54) If the size of the underground economy is large,
A) government agencies have difficulty measuring nominal and real GDP.
B) it is relatively easy to gather productivity data on many businesses.
C) measuring nominal GDP is relatively easy, but measuring real GDP is difficult.
D) measuring real GDP is relatively easy, but measuring nominal GDP is difficult.
55) If prices rise on average in the U.S. economy, the purchasing power of a dollar declines.
56) Using “chain-weighted” prices to calculate real GDP remedies the distortions causes by changes in
relative prices over time.
57) If the GDP deflator is equal to 100, then for that year nominal GDP is equal to real GDP.
58) Nominal GDP measures the value of all final goods and services at base-year prices.
59) The GDP deflator is a measure of the price level which is calculated as nominal GDP divided by real
GDP and multiplied by 100.
60) If nominal GDP is less than real GDP, then the GDP deflator will be greater than 100.
61) In the term “real GDP,” what does “GDP” stand for and what does it measure? What does “real”
indicate?
62) Is nominal GDP measured in terms of quantity or in terms of dollars? If dollars, the value of the
dollar from what period? Is real GDP measured in terms of quantity or in terms of dollars? If dollars,
the value of the dollar from what period?
63) Japan experienced periods of deflation — a declining price level — during the 1990s. During a
deflationary period, which would be higher: nominal GDP or real GDP? Why? Assume that the base
year of choice is prior to the deflationary period.
64) Since real GDP is adjusted for inflation and nominal GDP is not, nominal GDP must always be
higher than real GDP. Do you agree or disagree? Why?
65) If the GDP deflator is less than 100, which will be higher: nominal GDP or real GDP? Why?
66) Why does inflation make nominal GDP a poor measure of the increase in total production from one
year to the next?
67) Use the formula for the GDP deflator to explain how it is affected by an increase in prices in the
economy. If the value of the deflator equals 100, what does that tell you about that year with respect to
the base year?
64
Table 8-21
2014 2016
Product
Quantity
Price
Quantity
Price
Hats
200
$20
250
$21
French fries
2,000
1
2,300
2
Digital cameras
40
200
50
140
68) Refer to Table 8-21. Consider the following data for a simple economy: Calculate nominal GDP and
real GDP for 2016, using 2014 as the base year. Show your work.
Table 8-22
2011 2015 2016
Product
Quantity
Quantity
Price
Quantity
MP3s
40
45
$200.00
50
Tacos
2,000
2,200
2.25
2,300
Coats
300
310
52.00
350
69) Refer to Table 8-22. Consider the data above for a simple economy: Using 2011 as the base year,
calculate nominal GDP, real GDP, and the GDP deflator for 2016. Show your work.
Table 8-23
2011 2016
Product
Quantity
Price
Quantity
Price
Pizzas
100
$10
120
$12
Haircuts
50
15
45
20
Backpacks
200
40
210
45
70) Refer to Table 8-23. Suppose that a very simple economy produces three goods: pizzas, haircuts,
and backpacks. Suppose the quantities produced and their corresponding prices for 2011 and 2016 are
shown in the table above. Use the information to compute real GDP in the year 2011 and 2016. Assume
that 2011 is the base year. Is output higher in 2016 or 2011? Why?
Product
Quantity
Price
Pizzas
100
$10
$1,000
Haircuts
50
15
750
Backpacks
200
40
8,000
Product
Quantity
Price
Pizzas
120
$10
$1,200
Haircuts
45
15
675
Backpacks
210
40
8,400
66
Table 8-24
2011
2016
Product
Quantity
Price
Quantity
Price
Pizzas
100
$10
120
$12
Haircuts
50
15
45
20
Backpacks
200
40
210
45
71) Refer to Table 8-24. Suppose that a very simple economy produces three goods: pizzas, haircuts,
and backpacks. Suppose the quantities produced and their corresponding prices for 2011 and 2016 are
shown in the table above. Use the information to compute real GDP in the year 2011 and 2016.
Calculate real GDP in 2016 assuming the base year is 2011. Do the same calculation assuming the base
year is 2016. Are the calculations different? Why?
68
Table 8-25
2015
2016
Nominal GDP
$10,000
$15,000
Real GDP
9,500
10,500
72) Refer to Table 8-25. Given the following information, calculate the rate of increase in the price level
from 2015 to 2016. Use the percent change in the GDP deflator.
Table 8-26
2015
2016
Nominal GDP
$10,000
$15,000
Real GDP
10,000
14,000
73) Refer to Table 8-26. Given the information above, calculate the GDP deflator for both 2015 and 2016.
What does the value of the deflator in the year 2015 tell you about that year with respect to the base
year? What happened to prices in 2016 as compared to 2015?
8.4 Other Measures of Total Production and Total Income
1) Gross national product, GNP, of the United States is the market value of all final goods and services
A) produced within the United States.
B) consumed within the United States.
C) produced by citizens of the United States anywhere in the world.
D) consumed by citizens of the United States anywhere in the world.
2) The output of Mexican citizens who work in Texas would be included in the
A) gross domestic product of Mexico.
B) gross national product of Mexico.
C) gross national product of the United States.
D) net national product of the United States.
3) The output of U.S. citizens who work in Canada would be included in the
A) gross domestic product of Canada.
B) gross national product of Canada.
C) gross domestic product of the United States.
D) gross national product of Canada and the gross national product of the United States.
4) If an American firm opens a production facility in India, the total value of the production will be
included in the
A) gross domestic product of the United States.
B) national income of the United States.
C) gross domestic product of India.
D) national income of India.
5) Which of the following is included in both the U.S. GDP and U.S. GNP?
A) the value of all cars produced by General Motors in the United States
B) the value of all cars produced by Ford in Mexico
C) the value of all cars produced by Toyota in the United States
D) the value of all cars produced by Nissan in Japan and the United States
6) A country in which a significant fraction of domestic production takes place in foreign-owned
factories and facilities is most likely a country where
A) GNP is much larger than GDP.
B) GDP is much larger than GNP.
C) GDP is equal to GNP.
D) GDP is not comparable to GDP.
7) The value of what a U.S.-owned McDonald’s produces in South Korea is included in the U.S.
________ and the South Korean ________.
A) GDP; GDP
B) GNP; GDP
C) GDP; GNP
D) GNP; GNP
8) National income equals gross national product minus
A) imports.
B) depreciation.
C) inventories.
D) changes in inventories.