Exercises: Macroeconomic aggregates: GDP and its measurement

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.

The figure shows the composition of GDP in the imaginary country Meridia according to the expenditure method, in billions of euros: household consumption (C), business investment (I), government spending (G) and net exports (X−M), but the value of this last bar is missing.

1. a) Calculate Meridia's net exports knowing that its GDP is $100.000$ million euros.
2. b) Does Meridia have a trade surplus or a trade deficit in its foreign trade? Interpret the result.

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.

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.

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.

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.

State whether these transactions form part of GDP and justify your answer: buying shares in a company on the stock market, the pension received by a retired woman, the sale of a second-hand flat built $30$ years ago, and the fees of the estate agency that brokered that sale.

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'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.

In Arta, in one year: household consumption was $40.000$ million euros, investment was $12.000$ million, government spending was $15.000$ million, exports were $10.000$ million and imports were $14.000$ million.

1. a) Calculate Arta's GDP using the expenditure method.
2. b) Calculate the balance of net exports and explain its sign.
3. c) Reason what would happen to GDP if, everything else staying the same, households decided to save more and consume $2.000$ million less.

The frozen pizza chain produces these sales figures: the farmer sells the milk to the cheese maker for $80\ \text{€}$, the cheese maker sells the cheese to the pizza factory for $190\ \text{€}$, and the factory sells the pizzas to supermarkets for $420\ \text{€}$.

1. a) Calculate the value added at each stage.
2. b) Check that the sum of the values added matches the final value and calculate what inflated figure would result from adding the three sales together.
3. c) Explain why GDP uses value added and not total sales.

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.

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.

Classify each item of spending into its GDP component (consumption C, investment I, government spending G or net exports X−M) and justify your choice: a household buys a newly built flat, the council pays the salaries of its firefighters, a company buys an industrial warehouse, a German tourist pays for a week's hotel in Málaga and a Spanish company buys computers imported from Taiwan.

A preliminary report from the Meridia research department presents the following macroeconomic data for the last financial year (in millions of euros):

• Gross total output of all sectors: $180.000$; Declared intermediate consumption: $85.000$.

• Compensation of employees: $52.000$; Gross Operating Surplus and mixed income: $43.000$.

• Final household consumption expenditure: $58.000$; Gross business investment: $17.000$; Government consumption: $21.000$; Exports: $24.000$; Imports: $20.000$.

In addition, an analyst claims that GDP should be $8.000$ million higher because second-hand homes worth $5.000$ million were sold that year and households purchased shares on the stock exchange worth $3.000$ million.

1. a) Calculate GDP using the three approaches (output, income, and expenditure) and determine whether the report's data show accounting consistency or if there is a discrepancy in the recording of expenditure.
2. b) Provide a reasoned refutation of the analyst's proposal: explain why transactions of second-hand homes and stock market operations should not be counted as higher GDP for the year.
3. c) If a construction company buys concrete for $200$ million to build an industrial warehouse valued at $1.000$ million that it sells to a local factory, describe exactly how this transaction is recorded in each of the three approaches to avoid double counting.

A newspaper publishes the following headline: "Arta doubles the material well-being of Briga thanks to its productive superiority". To support this, it cites that Arta has a GDP of $500.000$ million euros with $10$ million inhabitants, while Briga has a GDP of $800.000$ million with $40$ million inhabitants.

However, you have the following additional information:

1. The average price level of consumer goods in Arta is $75\,\%$ higher than in Briga.

2. Arta's Gini coefficient is $0,49$ (the richest $10\,\%$ concentrates $55\,\%$ of income), while in Briga it is $0,24$.

3. The average workweek in Arta is $46$ hours compared to $34$ hours in Briga, and $30\,\%$ of Arta's output generates severe polluting discharges that the State does not account for as environmental depreciation.

1. a) Calculate the nominal GDP per capita of both countries and reason why comparing these figures without adjusting for Purchasing Power Parity (PPP) distorts reality. Which country offers greater real average purchasing power to its inhabitants?
2. b) Based on the data regarding inequality, leisure time, and negative externalities, write an argued reply that refutes the newspaper headline.
3. c) Design a set of three complementary indicators that a government should publish alongside GDP to evaluate the real progress of a society, justifying what specific shortcoming of GDP each one corrects.

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.

The following annual data (in billions of euros) are available for the economy of Briga:

• Sum of the gross value added of all sectors: $250.000$.

• Compensation of employees: $130.000$; Gross operating surplus / mixed income: $120.000$.

• Final consumption expenditure of households ($C$): $150.000$; Gross investment ($I$): $50.000$; Government consumption ($G$): $60.000$; Exports of goods and services ($X$): $30.000$.

• Tax revenue net of transfers and subsidies ($T$): $48.000$.

1. a) Calculate GDP using the output (production) and income approaches, and deduce the volume of imports ($M$) required to balance the expenditure approach. Interpret the balance of trade of Briga.
2. b) Calculate the private saving of the economy ($S = Y - T - C$, assuming that GDP equals national disposable income) and the budget balance of the public sector ($T - G$).
3. c) Check whether the macroeconomic identity $(S - I) + (T - G) = X - M$ holds. Based on the result, explain how Briga's private, public, and external sectors finance each other, and diagnose whether the country has net lending or net borrowing with the rest of the world.

A parliamentary committee must determine which economic model fosters greater social welfare based on data from two countries with identical population sizes:

• Country A: GDP per capita of $30.000\,\text{€}$; Gini index of $0,48$; average workweek of $44$ hours; life expectancy of $80$ years; early school leaving rate of $18\,\%$; ecological footprint of $5,8$ global hectares per person.

• Country B: GDP per capita of $24.000\,\text{€}$; Gini index of $0,25$; average workweek of $35$ hours; life expectancy of $83$ years; early school leaving rate of $4\,\%$; ecological footprint of $2,2$ global hectares per person.

1. a) Demonstrate using quantitative reasoning why GDP per capita conceals the material reality of the average citizen in Country A when contrasted with its Gini index.
2. b) Assess how differences in health, education, and income would be reflected in the Human Development Index (HDI) of both countries. Which critical dimensions of Country A and Country B are left out even from the calculation of the HDI?
3. c) Draft a reasoned opinion arguing which of the two economic models offers greater long-term economic, social, and environmental sustainability, anticipating the economic costs the other country will face if it does not correct its imbalances.

In the debate on the state of Arta's economy, the government's parliamentary spokesperson proclaims: "In 2025 our economy grew by a magnificent $7,41\,\%$, comfortably surpassing the previous year's growth and allowing households to gain purchasing power thanks to an average wage increase of $4\,\%$"

Data from the National Statistics Institute (in billions of euros) are:

• 2023 (base year): Nominal GDP $200.000$; Real GDP $200.000$.

• 2024: Nominal GDP $216.000$; Real GDP $208.000$.

• 2025: Nominal GDP $232.000$; Real GDP $212.000$.

1. a) Calculate the growth rates of nominal GDP and real GDP in both 2024 and 2025. Identify the intentional conceptual error in the spokesperson's speech.
2. b) Calculate the GDP deflator for 2024 and 2025, find the implicit inflation rate in 2025, and demonstrate numerically whether households gained or lost real purchasing power compared to the $4\,\%$ wage increase.
3. c) If for 2026 analysts forecast a $1\,\%$ drop in real GDP accompanied by an inflation rate (according to the deflator) of $4,5\,\%$, predict the value that nominal GDP would reach in 2026 and describe the resulting macroeconomic scenario (stagflation).

In a small European country, GDP grew by an unusual $25\,\%$ in a single year because several multinationals relocated their tax headquarters and the intellectual property of their patents there. However, employment grew by merely $0,3\,\%$ and household consumption remained unchanged.

The country's data for that year show the following figures (in millions of euros):

• GDP at market prices: $200.000$ (it had been $160.000$ the previous year).

• Property income and profits repatriated abroad by subsidiaries (RFE): $48.000$.

• Income earned by domestic factors in the rest of the world (RFN): $3.000$.

• Consumption of fixed capital (depreciation of assets, software, and patents): $25.000$.

• Extraordinary tax revenue collected by the government from these multinationals: $3.500$.

1. a) Calculate the Gross National Product ($PNB_{pm}$) and the Net National Product ($PNN_{pm}$) of the country. Compare the GDP growth rate ($25\,\%$) with the proportion of income that actually remains in the hands of domestic residents.
2. b) The government decides to commit to a permanent $15\,\%$ increase in healthcare spending funded by the newly expected GDP revenue. Justify why an economic analyst would describe this fiscal policy as reckless.
3. c) If member states' contributions to the European Union's common budget are determined on the basis of their GDP, predict what overcontribution issue this country will suffer and argue which alternative indicator should be used to measure its true economic capacity.

Briga's research department has the following macroeconomic data for 2024 (in billions of euros): $C = 70.000$, $I = 20.000$, $G = 25.000$, $X = 22.000$, and $M = 27.000$.

For 2025, the government publishes that nominal GDP amounted to $121.000$ billion euros and that household consumption expenditure increased by $8\,\%$ in nominal terms. Meanwhile, the statistics office calculates that total final output for 2025 valued at 2024 prices was $115.500$ billion euros.

1. a) Calculate GDP for 2024 and determine the nominal and real growth rates of the economy in 2025. Explain what percentage of nominal growth corresponds to additional physical output and how much is merely price increases.
2. b) Obtain the GDP deflator for 2025 and determine the accumulated inflation rate. Based on this, calculate whether household consumption actually increased in terms of physical goods or if money illusion occurred.
3. c) Looking ahead to 2026, the Ministry of Economy projects that real GDP will grow by $2,5\,\%$ and the Central Bank estimates inflation of $3\,\%$. Predict the figure that nominal GDP should reach in 2026 if both forecasts are met.

Unit challenge. Imagine that you work as a junior economic analyst for a digital newspaper. Your goal is to produce an overview of the Spanish economy by connecting empirical reality with aggregate theory.

Phases of the challenge:

1. Data extraction: Go to the INE website (ine.es, Quarterly National Accounts section) and collect data from the latest year for the components of GDP via the expenditure approach: household consumption ($C$), investment or GFCF ($I$), government spending ($G$), and net exports ($X - M$).

2. Table and circular flow: Design a table calculating the percentage share of each component in total GDP. Explain in one paragraph how the role of households and firms is reflected in the circular flow of income through the variables $C$ and $I$.

3. AS-AD simulation (extension): Write a short report (maximum one page) presenting what would happen in the event of an interest rate hike: deduce through reasoned argument which components of Aggregate Demand ($DA$) would contract, how this would shift the $DA$ curve in the AS-AD model, and what effects it would have on real GDP and the price level.

Evaluation criteria:

• Accuracy in searching for data on the INE and in calculating the percentages of the macroeconomic aggregates.

• Conceptual coherence when linking the economic agents of the circular flow with GDP components.

• Analytical rigor in the reasoning behind shifts and equilibrium in the AS-AD model.