Chapter 2. Practice Questions.

Q1. What are the three methods of measuring GDP?

Q2. Real GDP was $4615.0 billions in 1980 and $6136.3 billions in 1990. What was the percentage change in real GDP over this ten year period of time?

Q3. Assume that nominal GDP will be $9253.8 billion in the year 2000. and that the GDP deflator will have a value of 1.0967. Given this information. what will real GDP (to one decimal place) be in the year 2000?

Q4. Real GDP was $5743.8 billion in 1990 and nominal GDP was $6136.3 billion in 1990. What was the value of the GDP deflator in 1990 (to four decimal places).

Q5. You purchased a one-year government bond on July 1. 1998 for $750. On July 1, 1999, you received principal plus interest of $789.00. The value of the CPI in July 1998 was 163.2. and in July 1999, the CPI was 166.7. Find (to one significant digit for each answer)
a. the nominal interest rate,
b. the inflation rate and
c. real rate of return.

Q6. If the CPI was 45.6 in 1931 and it was 40.9 in 1932, the inflation rate between these two years was?

Q7. True/False. The market value of GDP includes intermediate goods.

Q8. True/ False. Net factor payments are equal to the income paid to domestic factors of production by the rest of the world minus the income paid to foreign factors of production from domestic sources.

Q9. True / False. Wealth is a flow and saving is a stock.

Q10. True/False. The income approach to measuring GDP excludes depreciation.

Q11. True / False. Nominal GDP is the value of an economy's final output in constant dollars.

Q12. True / False. For a period of time such as a year. GDP is the broadest measure of economic activity.

Q13. True / False. Real GDP is equal to nominal GDP plus or minus the GDP deflator.

Q14.True / False. Assume that you placed $1,000 in your savings account on June 30, 1999. You withdrew the principal and interest on July 1, 2000. If the rate of interest was 1.6%, if the rate of inflation was 1.8% and if the interest income was not subject to taxation, the real value of your withdrawal would be $998 when you made the withdrawal.

Q15. True / False. The consumer price index is a fixed-weight price index that measures the current price level of a base-year basket of consumer goods and services.

Q16. True / False. The product approach to measuring GDP is obtained by adding together the value added of all producers.

Q17. True / False. The underground economy, since it includes both legal and illegal activities, is not included in the estimation of GDP since it is impossible to estimate the magnitude of these activities.

Q18. True / False. GDP includes the prices and quantities of all goods purchased (including used goods) in a defined period of time.

Q19. True / False. When a country depletes its resources (e.g., pumping oil from the ground, extracting iron ore from mines, etc.), it is reducing its national value. To reflect this depletion, the GDP is adjusted downwards each year.

Q20. True / False. If all of the students taking this course are foreign students, then the value of the output of this course would be included in GDP as an export.

Q21. True / False. If private saving is positive and stable intertemporally, and if govt deficits are eliminated and become surpluses, investment can increase.

Q22. True / False. Since the CPI is based on a fixed basket of goods and services, the CPI will overstate inflation if consumers, for example, switch from the consumption of beef to the consumption of chicken when all prices are intertemporally consistent except for higher beef prices.

Q23. True / False. The real rate of interest is lower than the nominal rate of interest whenever inflation is negative.

Q1 = Product, Income and Expenditure Approaches
Q2 = +33.0%	Q6 = -10.3%	Q12 = T	Q18 = F
Q3 = $8,437.9	Q7 = F	Q13 = F	Q19 = F
Q4 = 1.0683	Q8 = T	Q14 = T	Q20 = T
Q5a = 5.2%	Q9 = F	Q15 = T	Q21 = T
Q5b = +2.1%	Q10 =F	Q16 = T	Q22 = T
Q5c =+3.1%	Q11 = F	Q17 = F	Q23 = F