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 used car, the work of a plumber paid cash under the table without an invoice, and the vegetables two neighbors swap from their vegetable gardens.

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 used apartment built $30$ years ago, and the fees of the real estate agency that brokered that sale.

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

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.

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

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.

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

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.

The figure shows the composition of GDP in the imaginary country Meridia according to the expenditure method, in billions of dollars: 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 dollars.
2. b) Does Meridia have a trade surplus or a trade deficit in its foreign trade? Interpret the result.

In Arta, in one year: household consumption was $40,000$ million dollars, 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) Explain what would happen to GDP if, everything else staying the same, households decided to save more and consume $2,000$ million less.

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 apartment, the city pays the salaries of its firefighters, a company buys an industrial warehouse, a German tourist pays for a week's hotel in Miami and an American company buys computers imported from Taiwan.

A country only produces sacks of apples. In 2024 it produces $100$ sacks, which sell at $\$1$ per sack; in 2025 it produces the same $100$ sacks, but the price rises to $\$1.10$.

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 dollars 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 dollars and its real GDP is $300,000$ million.

1. a) Calculate the GDP deflator, $\text{Deflator} = \frac{\text{nominal GDP}}{\text{real GDP}} \times 100$.
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 dollars, 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 dollars to $515,000$ million in one year, while its population rises from $25$ to $25.25$ million residents.

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.

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