Macroeconomic aggregates: GDP and how it is measured

Define a country's GDP taking care to include these four ideas: it is a market value, it counts only final goods and services, it is produced within the country, and it refers to a given time period. Explain, using the chain wheat → flour → bread, why only final goods count.

State whether each activity is included in GDP and justify your answer: a dinner at a restaurant, the same dinner cooked at home, a new car, the resale of a second-hand car, the work of a plumber paid cash in hand without an invoice, and the vegetables two neighbours swap from their vegetable patches.

GDP does not capture everything produced in a country. Explain which three big blocks of activity are left out (unpaid domestic and care work, the shadow economy and volunteering) and give an example of each, different from those seen in class.

A carpenter buys wood from the sawmill for $30\ \text{€}$ and uses it to make a table that he sells for $150\ \text{€}$. The sawmill had bought the log from a forester for $10\ \text{€}$.

1. a) Calculate the value added at each stage (forester, sawmill, carpenter).
2. b) Add the values added and check that the total matches the final price of the table.

In the imaginary country Briga, in one year: household consumption was $60.000$ million euros, business investment was $15.000$ million, government spending was $20.000$ million, exports were $18.000$ million and imports were $13.000$ million.

1. a) Calculate Briga's GDP using the expenditure method, $\text{GDP} = C + I + G + X - M$.
2. b) Calculate what percentage of GDP consumption represents and comment on its importance for the country's economy.

In Arta, the bread supply chain produces the following sales figures: the farmer sells wheat to the mill for $100\ \text{€}$, the mill sells flour to the bakery for $260\ \text{€}$, and the bakery sells bread to consumers for $500\ \text{€}$.

1. a) Calculate the value added at each stage of the chain.
2. b) Sum the values added and verify that it matches the value of the final bread. Explain why the three sales figures cannot be added together to measure output.

A country only produces sacks of apples. In 2024 it produces $100$ sacks, which sell at $1\ \text{€}$ per sack; in 2025 it produces the same $100$ sacks, but the price rises to $1,10\ \text{€}$.

1. a) Calculate the nominal GDP of each year and its rate of change.
2. b) Calculate the real GDP of 2025 at 2024 prices and explain what has happened to the country's output.
3. c) Using this example, explain the difference between nominal GDP and real GDP.

A country's GDP was $200.000$ million euros in 2024 and $210.000$ million in 2025, measured at current prices for each year. In 2025, prices rose by $4\ \%$.

1. a) Calculate the rate of change of nominal GDP.
2. b) Estimate the rate of change of real GDP by adjusting for price increases, and explain, using these figures, the difference between nominal GDP and real GDP.

Meridia's nominal GDP is $330.000$ million euros and its real GDP is $300.000$ million.

1. a) Calculate the GDP deflator, $\text{Deflator} = \frac{\text{nominal GDP}}{\text{real GDP}} \cdot 100$.
2. b) Interpret the result: how much have prices risen since the base year?
3. c) Explain the difference between the GDP deflator and the CPI as measures of prices.

Two countries have the same GDP, $400.000$ million euros, but the first has $10$ million inhabitants and the second, $25$ million.

1. a) Calculate the GDP per capita of each one.
2. b) Explain what GDP per capita measures and why it is used to compare living standards between countries.

Briga's real GDP rises from $500.000$ million euros to $515.000$ million in one year, while its population rises from $25$ to $25,25$ million inhabitants.

1. a) Calculate the real GDP per capita for each year.
2. b) Calculate the rate of change of real GDP and of real GDP per capita.
3. c) Explain why, when measuring the improvement in the average standard of living, the per capita figure matters more than the total.

The Ministry of Economy of Meridia celebrates that GDP has increased by $7\,\%$ thanks to the establishment of large foreign tech multinationals. However, consumer associations warn that the real disposable income of local households remains stagnant.

The following data for the financial year are available (in millions of euros):

• GDP at market prices: $120.000$.

• Income generated in Meridia by foreign-owned factors of production and sent out of the country (NFP abroad to foreign factors): $32.000$.

• Income earned abroad by resident national factors of production (NFP from abroad to national factors): $5.000$.

• Taxes on production and imports: $12.000$; Subsidies: $2.000$.

• Net remittances sent by resident foreign workers to their home countries: $2.000$.

1. a) Calculate Gross National Product at market prices ($GNP_{mp}$) and analyze which aggregate better reflects the spending capacity generated by domestic factors of production.
2. b) Explain the divergence between the Ministry's optimism and the citizens' complaint: why can strong GDP growth coexist with stagnation in residents' standard of living when the weight of multinationals is very high?
3. c) Predict what impact it would have on the gap between GDP and GNP if Meridia approves a tax reform that incentivizes multinationals to reinvest their profits in the local economy instead of repatriating them to their parent companies.