Chapter 22 — Quiz

Multiple choice

Q1. GDP measures: a) Total wealth of a country b) Total market value of all final goods and services produced within a country in a given period c) Total government spending d) Total stock market value

Q2. In the expenditure approach, GDP =: a) C + I + G + NX b) C + I − G + NX c) C × I × G × NX d) Revenue − Cost

Q3. "Investment" in the GDP context means: a) Buying stocks and bonds b) Business spending on capital goods, new residential construction, and inventory changes c) Government spending on infrastructure d) Saving money in a bank

Q4. Transfer payments (Social Security, unemployment benefits) are: a) Counted in G (government purchases) b) NOT counted directly in GDP because they are redistribution, not production c) Counted in C (consumption) d) Counted in NX (net exports)

Q5. Real GDP differs from nominal GDP because: a) Real GDP includes government spending; nominal doesn't b) Real GDP is adjusted for price changes (inflation); nominal is not c) Nominal GDP is always higher d) Real GDP includes imports

Q6. The GDP deflator is: a) A measure of unemployment b) A price index covering all goods in GDP, used to convert nominal to real c) The interest rate d) The trade balance

Q7. GDP per capita is: a) GDP divided by the number of firms b) GDP divided by the population c) GDP times the population d) The median household income

Q8. Which of the following is NOT counted in GDP? a) A new car purchased by a consumer b) A haircut purchased at a salon c) A parent cooking dinner at home for their family d) A government employee's salary

Q9. GDP misses environmental damage because: a) Environmental damage doesn't exist b) Production that causes damage is counted but the damage itself is not subtracted c) Environmental regulation is always counted d) GDP only counts government spending

Q10. The Human Development Index (HDI) combines: a) GDP, unemployment, and inflation b) Income, education, and health (life expectancy) c) GDP and the stock market d) Trade balance and government debt

Q11. During COVID Q2 2020, U.S. real GDP fell at an annualized rate of approximately: a) 5% b) 15% c) 31% d) 50%

Q12. The biggest component of U.S. GDP is: a) Government purchases (G) b) Investment (I) c) Consumption (C), at about 68% d) Net exports (NX)

Short answer

SA1. Why is GDP = C + I + G + NX an accounting identity (always true by definition)?

SA2. Why is real GDP a better measure of economic growth than nominal GDP?

SA3. Name three things GDP measures well and three things it misses.

SA4. Why does GDP per capita hide income distribution?

SA5. How did COVID illustrate both the usefulness and the limits of GDP as a measure?

True / False

TF1. GDP counts intermediate goods to avoid missing important production. (True / False)

TF2. Buying stocks and bonds counts as "investment" in the GDP identity. (True / False)

TF3. A country with rising GDP necessarily has improving welfare for all citizens. (True / False)

TF4. The GDP deflator covers all goods and services in GDP, not just a consumer basket. (True / False)

TF5. Free digital goods (Google Search, Wikipedia) contribute substantially to measured GDP. (True / False)

Selected answers in appendices/answers-to-selected.md.