CH 10 ECON
how to calculate GDP Deflator
(nominal / real) x 100
Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? 1. The value produced by doing your own laundry 2. Funds spent by city governments to renovate their buildings 3. The costs of air and water pollution 4. The quality of goods available to consumers
1. 3. 4.
Identify whether each of the following events in this scenario occurs in the market for factors of production or the market for goods and services. 1. Janet earns $625 per week working for Classy's Jewelry Store. 2. Felix earns $250 per week working for Pillmart Pharmacy. 3. Felix spends $225 to purchase a necklace from Classy's Jewelry Store.
1. Market for Factors of Production 2. Market for Factors of Production 3. Market for Goods and Services
When a U.S. company purchases and imports wood from Brazil to use to build new houses within the United States, this purchase ___1___ the investment component of GDP while also ___2___ net exports by the same amount. Therefore, the purchase of wood from Brazil causes ___3___ in US GDP.
1. increases 2. decreases 3. no overall change
GDP doesnt include
1. quality of the environment 2. leisure time 3. non-market activity 4. an equitable distribution of income
Which of the elements of this scenario represent a flow from a household to a firm? 1. The $250 per week Felix earns working for Pillmart Pharmacy 2. The $225 Felix spends to purchase a necklace from Classy's Jewelry Store 3. Janet's labor
2 and 3 Janet (a household) supplies her labor to Classy's Jewelry Store (a firm). Therefore, Janet's labor is an input that flows from a household to a firm. The aspirin is provided by Pillmart Pharmacy (a firm) to Janet (a household). Therefore, the aspirin is an output that flows from a firm to a household. Pillmart Pharmacy (a firm) pays Felix (a household) $250 for his labor. Therefore, the $250 is a payment that flows from a firm to a household. Felix (a household) pays Classy's Jewelry Store (a firm) $225 for a necklace. Therefore, the $225 is a payment that flows from a household to a
export
A good or service produced in the home country and sold in another country.
Goods and services that are not sold in markets, such as food produced and consumed at home, are generally not included in GDP. True or False: As a result, you would expect that GDP per person in India and the United States will differ by less than their actual comparative economic well-being.
FALSE should say more
If GDP included goods that are resold, it would count goods in GDP only once if they were produced in one year and resold in another.
False
True or False: The total value added for the three producers in this economy does not equal the economy's GDP.
GDP = Final value
What part of GDP: The Federal Aviation Administration expands the runways at Philadelphia International Airport, which is just a few miles from Edison and Hilary's house.
Government purchase
True or False: For the economy as a whole, expenditures must equal income.
TRUE expenditures = income
GDP formula
Y = C + I + G + NX or Y = C + I + G + (X-M)
How is your purchase of a $40,000 BMW automobile that was produced entirely in Germany recorded in the U.S. GDP accounts? a. Consumption increases by $40,000 and net exports decrease by $40,000. b. Net exports decrease by $40,000. c. Net exports increase by $40,000. d. Investment increases by $40,000 and net exports increase by $40,000. e. There is no impact because this transaction does not involve domestic production.
a. Consumption increases by $40,000 and net exports decrease by $40,000.
If U.S. GDP exceeds U.S. GNP, then a. foreigners are producing more in the United States than Americans are producing in foreign countries. b. real GNP exceeds nominal GNP. c. intermediate production exceeds final production. d. Americans are producing more in foreign countries than foreigners are producing in the United States. e. real GDP exceeds nominal GDP.
a. foreigners are producing more in the United States than Americans are producing in foreign countries.
Real GDP is measured in ______ prices while nominal GDP is measured in ______ prices. a. intermediate; final b. base year; current year c. domestic; foreign d. current year; base year e. foreign; domestic
b. base year; current year
GDP would include which of the following? a. intermediate sales b. consulting services c. the value of taking a day off from work d. illegal drug sales e. housework
b. consulting services
f your grandparents buy a new retirement home, this transaction would affect a. consumption. b. investment. c. government purchases. d. net exports. e. none of the above.
b. investment.
U.S. gross domestic product (in contrast to gross national product) measures the production and income of a. Americans and their factories no matter where they are located in the world. b. people and factories located within the borders of the United States. c. the domestic service sector only. d. the domestic manufacturing sector only. e. none of the above.
b. people and factories located within the borders of the United States.
If nominal GDP in 2019 exceeds nominal GDP in 2018, then the production of output must have a. risen. b. risen or fallen because there is not enough information to determine what happened to real output. c. fallen. d. stayed the same.
b. risen or fallen because there is not enough information to determine what happened to real output.
An example of a transfer payment is a. wages. b. unemployment benefits. c. government purchases. d. profit. e. rent.
b. unemployment benefits.
How to calculate inflation rate
based on GDP deflator: = (of this year - of last year) / of last year; mult by 100
large GDP shows?
better schools, a cleaner environment, health care quality of life positively correlated with g=GSP
import
bring (goods or services) into a country from abroad for sale.
circular flow diagram: firms
buy/hire factors of production, use them to produce goods and services - sell goods and services
Government purchases
consist of any purchase by a state, local, or federal government. Therefore, when the Federal Aviation Administration expands the runways at Philadelphia International Airport, that is considered part of government purchases.
Consumption
consists of expenditures by individuals on goods and services, such as the new video camera made in the United States that Hilary buys and the BMW that Hilary buys
Investment
consists of spending on capital goods, household purchases of new housing, and (net) additions to inventories. Because computers are part of the capital stock of Edison's company, upgrading those computers is considered investment spending
What part of GDP: Hilary gets a new video camera made in the United States.
consumption
What part of GDP: Hilary buys a new BMW, which was assembled in Germany.
consumption and import he value of the BMW is added to the exports category for Germany and the imports category for the United States. Furthermore, because the BMW is bought in the United States, it is also included in the consumption category
Which of the following would be excluded from 2019 GDP? The sale of a. a 2019 Honda made in Tennessee. b. a haircut. c. a realtor's services. d. a home built in 2018 and first sold in 2019. e. All of the above should be counted in 2019 GDP.
d. a home built in 2018 and first sold in 2019.
The value of plant and equipment worn out in the process of manufacturing goods and services is measured by a. depreciation. b. Net national product. c. intermediate production. d. investment. e. consumption
depreciation
If a cobbler buys leather for $100 and thread for $50 and uses them to produce and sell $500 worth of shoes to consumers, the contribution to GDP is a. $650. b. $100. c. $50. d. $600. e. $500.
e. $500.
Gross domestic product can be measured as the sum of a. investment, wages, profits, and intermediate production. b. consumption, transfer payments, wages, and profits. c. final goods and services, intermediate goods, transfer payments, and rent. d. net national product, gross national product, and disposable personal income. e. consumption, investment, government purchases, and net exports.
e. consumption, investment, government purchases, and net exports.
U.S. GDP would exclude which of the following? a. a new bridge purchased by the state of Texas b. the purchase of a new Mazda produced in Illinois c. lawn care services purchased by a homeowner d. lawyer services purchased by a home buyer e. cotton purchased by Lee Jeans
e. cotton purchased by Lee Jeans intermediate
Gross domestic product is the sum of the market value of the a. manufactured goods. b. inferior goods and services. c. intermediate goods. d. normal goods and services. e. final goods and services.
e. final goods and services.
included/exclude in GDP: Treetopplers, a U.S. lumber company, produces wood at a plant in Oregon on September 13, 2018. It sells the wood to Buildit and Partners, a developer, for use in the production of a new house that will be built in the United States in 2018. (Note: Focus exclusively on whether production of the wood increases GDP directly, and ignore the effect of production of the new house on GDP.)
excluded Because Buildit and Partners uses the wood that Treetopplers produces in the production of a new house, the wood is considered an intermediate good, not a final good and, therefore does not directly increase the GDP of the United States. However, the price of the new house will include the value of the wood. Therefore, the market value of the wood will enter GDP as part of the market value of the final good, the new house
included/exclude in GDP: An accountant starts a client's 2018 tax return on April 14, 2019, finishing it just before midnight on April 15, 2019.
excluded Because the accountant provides her services during 2019, the value of those services will be included in 2019 GDP, not 2018 GDP.
included/exclude in GDP: Roadway Motors, a U.S. automobile company, produces a convertible at a plant in Germany on March 17, 2018. Roadway Motors imports the convertible into the United States on May 21, 2018.
excluded Roadway Motors is a U.S. company, but because it produces the convertible in Germany, the output will be part of the GDP of Germany, not the GDP of the United States.
What part of GDP: Hilary's father in Sweden orders a bottle of Vermont maple syrup from the producer's website.
export the value of the bottle of syrup is added to the exports category for the United States and the imports and consumption categories for Sweden.
how to calculate net exports
exports - imports
circular flow diagram: preliminaries
factors of production: inputs like labor, land, capital and natural resources factor payments: payment to the factors of production (wages, rent)
know flow chart to answer: Based on this model, households earn income when ___ purchase ___ in markets for factors of production.
firms labor and capital
income = expenditure
for economy as a whole because every dollar a buyer spends is a dollar of income for the seller
included/exclude in GDP: Sofaland, a Swedish furniture company, produces a table at a plant in Virginia on December 5, 2018. It sells the table to a college student on December 24.
included Although Sofaland is a Swedish company, the table is produced within the United States and should be included in the GDP of the United States.
included/exclude in GDP: Awake Cafe, a U.S. coffee company, produces a latte at its location in Minneapolis on January 9, 2018. It sells the latte to a customer immediately.
included produced in the United States in 2018
What part of GDP: Edison's employer upgrades all of its computer systems using U.S.-made parts.
investment
The gross domestic product (GDP) of the United States is defined as the
market value of all final goods and services produced within the United States in a given period of time.
example of real and nominal gdp on calculation and GDP deflator and percentage increase from 2 years
on own
circular flow diagram: households
own the factors of production, sell or rent them to firms for income - buy and consume goods and services
macroeconomics definition
study of economy- wide phenomena with inflation unemployment and economic growth
microeconomics definition
study of how households and firms make decisions and interact in markets
Value added
the value of a producer's output minus the value of the intermediate goods that the producer buys to make the output.
The participation of women in the U.S. labor force has risen dramatically since 1970. True or False: This rise likely increased GDP in the United States.
true
nominal GDP
w/ inflation = current prices
real GDP
without inflation = with base year prices