These are original Marlbridge practice questions, not past exam questions. All questions use Valdoria, a fictional country whose currency is the valda (VD); all data are fictional. The rubrics are a suggested Marlbridge rubric to help you check your work; they are not an official scoring guideline. Assumptions: only final goods and services are listed; a four-function calculator is enough; round percentages and index values to 2 decimal places.
Question 1 (multiple choice · foundation)
Which statement correctly describes the difference between nominal GDP and real GDP?
- (A) Nominal GDP counts only consumer goods, while real GDP counts all final goods and services.
- (B) Nominal GDP values output at current prices, while real GDP values output at the prices of a base year.
- (C) Nominal GDP is adjusted for inflation, while real GDP is not.
- (D) Real GDP includes intermediate goods, while nominal GDP does not.
Answer and explanation
Answer: (B). Nominal GDP measures spending on output at the prices of the same year. Real GDP holds prices at base-year levels, so it changes only when output changes.
- (A) Both measures cover all final goods and services; they differ only in the prices used.
- (C) reverses the two. Real GDP is the measure adjusted for changes in the price level.
- (D) Neither measure counts intermediate goods; that would double-count (Topic 2.1).
Question 2 (multiple choice · core)
In 2026 Valdoria’s nominal GDP is VD 650 billion and its real GDP is VD 500 billion. What is the GDP deflator for 2026?
- (A) 30
- (B) 76.92
- (C) 130
- (D) 150
Answer and explanation
Answer: (C). Deflator = (nominal ÷ real) × 100 = (650 ÷ 500) × 100 = 130.
- (A) is the percentage by which prices exceed the base-year level (130 − 100), not the deflator itself.
- (B) inverts the ratio: (500 ÷ 650) × 100. Nominal GDP goes on top.
- (D) is the difference between nominal and real GDP in VD billion, which is not an index.
Question 3 (multiple choice · core)
Valdoria’s nominal GDP is VD 900 billion and the GDP deflator is 120. What is real GDP?
- (A) VD 720 billion
- (B) VD 750 billion
- (C) VD 780 billion
- (D) VD 1,080 billion
Answer and explanation
Answer: (B). Real GDP = (900 ÷ 120) × 100 = VD 750 billion.
- (A) subtracts 20% of 900. Prices are 20% above the base year, so you must divide by 1.20, not take away 20%.
- (C) subtracts the deflator from nominal GDP, which mixes an index with a money value.
- (D) multiplies by 1.20, which adds inflation instead of removing it.
Question 4 (multiple choice · stretch)
The base year for Valdoria’s GDP figures is 2020. In some year, Valdoria’s nominal GDP is lower than its real GDP. Which of the following must be true for that year?
- (A) The year must be earlier than 2020.
- (B) Real GDP fell compared with the year before.
- (C) The GDP deflator is below 100.
- (D) The inflation rate was negative in that year.
Answer and explanation
Answer: (C). Deflator = nominal ÷ real × 100. If nominal < real, the ratio is below 1, so the deflator is below 100: the price level is lower than in 2020.
- (A) is likely but not certain. A year after 2020 could also have a deflator below 100 if prices fell below their 2020 level.
- (B) The comparison of nominal and real GDP in one year tells you about prices, not about the change in output from the year before.
- (D) The price level can be below base-year level even if it rose that year; for example, a deflator rising from 94 to 97 is still below 100.
Question 5 (calculation · core)
Valdoria’s toy economy produces two final goods. Year 1 is the base year. Quantities are in millions; prices in VD.
| Good | Year 1 quantity | Year 1 price | Year 2 quantity | Year 2 price |
|---|---|---|---|---|
| Coffee (kg) | 500 | VD 6 | 520 | VD 7 |
| Chairs | 40 | VD 100 | 42 | VD 110 |
(a) Calculate nominal GDP in each year and real GDP in Year 2. (b) Calculate the GDP deflator for Year 2. (c) Calculate the growth rate of real GDP. Compare it with the growth rate of nominal GDP.
Worked solution
(a) Nominal Year 1 = 500(6) + 40(100) = 3,000 + 4,000 = VD 7,000 million. Nominal Year 2 = 520(7) + 42(110) = 3,640 + 4,620 = VD 8,260 million. Real Year 2 (Year 1 prices) = 520(6) + 42(100) = 3,120 + 4,200 = VD 7,320 million.
(b) Deflator = 8,260 ÷ 7,320 × 100 = 112.84.
(c) Real growth = (7,320 − 7,000) ÷ 7,000 × 100 = 4.57%. Nominal growth = (8,260 − 7,000) ÷ 7,000 × 100 = 18.00%. Most of the rise in nominal GDP came from higher prices (about 12.84%), not from more output.
Suggested mark points (4): 1 for both nominal GDP values; 1 for real GDP using Year 1 prices; 1 for the deflator; 1 for the real growth rate with a correct comparison. Accept answers carried forward from an earlier error.
Question 6 (constructed response · core)
Valdoria’s statistics office publishes these figures (base year 2020).
| Year | Nominal GDP (VD billion) | GDP deflator |
|---|---|---|
| 2019 | 552 | 92 |
| 2020 | 630 | 100 |
| 2021 | 676 | 104 |
(a) Calculate real GDP for each year. (b) Calculate the growth rate of real GDP in 2021. (c) A politician says, “Our economy grew by 7.30% in 2021.” Show where this figure comes from and explain why it overstates the growth of output. (d) Explain why real GDP is greater than nominal GDP in 2019.
Worked solution and suggested Marlbridge rubric
(a) 2019: 552 ÷ 92 × 100 = VD 600 billion. 2020: VD 630 billion (base year). 2021: 676 ÷ 104 × 100 = VD 650 billion.
(b) (650 − 630) ÷ 630 × 100 = 3.17%.
(c) 7.30% is the growth of nominal GDP: (676 − 630) ÷ 630 × 100 = 7.30%. Nominal GDP rose partly because the price level rose by 4% (deflator 100 → 104). Only the rise in real GDP, 3.17%, reflects more goods and services produced.
(d) 2019 is before the base year and its deflator (92) is below 100, so prices were lower than in 2020. Real GDP values 2019 output at the higher 2020 prices, so it is larger than nominal GDP.
| Point | What earns it |
|---|---|
| 1 | All three real GDP values correct |
| 1 | Real growth of 3.17%, dividing by 630 |
| 1 | Identifies 7.30% as nominal growth |
| 1 | Explains that part of the nominal rise is higher prices, so it overstates output growth |
| 1 | Links real > nominal in 2019 to a price level below the base-year level |
In (c), a statement that “inflation was included” earns the fourth point only if it says that nominal GDP rises with prices as well as output.
Question 7 (constructed response · stretch)
A small Valdorian region produces only rice and solar panels. Quantities are in thousands; prices in VD.
| Good | Year A quantity | Year A price | Year B quantity | Year B price |
|---|---|---|---|---|
| Rice (sacks) | 100 | VD 10 | 102 | VD 12 |
| Solar panels | 10 | VD 50 | 20 | VD 30 |
(a) Using Year A prices, calculate real output in each year and the real growth rate. (b) Using Year B prices, calculate real output in each year and the real growth rate. (c) Explain why the growth rate in (a) is higher than in (b). (d) Explain how statistical agencies respond to this problem.
Model answer and suggested Marlbridge rubric
(a) Year A: 100(10) + 10(50) = 1,000 + 500 = VD 1,500 thousand. Year B: 102(10) + 20(50) = 1,020 + 1,000 = VD 2,020 thousand. Growth = (2,020 − 1,500) ÷ 1,500 × 100 = 34.67%.
(b) Year A: 100(12) + 10(30) = 1,200 + 300 = VD 1,500 thousand. Year B: 102(12) + 20(30) = 1,224 + 600 = VD 1,824 thousand. Growth = (1,824 − 1,500) ÷ 1,500 × 100 = 21.60%.
(c) Solar panel output doubled (100% growth) while rice output grew only 2%. Solar panels were also the good whose price fell (VD 50 to VD 30). Year A prices value each panel at VD 50, so the fast-growing good carries a heavy weight and measured growth is high. With Year B prices, panels are valued at only VD 30 and rice at a higher price, so the fast growth counts for less. A fixed earlier base year therefore tends to overstate real growth.
(d) Agencies do not rely on one fixed base year. They use methods such as chain weighting, which update the price weights regularly so that growth in each period is measured with recent relative prices.
| Point | What earns it |
|---|---|
| 1 | Correct real output values and 34.67% in (a) |
| 1 | Correct real output values and 21.60% in (b) |
| 1 | Identifies that the fastest-growing good became relatively cheaper |
| 1 | Explains that old (higher) prices give that good too much weight, overstating growth |
| 1 | Describes updating the price weights (chain weighting) |
In (d), naming “chain weighting” with no description earns the point only if the answer says the weights are updated.
How did you do?
- Q1 or Q4 wrong: re-read “Two ways GDP can grow” and “The calculations” in the study guide.
- Q2, Q3 or Q6(a) wrong: check the deflator formula and which number goes on top; see Worked example 2.
- Q5 wrong: revisit Worked example 1 and make sure real GDP uses base-year prices.
- Q6(c)–(d) wrong: compare nominal and real growth in Worked example 2, part (c).
- Q7 wrong: revisit “Why base-year prices can overstate growth”.
Then tick off the topic checklist.