Ch.8 Homework
An article in the Wall Street Journal has the headline "What Is the Shadow Economy and Why Does It Matter?" Source: Simon Constable, "What Is the Shadow Economy and Why Does It Matter?" Wall Street Journal, March 5, 2017. Briefly answer the two questions asked in the headline. What is the shadow economy? A. It is the part of the economy where the buying and selling of goods and services is concealed from the government. Your answer is correct. B. It refers to household production—the part of the economy where people produce goods and services for themselves. C. It refers to the process of bringing the firms of developing countries into the formal sector from the informal sector. D. It is when developing economies shadow high-income economies in order to watch how they grow their economies. Why does the shadow economy matter? A. GDP would be a perfect measure of the overall performance of the economy if the shadow economy did not exist. B. A large shadow economy is an indication that the government needs to implement stricter regulations on businesses. C. Businesses in the shadow economy are more likely to invest in new machinery and equipment, thus encouraging economic growth. D. Having a large shadow economy may be a sign that government policies are making it difficult for many businesses to operate openly.
A. It is the part of the economy where the buying and selling of goods and services is concealed from the government. D. Having a large shadow economy may be a sign that government policies are making it difficult for many businesses to operate openly.
What are the four major components of expenditures in GDP? A. Consumption, Investment, Government Purchases, and Net Exports Your answer is correct. B. Consumption, Intermediate Goods, Goods and Services, and Net Exports C. Consumption, Investment, Government Purchases, and Non-Durable Expenditures D. Consumption, Intermediate Goods, Government Purchases, and New Expenditures
A. Consumption, Investment, Government Purchases, and Net Exports
We often use real GDP per capita as a measure of a country's well-being. Review the definition of real GDP per capita before answering the following question. Today, the typical American works fewer than 40 hours per week. In 1890, the typical American worked 60 hours per week. Would the difference between the real GDP per capita in 1890 and the real GDP per capita today understate or overstate the difference in the population's economic well-being? A. The decrease in real GDP per capita between 1890 and today understates well-being because the value of leisure is not included in GDP. B. The increase in real GDP per capita between 1890 and today understates well-being because the value of leisure is not included in GDP. Your answer is correct. C. The increase in real GDP per capita between 1890 and today overstates well-being because the value of leisure is not included in GDP. D. The decrease in real GDP per capita between 1890 and today overstates well-being because the value of leisure is not included in GDP.
B. The increase in real GDP per capita between 1890 and today understates well-being because the value of leisure is not included in GDP.
In an economy with rising prices, compared to the base year, A. nominal GDP is equal to real GDP in years after the base year. B. nominal GDP is larger than real GDP in years after the base year. Your answer is correct. C. nominal GDP is equal to real GDP in years before the base year. D. nominal GDP is larger than real GDP in years before the base year.
B. nominal GDP is larger than real GDP in years after the base year
An article in the Wall Street Journal referred to "gross domestic product—the value of all goods and services produced in the U.S." Source: Harriet Tory, "U.S. Economy Grew at 3.2% Rate in First," Wall Street Journal, April 26, 2019. Briefly explain whether you agree with this definition of GDP. A. Uncertain, since the article should have referenced a more specific period of time to measure GDP, such as every three months. B. Disagree, because GDP measures the value of all final goods and services produced in an economy, not all the goods and services produced. Your answer is correct. C. Agree, because GDP is used to measure an economy's total productivity, which includes all the goods and services produced in an economy. D. Disagree, because GDP doesn't include the value of services when measuring an economy's total productivity.
B. Disagree, because GDP measures the value of all final goods and services produced in an economy, not all the goods and services produced.
The following data for 2017 are from the Organization for Economic Co-operation and Development (OECD). Country 1. Average Annual Hours Worked 2. Average Annual Wages Germany 1. 1,356 2. $47,585 United States 1. 1,780 2. $60,558 The average German worker worked more than 400 fewer hours per year and earned nearly $13,000 less than did the average worker in the United States. Can we conclude anything about the well-being of the average German worker versus the well-being of the average worker in the United States from these data? What other measures would you like to see in evaluating the well-being of workers in these two countries? Source: stat.oecd.org. Can we conclude anything about the well-being of the average German worker versus the well-being of the average worker in the United States from these data? A. No, because we do not have information about the relative value of the currencies. B. No, because although the German worker earned less per year, they also worked less per year. Your answer is correct. C. Yes, the German worker is worse off because they earned less per year. D. Yes, the German worker is better off because they worked less per year. What measures besides average number of hours worked and real per capita GDP would you like to have to evaluate the well-being of workers in OECD countries? A. Indicators of population density, transportation, and average energy use. B. Indicators of pollution, crime and other social problems, and the distribution of income. Your answer is correct. C. Indicators of population density, the distribution of income, and average energy use. D. Indicators of social programs, transportation, and crime.
B. No, because although the German worker earned less per year, they also worked less per year. B. Indicators of pollution, crime and other social problems, and the distribution of income.
In the circular flow of expenditure and income, why must the total value of production in an economy equal the total value of income? A. Taxes on the production of goods and services are determined according to individual income. B. Domestic expenditures on imports generally equal foreign expenditures on U.S. exports. C. Every penny spent on a good or service must end up as someone's income. Your answer is correct. D. People tend to spend all of their income on goods and services.
C. 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 2010. If the house is resold in the year 2021, is the value of the house included in Gross Domestic ProductLOADING... (GDP) for 2021? A. No. GDP for 2021 includes only the market value of final goods. A house resold in 2021 is an intermediate good. B. Yes. The value of the house is included in Personal Consumption Expenditures for 2021. C. No. GDP for 2021 includes only production that occurs during 2021. Your answer is correct. D. Yes. The value of the house is included in Gross Private Domestic Investment for 2021. Would the services of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2021? A. No. The value of the house is not included in GDP for 2021. Therefore, real estate services are not included either. B. No. GDP for 2021 includes only the market value of final goods. Real estate services are not final goods. C. Yes. Real estate services are considered Gross Private Domestic Investment. D. Yes. GDP for 2021 includes the market value of final goods and services. This includes real estate services.
C. No. GDP for 2021 includes only production that occurs during 2021. D. Yes. GDP for 2021 includes the market value of final goods and services. This includes real estate services.
Why does inflation make nominal GDPLOADING... a poor measure of the increase in total production from one year to the next? A. Nominal GDP separates increases in GDP as a result of price changes from increases in GDP as a result of quantity changes. B. GDP is a measure of production in quantity terms. C. When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities. Your answer is correct. D. All of the above E. A and B only How does real GDP deal with the problem inflation causes with nominal GDP? A. By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced. B. Real GDP separates price changes from quantity changes. C. Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years. D. All of the above. Your answer is correct. E. A and C only.
C. When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities. D. All of the above.
Which of the following is included in the economist's definition of investment? A. the purchase of a rare coin or a deposit in a savings account B. the purchase of a share of stock C. the purchase of new machines, factories, or houses Your answer is correct. D. All of the above. In calculating GDP, which levels of government spending are included in government purchases? A. spending by governments only on national security, social welfare, and other national programs B. spending by the federal government and some state governments, but not local governments C. spending by the federal government only D. spending by federal, state, and local governments
C. the purchase of new machines, factories, or houses D. spending by federal, state, and local governments
GDP is an imperfect measure of economic well-being because it fails to measure what types of production? A. Foreign production and the government sector. B. Household production and foreign production. C. Business investment and foreign production. D. Household production and the underground economy. Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being? A. GDP is not adjusted for pollution and it does not account for unequal income distribution. B. The value of leisure is not included in GDP. C. GDP is not adjusted for crime or other social problems. D. All of the above. Your answer is correct. E. A and C only.
D. Household production and the underground economy. D. All of the above
Gross domestic product is best defined as A. the amount of all incomes earned by all citizens of a country, including those living overseas. B. the total value of all goods that can be found in a country. C. the total quantity of goods and services produced in a country during a period of time. D. the market value of all final goods and services produced in a country during a period of time, typically one year. What happens if we measure GDP by adding up the value of every good and service produced in the economy? A. This is the correct measure of real GDP but not nominal GDP. B. GDP is overestimated because of double counting. Your answer is correct. C. This is the correct measure of nominal GDP but not real GDP. D. GDP is underestimated because of double counting.
D. the market value of all final goods and services produced in a country during a period of time, typically one year. B. GDP is overestimated because of double counting.
Indicate which component of GDP will be affected by each of the following transactions involving General Motors. Chooses: Consumption Expenditure Investment Expenditure Not included in GDP calculation Net Export Expenditure Government Expenditure a. You purchase a new Chevrolet Silverado pickup from a GM dealer. b. You purchase a 2017 (preowned) Chevrolet Silverado from a friend. c. GM purchases door handles for the Silverado from an auto parts manufacturer in Indiana. d. GM produces 1,000 Silverados in a factory in Flint, Michigan, and ships them to a car dealer in Shanghai, China. e. GM purchases new machine tools to use in its Flint factory. f. The state of Michigan builds a new highway to help improve access to GM's Flint plant.
a. Consumtion expenditer b. Not included in gdp calclation c. Not included in gdp calculation d. Net export expenditure e. Investment expenditure f. Government Expenditure