Chapter 7 - GDP

If C = $1,000, I = $500, G = $800, X = $400, and M = $600, what is the value of GDP? $2,100 $2,500 $3,300 $2,300

$2,100

Inflation Rate Formula

(Current year CPI ) - (Earlier Year CPI) / (Earlier Year CPI) x100

price index in a given year formula

(price of market basket in specific year/price of same basket in base year) x 100

Not included in GDP (2)

- intermediate goods and services - inputs - used goods - financial assets like stocks and bonds - foreign-produced goods and services

GDP can be calculated three ways

1. Add up the total value of all final goods and services produced 2. Add up all spending on domestically produced final goods and services. 3. Add up the total factor income earned by households from firms in the economy

Consider the information about the economy of Pakistan. Note that the currency of Pakistan is the rupee. The government purchases: 2.702.70 trillions of rupees. Individuals consume: 11.4011.40 trillions of rupees. Individuals save: 5.215.21 trillions of rupees. Businesses invest: 1.501.50 trillions of rupees. Foreigners spend: 0.690.69 trillions of rupees to purchase Pakistani firms. Pakistan imports: 2.332.33 trillions of rupees. Pakistan exports: 1.251.25 trillions of rupees. Calculate Pakistan's GDP. Assume that the values are all current and no conversions need to be made. Give your answer in terms of trillions of rupees, and round to two decimals.

14.68 trillion

calculate the GDP of dinoland using the expenditures approach given the following data: personal consumption expenditures = 10 billion; gross domestic investment = 5 billion; government spending = 3 billion; exports 2 billion and imports 1 billion

19 billion

Suppose that the CPI in 2013 was 250 and the CPI in 2014 was 260. What is the rate of inflation in this economy? a) 3.8% b) 4.0% c) 10.0% d) 96.2%

4.0 %

Which of the examples provides the best evidence that inflation has occurred? A person whose salary has decreased is able to purchase more goods and services. A person whose salary has increased is able to purchase more goods and services. A person whose salary has remained the same is able to purchase more goods and services. A person whose salary has decreased is able to purchase fewer goods and services. A person whose salary has increased is able to purchase fewer goods and services.

A person whose salary has increased is able to purchase fewer goods and services.

Suppose Jollyland has a population of 1,000 people and a GDP of $1 million, while Follyland has a population of 8,000 people and a GDP of $8 million. Which country has a higher GDP per capita? Both countries have the same GDP per capita. There is not enough information to determine GDP per capita. Jollyland Follyland

Both countries have the same GDP per capita.

GDP = C + I + G + Xn

C = consumer spending I = investment spending G = government purchases of goods and services X = sales to foreigners, and IM = imports (purchases of foreign goods)

Why is a hypothetical basket of goods used to measure inflation? Consumers can see how inflation affects some goods and not others . Using multiple goods allows consumers to compare goods to one another. Consumers can see the general increase in price over time by using a basket of goods. Using a hypothetical basket allows consumers to adjust their pricing expectations.

Consumers can see the general increase in price over time by using a basket of goods.

Included in GDP (2)

Domestically produced final goods and services, including capital goods, new construction of structures, and changes to inventories

Suppose that GDP is $50 million in 2015 but falls to $48 million in 2016, and that no changes in personal consumption expenditures, gross private domestic investment, and government spending are recorded. What must have happened to net exports to cause this change? From 2015 to 2016, both imports and exports must have risen by $2 million. From 2015 to 2016, the difference between exports and imports must have risen by $2 million. From 2015 to 2016, the difference between exports and imports must have fallen by $2 million. From 2015 to 2016, both imports and exports must have fallen by $2 million.

From 2015 to 2016, the difference between exports and imports must have fallen by $2 million.

Suppose one has data for the following categories: net interest, government spending, corporate profits, net exports, gross private domestic investment, rental income, and personal consumption expenditures. Which measure of GDP can be calculated? GDP using the income approach. GDP using the expenditures approach. There is not enough information to calculate GDP using either approach. GDP using both approaches.

GDP using the expenditures approach.

Classify the given goods according to whether or not they would be included in calculating the GDP for the United States. All goods should be placed. If a country is not specified, you can assume the action is performed in the United States. Included in the GDP of the U.S. Included in GDP:

Hondas assembly and sale of cars in the U.S. Old NAvy purchases mannequins to display clothes

SPENDING = INCOME

It doesn't matter HOW we measure the production because one person's spending is another person's income.

GDP deflator

Nominal GDP/Real GDP x 100

Which of the following characteristic about Econville could be determined based on its GDP. 1.) The fact that incomes are very equally distributed in Econville 2.) The fact that there is virtually no pollution in Econville 3.) The fact there are no underground. or informal markets in Econville 4.)None of the above

None of the above

Are the following included in U.S. GDP? (1) The price paid by a German tourist when staying at a New York hotel. (2) The price paid by an American tourist when staying at a Berlin hotel.

Only the price paid by a German tourist when staying at a New York hotel is included in U.S. GDP. (correct answer

Suppose that Pandastan has a 5 billion and population of 2 million and Tigeria. has a GDP of 3 billion and a population of 1 million. Who was the bigger GDP per capita?

Tigeria

Consumer Price Index (CPI)

a measure of the overall cost of the goods and services bought by a typical consumer

aggregate price level

a measure of the overall level of prices in the economy

price index

a measurement that shows how the average price of a standard group of goods changes over time

Suppose country A sells $100 million worth of goods and services to country B. Country B sells $50 million worth of goods and services to country A. These are the only two countries in Macroworld. Net exports in country: a) B equal −$50 million. b) A equal $150 million. c) A equal − $150 million. d) B equal $50 million.

a) B equal −$50 million. (correct answer)

True or false: According to the Podcast assigned for today, increasing the choices of Consumers, as in the case of modern travel, leads to an incease in GDP

b) False

Producer Price Index (PPI)

an average of the prices received by producers of goods and services at all stages of the production process

What is inflation? an increase in the overall price level an increase in the amount of money in circulation a decrease in the overall price level an increase in the overall level of economic activity

an increase in the overall price level

Government purchases of goods and services

are total expenditures on goods and services by federal, state, and local governments.

Problems with GDP

does not account for non-market goods, underground economy, environmental damage, leisure time or the distribution of income.

Intermediate goods and services

goods and services bought from one firm by another firm to be used as inputs into the production of final goods and services

Consumer spending

is household spending on goods and services.

The national income and product accounts (NIPA)

measure our nation's economic performance; - compare American income and output with that of other nations; - track the economy's condition throughout the business cycle.

A measure of an economy's output using current prices. nominal GDP or real GDP

nominal

A measure of an economy's output using constant prices. nominal GDP or real GDP

real GDP

A measure of output that is adjusted for inflation. nominal GDP or real GDP

real gdp

Income spent on imported goods:

represents income that has leaked across national borders. must be subtracted from spending data to calculate an accurate value for domestic production. is income that is not spent on domestically produced goods and services.

Not included in GDP for U.S.

sale of wheat to Mrs Braids Bakery resale of used textbooks Assembly of cars in Mexico Ocean Spray purchases plastic make bottles

Investment spending

spending on new productive physical capital, such as machinery and structures, and on changes in inventories

Gross domestic product (GDP):

the market value of all final goods and services produced within a country in a year

Chained dollars

the method of calculating changes in real GDP using the average between the growth rate calculated using an early base year and the growth rate calculated using a late base year

Real GDP

the total value of the final goods and services produced in the economy during a given year, calculated using the prices of a selected base year

Nominal GDP

the value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year in which the output is produced

Value added of a producer

the value of its sales minus the value of its purchases of intermediate goods and services