GDP Practice Questions

8 representative multiple-choice questions on gdp for AP Macroeconomics, drawn from our 22-question bank for this module. Work through each one, then open “Show answer” for the correct choice and an explanation. For scored, timed practice across the full bank, take a full practice test.

1. 1. A U.S. citizen owns a factory in Mexico. The output of that factory is included in:

   • A. U.S. GDP only
   • B. Mexico's GDP only
   • C. Both U.S. GDP and Mexico's GDP
   • D. Neither country's GDP
   Show answer

   Correct answer: B. Mexico's GDP only

   GDP measures production within a country's borders, regardless of ownership. The factory is in Mexico, so its output counts toward Mexico's GDP. Ownership would matter for GNP (Gross National Product), which tracks output by a country's citizens. Option A confuses GDP with GNP, a distinction formalized in national accounting standards after World War II.

2. 2. If nominal GDP increased by 8% and the GDP deflator increased by 5%, real GDP growth was approximately:

   • A. 13%
   • B. 8%
   • C. 5%
   • D. 3%
   Show answer

   Correct answer: D. 3%

   Real GDP growth approximately equals nominal growth minus inflation: 8% − 5% = 3%. The precise formula ((1.08 / 1.05) − 1) yields about 2.86%, which rounds to 3%. Option A incorrectly adds the two figures. Option B ignores inflation entirely. Option C mistakes the inflation rate for the growth rate.

3. 3. Why does GDP exclude intermediate goods from its calculation?

   • A. Intermediate goods have no economic value
   • B. Including them would result in double counting
   • C. Only services are counted in GDP, not goods
   • D. Intermediate goods are only counted in GNP
   Show answer

   Correct answer: B. Including them would result in double counting

   The value of intermediate goods is already embedded in the final good's price. Counting the steel sold to General Motors AND the finished Chevrolet would count the steel twice, inflating GDP beyond the true value of final production. Option A is wrong because intermediate goods absolutely have value; their value is simply captured downstream in the final product.

4. 4. Nominal GDP is $800 billion and real GDP is $640 billion. What is the GDP deflator, and what does it indicate?

   • A. 80; the price level has fallen 20% since the base year
   • B. 125; the price level has risen 25% since the base year
   • C. 160; the economy is in a recession
   • D. 1.25; nominal GDP exceeds real GDP by 25 percentage points
   Show answer

   Correct answer: B. 125; the price level has risen 25% since the base year

   GDP deflator = (Nominal / Real) × 100 = ($800B / $640B) × 100 = 125. A deflator of 125 means the overall price level is 25% higher than in the base year. Option A reverses the formula (divides real by nominal). Option C produces an arithmetic error and incorrectly connects a price index to a recession call. Option D omits the multiplication by 100, which is not the standard format.

5. 5. A steel company sells $10 million worth of steel to an automobile manufacturer, which then produces cars sold to consumers for $25 million. What is the contribution to GDP from these transactions?

   • A. $35 million, because both the steel and cars are productive output
   • B. $25 million, because only the final goods sold to consumers are counted
   • C. $15 million, because GDP only counts the value added at each stage
   • D. $10 million, because only the intermediate good represents real production
   Show answer

   Correct answer: B. $25 million, because only the final goods sold to consumers are counted

   GDP counts only final goods to avoid double counting. The $10 million in steel is embedded in the $25 million car price. Option A commits that double-counting error. Option C ($15 million) represents only the auto manufacturer's value added, but the value-added approach sums all stages ($10M + $15M = $25M), reaching the same answer. Option D incorrectly excludes the final product.

6. 6. Using the expenditure approach, if consumption is $10 trillion, investment is $3 trillion, government purchases are $3.5 trillion, exports are $2 trillion, and imports are $2.8 trillion, what is GDP?

   • A. $21.3 trillion
   • B. $15.7 trillion
   • C. $16.5 trillion
   • D. $14.9 trillion
   Show answer

   Correct answer: B. $15.7 trillion

   GDP = C + I + G + NX = $10T + $3T + $3.5T + ($2T − $2.8T) = $15.7 trillion. Net exports are −$0.8T because imports exceed exports, reflecting the kind of trade deficit the U.S. has run since the mid-1970s. Option A adds imports instead of subtracting them. Option C likely ignores the net export calculation. Option D results from an additional arithmetic error.

7. 7. In 2020, nominal GDP fell by about 2 percent while real GDP fell by about 3.4 percent. This implies that:

   • A. Prices rose on average
   • B. Prices fell on average
   • C. Prices were unchanged
   • D. The economy grew in real terms
   Show answer

   Correct answer: A. Prices rose on average

   Nominal GDP = real GDP × (price level / 100). If real GDP fell more than nominal GDP, the price level must have risen to partially offset the real decline. In fact, the GDP deflator rose in 2020 — inflation was positive even as output shrank. This is exactly the scenario the GDP deflator is designed to isolate.

8. 8. A country has nominal GDP of $500 billion in 2023 (base year) and $560 billion in 2024. The GDP deflator in 2024 is 108. What is real GDP in 2024 in base-year dollars?

   • A. $452 billion
   • B. $518 billion
   • C. $560 billion
   • D. $605 billion
   Show answer

   Correct answer: B. $518 billion

   Real GDP = Nominal GDP / (Deflator / 100) = 560 / 1.08 ≈ $518 billion. Real growth from 2023 to 2024 is about 3.6%, which is roughly the nominal growth of 12% minus the 8% price rise. Option A would be 560 / 1.24, inconsistent with the given deflator. Option C ignores inflation entirely.