ECON 110 MACRO QUESTIONS AND
CORRECT ANSWERS
Danica used to purchase engine oil from a local automotive store and change the oil in her car
herself. If she now pays a professional mechanic shop to perform this service, then will this affect
the reported GDP? ✅✅CORRECT ANSW-Yes, the reported GDP will be higher, because previously
the work involved in changing the oil did not involve a transaction, but now it will, and it will be part
of the officially recorded activities.
What is the significance of GDP per capita? ✅✅CORRECT ANSW-GDP per capita represents the
average income per person, and it tends to be correlated with the
given society's general standard of living (such as the level of access to schooling, health care
options, infrastructure, etc.).
Monju san is a Japanese citizen who set up a sushi restaurant in Columbus, Ohio. In terms of GDP
and GNP, where is his profit from this restaurant counted? ✅✅CORRECT ANSW-It is counted in
U.S. GDP and Japan's GNP.
A farmer uses farm inputs to produce wheat and sells it to a miller for $100. The miller makes flour
with it and sells it to a baker for $200. The baker makes bread with it and sells it to a grocer for $300.
The grocer sells the bread to consumers for $400. In this production process, how would we classify
wheat, flour, and the baking of the bread? ✅✅CORRECT ANSW-They are intermediate products.
Reconsider the previously described scenario where a farmer sells wheat to a miller for $100, the
miller makes flour with it and sells it to a baker for $200, the baker makes bread with it and sells it to
a grocer for $300, and the grocer then sells the bread to consumers for $400. In this process, by how
much does GDP increase? ✅✅CORRECT ANSW-$400
In a country's national income and product accounting (NIPA) process, which tracks and calculates
measures such as GDP, GNP, etc., what would constitute 'double counting'? ✅✅CORRECT ANSW-
Counting the value of both intermediate products and final products when measuring total output
value
How does nominal GDP differ from real GDP? ✅✅CORRECT ANSW-Nominal GDP measures
current production using current prices, while real GDP measures current production using base-
year prices.
, Consider a small, local economy that produces only books and chocolates. Ten years ago, the
economy produced 15 units of books and 5 units of chocolate, with each unit of books selling at 20
dollars and each unit of chocolate selling at 6 dollars. Last year, the economy produced 25 units of
books and 2 units of chocolate, with each unit of books selling at 22 dollars and each unit of
chocolate selling at 10 dollars. The prices prevailing ten years ago are being used as the base-year
prices. What was the given economy's real
GDP ten years ago? ✅✅CORRECT ANSW-330
Consider again the small, local economy described earlier (recalling that it had produced 15 units of
books and 5 units of chocolate ten years ago, with each unit of books selling at 20 dollars and each
unit of chocolate selling at 6 dollars, and that it produced 25 units of books and 2 units of chocolate
last year, with each unit of books selling at 22 dollars and each unit of chocolate selling at 10
dollars). Recall that the prices prevailing ten years ago are being used as the base-year prices. What
was the given economy's real GDP last year? ✅✅CORRECT ANSW-512
Consider again the small, local economy described earlier (recalling that it had produced 15 units of
books and 5 units of chocolate ten years ago, with each unit of books selling at 20 dollars and each
unit of chocolate selling at 6 dollars, and that it produced 25 units of books and 2 units of chocolate
last year, with each unit of books selling at 22 dollars and each unit of chocolate selling at 10
dollars). Recall that the prices prevailing ten years ago are being used as the base-year prices. What
was the given economy's nominal GDP last year? ✅✅CORRECT ANSW-570
Consider again the small, local economy previously described. Given the various GDP measures for
this economy, what was the economy's simple annual average output growth rate (in percent) over
the nine-year period? ✅✅CORRECT ANSW-6.13
Consider again the small, local economy previously described. What was the economy's simple
annual average inflation rate (in percent) over the nine-year period? ✅✅CORRECT ANSW-1.26
Given that there are four 'quarters' in a year, what does it imply about actual GDP growth when a
news report says that "during the last quarter GDP increased at an annual rate of 4%"?
✅✅CORRECT ANSW-It implies that GDP actually increased by about 1% during the last quarter.
Suppose that your annual salary this year is $40,000. If the CPI is expected to change from 120 this
year to 123 next year, then how much raise will you need in your salary in order to maintain
approximately the same real income going from this year to the next? ✅✅CORRECT ANSW-1,000
An economy has a total population of 100 million, of whom 70 million are of working age. Of those
70 million people, 50 million are presently employed with formal-sector jobs and 5 million are
CORRECT ANSWERS
Danica used to purchase engine oil from a local automotive store and change the oil in her car
herself. If she now pays a professional mechanic shop to perform this service, then will this affect
the reported GDP? ✅✅CORRECT ANSW-Yes, the reported GDP will be higher, because previously
the work involved in changing the oil did not involve a transaction, but now it will, and it will be part
of the officially recorded activities.
What is the significance of GDP per capita? ✅✅CORRECT ANSW-GDP per capita represents the
average income per person, and it tends to be correlated with the
given society's general standard of living (such as the level of access to schooling, health care
options, infrastructure, etc.).
Monju san is a Japanese citizen who set up a sushi restaurant in Columbus, Ohio. In terms of GDP
and GNP, where is his profit from this restaurant counted? ✅✅CORRECT ANSW-It is counted in
U.S. GDP and Japan's GNP.
A farmer uses farm inputs to produce wheat and sells it to a miller for $100. The miller makes flour
with it and sells it to a baker for $200. The baker makes bread with it and sells it to a grocer for $300.
The grocer sells the bread to consumers for $400. In this production process, how would we classify
wheat, flour, and the baking of the bread? ✅✅CORRECT ANSW-They are intermediate products.
Reconsider the previously described scenario where a farmer sells wheat to a miller for $100, the
miller makes flour with it and sells it to a baker for $200, the baker makes bread with it and sells it to
a grocer for $300, and the grocer then sells the bread to consumers for $400. In this process, by how
much does GDP increase? ✅✅CORRECT ANSW-$400
In a country's national income and product accounting (NIPA) process, which tracks and calculates
measures such as GDP, GNP, etc., what would constitute 'double counting'? ✅✅CORRECT ANSW-
Counting the value of both intermediate products and final products when measuring total output
value
How does nominal GDP differ from real GDP? ✅✅CORRECT ANSW-Nominal GDP measures
current production using current prices, while real GDP measures current production using base-
year prices.
, Consider a small, local economy that produces only books and chocolates. Ten years ago, the
economy produced 15 units of books and 5 units of chocolate, with each unit of books selling at 20
dollars and each unit of chocolate selling at 6 dollars. Last year, the economy produced 25 units of
books and 2 units of chocolate, with each unit of books selling at 22 dollars and each unit of
chocolate selling at 10 dollars. The prices prevailing ten years ago are being used as the base-year
prices. What was the given economy's real
GDP ten years ago? ✅✅CORRECT ANSW-330
Consider again the small, local economy described earlier (recalling that it had produced 15 units of
books and 5 units of chocolate ten years ago, with each unit of books selling at 20 dollars and each
unit of chocolate selling at 6 dollars, and that it produced 25 units of books and 2 units of chocolate
last year, with each unit of books selling at 22 dollars and each unit of chocolate selling at 10
dollars). Recall that the prices prevailing ten years ago are being used as the base-year prices. What
was the given economy's real GDP last year? ✅✅CORRECT ANSW-512
Consider again the small, local economy described earlier (recalling that it had produced 15 units of
books and 5 units of chocolate ten years ago, with each unit of books selling at 20 dollars and each
unit of chocolate selling at 6 dollars, and that it produced 25 units of books and 2 units of chocolate
last year, with each unit of books selling at 22 dollars and each unit of chocolate selling at 10
dollars). Recall that the prices prevailing ten years ago are being used as the base-year prices. What
was the given economy's nominal GDP last year? ✅✅CORRECT ANSW-570
Consider again the small, local economy previously described. Given the various GDP measures for
this economy, what was the economy's simple annual average output growth rate (in percent) over
the nine-year period? ✅✅CORRECT ANSW-6.13
Consider again the small, local economy previously described. What was the economy's simple
annual average inflation rate (in percent) over the nine-year period? ✅✅CORRECT ANSW-1.26
Given that there are four 'quarters' in a year, what does it imply about actual GDP growth when a
news report says that "during the last quarter GDP increased at an annual rate of 4%"?
✅✅CORRECT ANSW-It implies that GDP actually increased by about 1% during the last quarter.
Suppose that your annual salary this year is $40,000. If the CPI is expected to change from 120 this
year to 123 next year, then how much raise will you need in your salary in order to maintain
approximately the same real income going from this year to the next? ✅✅CORRECT ANSW-1,000
An economy has a total population of 100 million, of whom 70 million are of working age. Of those
70 million people, 50 million are presently employed with formal-sector jobs and 5 million are
