8.1: Gross Domestic Product Measures Total Production
Indicate whether each of the following transactions represents the purchase of a final good. 1. The purchase of tires from Bridgestone tire company by an automobile manufacturer. 2. The purchase of a new fire truck by the local government. 3. The purchase of domestic wine by a French consumer. 4. The purchase of a new machine tool by the Ford Motor Company.
1. Is not the purchase of a final good 2. Is the purchase of a final good 3. Is the purchase of a final good 4. Is the purchase of a final good
Suppose that a simple economy produces only the following four goods and services: shoes, hamburgers, shirts, and cotton. Further, assume that all of the cotton is used in the production of shirts. The Nominal GDP for the year 2019 is $____________.
10,255
Why in microeconomics can we measure production in terms of quantity, but in macroeconomics we measure production in terms of market value? A. If, in macroeconomics, we measured production using quantities, we would add tons of wheat grown by U.S. farmers to the number of iPods produced by Apple, to gallons of milk, and so on. B. When we measure total production, we can't just add together the quantities of every good and service because the result would be meaningless. C. Measuring production using market value in dollar terms allows us to add together many different goods and services. D. Both A and C. E. All of the above.
All of the above.
The figure shows the values of the components of GDP for the year 2016. Based on the data shown, which of the following statements regarding the components of GDP is false?
Consumer spending on services is less than the sum of spending on durable and nondurable goods.
Which of the following is true about the consumption component of U.S. GDP in 2016? Which of the following is true about the government purchases component of U.S. GDP in 2016?
Consumer spending on services was greater than the sum of spending on durable and nondurable goods. Purchases by state and local governments were greater than purchases by the federal government.
Indicate whether you agree or disagree with the following statement: "In years when people buy many shares of stock, investment will be high and, therefore, so will gross domestic product (GDP)"
Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases.
In the circular flow of expenditure and income, why must the total value of production in an economy equal the total value of income?
Every penny spent on a good or service must end up as someone's income.
Suppose a house is built and sold in the year 2008. If the house is resold in the year 2019, is the value of the house included in Gross Domestic Product (GDP) for 2019? Would the services of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2019?
No. GDP for 2019 includes only production that occurs during 2019. Yes. GDP for 2019 includes the market value of final goods and services. This includes real estate services.
What is the difference between the value of a firm's final product and the value added by the firm to the final product?
The value of a firm's final product is the sale price; value added is the difference between the sale price and the price of intermediate goods.
An artist buys scrap metal from a local steel mill as a raw material for her sculptures. Last year, she purchased $6,000 worth of scrap metal. With the steel she produced 10 authentic sculptures that she sold for $900 each to a local art dealer. The art dealer then sold all of the sculptures to art collectors for an average of $1,100 each.
Value added is the difference between the sale price and the price of the intermediate goods used in production. 900x10 = 9000 (amount she made after selling the goods) subtract 6000 = amount she spent on materials Answer: 3000
Which equation represents the relationship between GDP and the four major expenditure components? What are the four major components of expenditures in GDP?
Y = C + I + G + NX Consumption, Investment, Government Purchases, and Net Exports
Is the value of intermediate goods and services produced during the year included in Gross Domestic Product (GDP)? For example, is aluminum used to product a new mountain bike included in GDP.
Yes. The value of the aluminum is not directly counted in GDP, but the production of aluminum is included in the value-added method of measuring GDP.
Indicate which component of GDP will be affected by each of the following transactions involving the Ford Motor Company. a. You purchase a new Ford Escape Hybrid from a Ford dealer. b. You purchase a 2013 (preowned) Ford Escape Hybrid from a friend. c. Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana. d. Ford produces 1,000 Escapes in a factory in Missouri and ships them to a car dealer in Shanghai, China. e. Ford purchases new machine tools to use in its Missouri Escape factory. f. The state of Missouri builds a new highway to help improve access to the Ford Escape plant.
a. Consumption Expenditure b. Not included in GDP calculation c. Not included in GDP calculation d. Net Export Expenditure e. Investment Expenditure f. Government Expenditure
Gross domestic product is best defined as What happens if we measure GDP by adding up the value of every good and service produced in the economy?
the market value of all final goods and services produced in a country during a period of time, typically one year. GDP is overestimated because of double counting.
Which of the following is included in the economist's definition of investment? In calculating GDP, which levels of government spending are included in government purchases?
the purchase of new machines, factories, or houses spending by federal, state, and local governments
The difference between the price the firm sells a good for and the price the firm paid other firms for intermediate goods is called
value added.
An important conclusion to draw from the circular-flow diagram is that __________________. In the circular-flow diagram, who supplies factors of production in exchange for income?
we can measure GDP by calculating the total value of expenditures on final goods and services, or we can measure GDP by calculating the value of total income. households
An article in the Wall Street Journal states that a change in inventories "dragged down the overall growth in GDP by nearly a full percentage point" below what it otherwise would have been. Source: Josh Mitchell, "U.S. GDP Growth Slowed on Tepid Consumer," Wall Street Journal, April 28, 2017. For this result to occur, is it likely that inventories increased or decreased? Briefly explain.
Decreased, since inventories are part of a firm's investment, which is a component of GDP, inventories must have fallen.
An article in the Wall Street Journal states the following: "GDP figures are a measure of all the goods and services that are produced in an economy during a particular period." Source: Jon Sindreu, "Why U.S. GDP Figures Might Be Better than They Look," Wall Street Journal, July 29, 2016. Briefly explain whether you agree with this definition of GDP.
Disagree, because GDP measures the value of all final goods and services produced in an economy, not all the goods and services produced.
According to data on the usafacts.org site, in 2014 the federal government spent $850.5 billion on Social Security payments to retired and disabled people. Is this federal government spending considered production as measured by GDP? Briefly explain.
No, because Social Security payments do not result in the production of new goods and services.
During a discussion with a reporter, former Microsoft CEO Steve Ballmer discussed the data compiled on the usafacts.org Web site. Ballmer asked if the reporter knew how many people the government employed and provided the answer: "Almost 24 million. Would you have guessed that?" Source: Andrew Ross Sorkin, "Steve Ballmer Serves Up a Fascinating Data Trove," New York Times, April 17, 2017. Is local, state, and federal government spending on salaries and benefits for these employees considered production as measured by GDP? Briefly explain.
Yes, because the government purchases component of GDP includes spending on salaries and benefits for government employees.