AP Econ Chapter 7 Review
Name __________________
1. What is the purpose of National Income Accounting?
2. Why must multiple accounting be avoided?
3. List the 4 components of the Expenditures Approach and what is included in each
component:
a.
b.
c.
d.
(Note: Another way of computing the GDP is the Income Approach but we will not use
this approach in this class.)
4. Explain how and why inventory changes are included in the GDP.
4. What is the difference between Nominal GDP and Real GDP and why the
differentiation is important?
5. Find the Nominal GDP and Real GDP for the following problem using 2002 as the
Base Year:
Products
A
B
C
Quantity/2002
10
5
15
Price/2002
$1.20
$2.30
$.80
Nominal GDP 2002 _____________
GDP Index/Deflator 2005
_____
Quantity/2005
12
6
15
Price 2005
$1.30
$2.35
$.85
Nominal GDP 2005 ___________
Real GDP 2005 _____________
`
6. How does the Consumer Price Index differ from the GDP Index?
7. In your own words, briefly describe the following shortcomings (or limitations) in
computing and using the GDP:
a. nonmarket transactions
b. leisure
c. improved product quality
d. the underground economy
e. environmental effects
8. In the United States, our GDP must grow around 3.5% per year. How can this growth
be shown using the PPC Model from Chapter 2. Use the space below to show this
concept using consumer goods and capital goods for your X and Y axis.
9. Briefly answer the following and give a short explanation:
a. Is a major hurricane striking the Texas Gulf Coast going to hurt or help the GDP?
Explain.
b. How will the agricultural ban Russia recently placed on the U.S. affect the GDP of the
U.S.? Explain.
c. The projected annual GDP growth rate in China is about 8.5% (remember it is 3.5% for
the U.S.). Why the difference?