GDP multiplied by 100.
d. nominal GDP to the inflation rate multiplied by 100.
5732 Measuring a Nation’s Income
17. Which of the following is the correct formula for the GDP deflator?
a. .
b. .
c. .
d. .
18. Changes in the GDP deflator reflect
a. only changes in prices.
b. only changes in the amounts being produced.
c. both changes in prices and changes in the amounts being produced.
d. neither changes in prices nor changes in the amounts being produced.
Measuring a Nation’s Income 5733
19. The GDP deflator for years subsequent to the base year measures the change in
a. nominal GDP from the base year that cannot be attributable to a change in real GDP.
b. real GDP from the base year that cannot be attributable to a change in nominal GDP.
c. nominal GDP from the base year that cannot be attributable to a change in prices.
d. real GDP from the base year that cannot be attributable to a change in prices.
20. In the base year, the GDP deflator is always
a. –1.
b. 0.
c. 1.
d. 100.
5734 Measuring a Nation’s Income
21. The term economists use to describe a situation in which the economy’s overall price level is
rising is
a. growth.
b. inflation.
c. recession.
d. expansion.
22. The inflation rate is the
a. absolute change in real GDP from one period to another.
b. percentage change in real GDP from one period to another.
c. absolute change in the price level from one period to another.
d. percentage change in the price level from one period to another.
Measuring a Nation’s Income 5735
23. The percentage change in the price level from one period to another is called
a. the growth rate.
b. the inflation rate.
c. the GDP deflator.
d. the unemployment rate.
24. The inflation rate in year 2 equals
a. .
b. .
c. .
d. .
5736 Measuring a Nation’s Income
25. A country’s real GDP rose from $500 to $530 while its nominal GDP rose from $600 to $700.
What was this country’s inflation rate?
a. 16.7%.
b. 10.0%.
c. 15.0%.
d. -9.1%.
26. If real GDP doubles and the GDP deflator doubles, then nominal GDP
a. remains constant.
b. doubles.
c. triples.
d. quadruples.
Measuring a Nation’s Income 5737
27. If nominal GDP doubles and the GDP deflator doubles, then real GDP
a. remains constant.
b. doubles.
c. triples.
d. quadruples.
28. If real GDP is 5,100 and nominal GDP is 4,900, then the GDP deflator is
a. 104.1 so prices are higher than in the base year.
b. 104.1 so prices are lower than in the base year.
c. 96.1 so prices are higher than in the base year.
d. 96.1 so prices are lower than in the base year.
29. If in some year real GDP was $5 trillion and the GDP deflator was 200, what was nominal GDP?
a. $2.5 trillion.
b. $10 trillion.
c. $40 trillion.
d. $100 trillion.
5738 Measuring a Nation’s Income
30. If in some year real GDP was $25 billion and the GDP deflator was 68, what was nominal GDP?
a. $2.72 billion.
b. $17 billion.
c. $36.8 billion.
d. $43 billion.
31. If in some year nominal GDP was $18 billion and the GDP deflator was 120, what was real
GDP?
a. $6.7 billion.
b. $15 billion.
c. $21.6 billion.
d. $38 billion.
Measuring a Nation’s Income 5739
32. If in some year nominal GDP was $20 billion and the GDP deflator was 50, what was real GDP?
a. $2.5 billion.
b. $10 billion.
c. $40 billion.
d. $100 billion.
33. If in some year nominal GDP was $10 trillion and real GDP was $4 trillion, what was the GDP
deflator?
a. 25.
b. 40.
c. 250.
d. 400.
5740 Measuring a Nation’s Income
34. If in some year nominal GDP was $28 trillion and real GDP was $32 trillion, what was the GDP
deflator?
a. 87.5.
b. 114.3.
c. 400.
d. 896.
35. An economy recently reported nominal GDP of 3 trillion euro and a GDP deflator of 200. What
was real GDP?
a. 1.5 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP.
b. 1.5 trillion euro, but nominal GDP is a better gauge of economic activity than real GDP.
c. 6 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP.
d. 6 trillion euro, but nominal GDP is a better gauge of economic activity than real GDP.
Measuring a Nation’s Income 5741
36. If nominal GDP is $12 trillion and real GDP is $10 trillion, then the GDP deflator is
a. 83.33, and this indicates that the price level has decreased by 16.67 percent since the base
year.
b. 83.33, and this indicates that the price level has increased by 83.33 percent since the base year.
c. 120, and this indicates that the price level has increased by 20 percent since the base year.
d. 120, and this indicates that the price level has increased by 120 percent since the base year.
37. If nominal GDP is $10 trillion and real GDP is $12 trillion, then the GDP deflator is
a. 83.33, and this indicates that the price level has decreased by 16.67 percent since the base
year.
b. 83.33, and this indicates that the price level has increased by 83.33 percent since the base year.
c. 120, and this indicates that the price level has increased by 20 percent since the base year.
d. 120, and this indicates that the price level has increased by 120 percent since the base year.
5742 Measuring a Nation’s Income
38. If nominal GDP is $10 trillion and real GDP is $8 trillion, then the GDP deflator is
a. 80, and this indicates that the price level has decreased by 20 percent since the base year.
b. 80, and this indicates that the price level has increased by 80 percent since the base year.
c. 125, and this indicates that the price level has increased by 25 percent since the base year.
d. 125, and this indicates that the price level has increased by 125 percent since the base year.
39. If nominal GDP is $8 trillion and real GDP is $10 trillion, then the GDP deflator is
a. 80, and this indicates that the price level has decreased by 20 percent since the base year.
b. 80, and this indicates that the price level has increased by 80 percent since the base year.
c. 125, and this indicates that the price level has increased by 25 percent since the base year.
d. 125, and this indicates that the price level has increased by 125 percent since the base year.
Measuring a Nation’s Income 5743
40. Suppose an economy’s production consists only of corn and soybeans. In 2010, 20 bushels of corn
are sold at $4 per bushel and 10 bushels of soybeans are sold at $2 per bushel. In 2009, the price
of corn was $2 per bushel and the price of soybeans was $1 per bushel. Using 2009 as the base
year, it follows that, for 2010,
a. nominal GDP is $50, real GDP is $100, and the GDP deflator is 50.
b. nominal GDP is $50, real GDP is $100, and the GDP deflator is 200.
c. nominal GDP is $100, real GDP is $50, and the GDP deflator is 50.
d. nominal GDP is $100, real GDP is $50, and the GDP deflator is 200.
41. Suppose an economy produces only eggs and ham. In 2009, 100 dozen eggs are sold at $3 per
dozen and 50 pounds of ham sold at $4 per pound. In 2010, the base year, eggs sold at $1.50 per
dozen and ham sold at $5 per pound. For 2009,
a. nominal GDP is $400, real GDP is $500, and the GDP deflator is 80.
b. nominal GDP is $400, real GDP is $500, and the GDP deflator is 125.
c. nominal GDP is $500, real GDP is $400, and the GDP deflator is 80.
d. nominal GDP is $500, real GDP is $400, and the GDP deflator is 125.
5744 Measuring a Nation’s Income
42. Suppose an economy produces only cranberries and maple syrup. In 2010, 50 units of cranberries
are sold at $20 per unit and 100 units of maple syrup are sold at $8 per unit. In 2009, the base
year, the price of cranberries was $10 per unit and the price of maple syrup was $15 per unit. For
2010,
a. nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 90.
b. nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 111.1.
c. nominal GDP is $2000, real GDP is $1800, and the GDP deflator is 90.
d. nominal GDP is $2000, real GDP is $1800, and the GDP deflator is 111.1.
43. Suppose an economy produces only cheese and fish. In 2010, 20 units of cheese are sold at $5
each and 8 units of fish are sold at $50 each. In 2009, the base year, the price of cheese was $10
per unit and the price of fish was $75 per unit. For 2010,
a. nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5.
b. nominal GDP is $500, real GDP is $800, and the GDP deflator is 160.
c. nominal GDP is $800, real GDP is $500, and the GDP deflator is 62.5.
d. nominal GDP is $800, real GDP is $500, and the GDP deflator is 160.
Measuring a Nation’s Income 5745
44. Suppose an economy produces only iPhones and bananas. In 2010, 1000 iPhones are sold at $300
each and 5000 pounds of bananas are sold at $3 per pound. In 2009, the base year, iPhones sold
at $400 each and bananas sold at $2 per pound. For 2010,
a. nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 76.83.
b. nominal GDP is $410,000, real GDP is $315,000, and the GDP deflator is 130.16.
c. nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 130.16.
d. nominal GDP is $410,000, real GDP is $315,000, and the GDP deflator is 76.83.
45. Suppose an economy produces only burgers and bags of fries. In 2010, 4000 burgers are sold at
$3 each and 6000 bags of fires are sold at $1.50 each. In 2008, the base year, burgers sold for
$2.50 each and bags of fries sold for $2 each.
a. nominal GDP is $22,000, real GDP is $21,000, and the GDP deflator is 95.45.
b. nominal GDP is $22,000, real GDP is $21,000, and the GDP deflator is 104.77.
c. nominal GDP is $21,000, real GDP is $22,000, and the GDP deflator is 95.45.
d. nominal GDP is $21,000, real GDP is $22,000, and the GDP deflator is 104.77.
5746 Measuring a Nation’s Income
46. A country reported nominal GDP of $100 billion in 2010 and $75 billion in 2009. It also reported a
GDP deflator of 125 in 2010 and 120 in 2009. Between 2009 and 2010,
a. real output and the price level both rose.
b. real output rose and the price level fell.
c. real output fell and the price level rose.
d. real output and the price level both fell.
47. A country reported nominal GDP of $200 billion in 2010 and $180 billion in 2009. It also reported a
GDP deflator of 125 in 2010 and 105 in 2009. Between 2009 and 2010,
a. real output and the price level both rose.
b. real output rose and the price level fell.
c. real output fell and the price level rose.
d. real output and the price level both fell.
Measuring a Nation’s Income 5747
48. A country reported nominal GDP of $115 billion in 2010 and $125 billion in 2009. It also reported a
GDP deflator of 85 in 2010 and 100 in 2009. Between 2009 and 2010,
a. real output and the price level both rose.
b. real output rose and the price level fell.
c. real output fell and the price level rose.
d. real output and the price level both fell.
49. A country reported a nominal GDP of $85 billion in 2010 and $100 billion in 2009. It also reported
a GDP deflator of 100 in 2010 and 105 in 2009. Between 2009 and 2010,
a. real output and the price level both rose.
b. real output rose and the price level fell.
c. real output fell and the price level rose.
d. real output and the price level both fell.
5748 Measuring a Nation’s Income
Table 23-4
The table below reports nominal and real GDP for the U.S. from 1929 to 1932.
Year
Nominal
GDP Real GDP
1929
103.6 977
1930
91.2 892.8
1931
76.5 834.9
1932
58.7 725.8
50. Refer to Table 23-4. What are the GDP deflator and the inflation rate for 1931?
a. 9.16, –11.5
b. 9.16, –10.3
c. 1091.37, 10.3
d. 1091.37, 11.5
51. Refer to Table 23-4. What are the GDP deflator and the inflation rate for 1932?
a. 8.09, –11.7
b. 8.09.16, -13.3
c. 1236.46, 11.7
d. 1236.46, 13.3
Measuring a Nation’s Income 5749
52. Refer to Table 23-4. What was the growth rate of real GDP for 1930?
a. –8.62%. Real GDP is a better gauge of economic well-being than nominal GDP.
b. -8.62%. Nominal GDP is a better gauge of economic well-being than real GDP.
c. –9.43%. Real GDP is a better gauge of economic well-being than nominal GDP.
d. -9.43%. Nominal GDP is a better gauge of economic well-being than real GDP.
53. Refer to Table 23-4. What was the growth rate of real GDP for 1931?
a. –6.93%. Real GDP is a better gauge of economic well-being than nominal GDP.
b. -6.93%. Nominal GDP is a better gauge of economic well-being than real GDP.
c. –6.49%. Real GDP is a better gauge of economic well-being than nominal GDP.
d. -6.49%. Nominal GDP is a better gauge of economic well-being than real GDP.
54. Refer to Table 23-4. If prices had remained constant between 1929 and 1930, Nominal GDP
would have decreased
a. 8.62%.
b. 9.43%.
c. 11.97%.
d. 13.6%.
5750 Measuring a Nation’s Income
Table 23-5
The country of Caspir produces only cereal and milk. Quantities and prices of these goods for the
last several years are shown below. The base year is 2015.
Prices and Quantities
Year
Price of Cereal
Quantity of
Cereal
Price of Milk
2015
$4.00
100
$1.50
2016
$4.00
120
$2.00
2017
$5.00
150
$2.50
2018
$6.00
180
$3.50
55. Refer to Table 23-5. In 2015, this country’s
a. nominal GDP was greater than real GDP, and the GDP deflator was greater than 100.
b. nominal GDP was equal to real GDP, and the GDP deflator was equal to 100%.
c. nominal GDP was less than real GDP, and the GDP deflator was less than 100.
d. nominal GDP was equal to real GDP, and the GDP deflator was equal to 100.
56. Refer to Table 23–5. In 2016, this country’s
a. real GDP was $880, and the GDP deflator was 111.4.
b. real GDP was $780, and the GDP deflator was 88.6.
c. real GDP was $880, and the GDP deflator was 112.8.
d. real GDP was $780, and the GDP deflator was 112.8.