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 neighbors 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 pesos: 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 pesos.
2. b) Does Meridia have a trade surplus or a trade deficit in its foreign trade? Interpret the result.

In the imaginary country Briga, in one year: household consumption was $1\,200\,000$ million pesos, business investment was $300\,000$ million, government spending was $400\,000$ million, exports were $360\,000$ million and imports were $260\,000$ 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 $\$2\,000$, the mill sells flour to the bakery for $\$5\,200$, and the bakery sells bread to consumers for $\$10\,000$.

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 $4\,000\,000$ million pesos in 2024 and $4\,200\,000$ 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.

The three methods for calculating Meridia's GDP yield the following data: the sum of the value added of all sectors is $1\,900\,000$ million pesos; employee compensation totals $1\,000\,000$ million and profits and other capital income total $900\,000$ million; and on the expenditure side, $C = 1\,100\,000$ million, $I = 360\,000$ million, $G = 440\,000$ million, $X = 320\,000$ million and $M = 320\,000$ million.

1. a) Calculate GDP using each of the three approaches (output, income, and expenditure) and verify that they match.
2. b) Explain why all three approaches lead to the same result: what is the relationship between producing output, distributing income, and spending?

Arta has a GDP of $10\,000\,000$ million pesos and $10$ million inhabitants; Briga has a GDP of $16\,000\,000$ million and $40$ million inhabitants.

1. a) Calculate the GDP per capita for each country.
2. b) Explain in which country the average standard of living is higher and what additional information you would need to refine the comparison (prices, income distribution, unpaid work...).
3. c) Relate your answer to two limitations of GDP as a measure of well-being.

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 pesos):

• 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.