Chapter 8 Econ

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"If a recession is so severe that the price level​ declines, then we know that both real GDP and nominal GDP must​ decline."

Agree. If both output and prices are​ falling, then both real GDP and nominal GDP will fall.

"If real GDP stayed the same while nominal GDP declined between 2008 and​ 2009, then the GDP deflator must also have​ declined."

Agree. If nominal GDP declined between 2008 and​ 2009, then the GDP deflator must also have declined.

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.

Decreased, since inventories are part of a​ firm's investment, which is a component of​ GDP, inventories must have fallen

​"If nominal GDP is less than real​ GDP, then the price level must have fallen during the​ year."

Disagree. Nominal GDP is less than real GDP if the current price level is less than the base year price level. A fall in the price level during the year is neither necessary nor sufficient to cause nominal GDP to be less than real GDP.

What happens if we measure GDP by adding up the value of every good and service produced in the​ economy?

GDP is overestimated because of double counting.

Which of the following is not a shortcoming of GDP as a measure of​ well-being?

GDP only counts final goods and services and not intermediate goods.

If Americans still worked​ 60-hour weeks, as they did in​ 1890,

GDP would be much higher than it​ is, but the​ well-being of the typical person would not necessarily be higher.

How does real GDP LOADING... deal with the problem inflation causes with nominal​ GDP?

Real GDP separates price changes from quantity changes. By keeping prices​ constant, we know that changes in real GDP represent changes in the quantity of output produced. Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years. ( All of the above.)

As of​ 2017, 19 countries in Europe have adopted the euro as their common currency. These countries are called the euro zone. According to an article in the Economist​, ​"The euro​ zone's GDP grew at an annualized rate of around​ 2% in the first​ quarter."

Real​ GDP, because it shows how the​ economy's overall production of goods and services changes over time.

An article in the Economist states that​ "the appeal of GDP is that it​ offers, or seems​ to, a summary statistic of how well an economy is​ doing.

Since GDP measures how much an economy produces during a period of​ time, it may also indicate​ well-being.

When the number of people working outside the home increases​, the measured level of GDP

increase

If lower tax rates cause fewer people to hide the income they​ earn, the measured GDP

increases

If prices rise over​ time, then real GDP will be

larger than nominal GDP in years before the base year.

In years prior to the base​ year, nominal GDP...........real GDP.

less than

An article in the Wall Street Journal discussed the views of Canadian Minister of Finance Joe Oliver on the effect of falling oil prices on the Canadian economy. According to the​ article, Oliver argued that​ "lower oil prices would have a broadly neutral impact on real ... gross domestic​ product, but have a negative effect on nominal​ GDP."

lower the inflation​ rate, which would offset the reduction in nominal GDP.

When there is a sharp increase in the crime​ rate, the measured level of GDP

may increase or decrease

The problems of small firms working off the books and far from major cities would make it difficult for the Indian government to accurately measure GDP because the

measures of GDP will be understated if these practices are common.

In an economy with rising​ prices, compared to the base​ year,

nominal GDP is larger than real GDP in years after the base year.

The purchase of tires from Bridgestone tire company by an automobile manufacturer

not a purchase of final good

You purchase a 2013​ (preowned) Ford Escape Hybrid from a friend.

not included

The purchase of domestic wine by a French consumer.

s the purchase of a final good

in calculating​ GDP, which levels of government spending are included in government​ purchases?

spending by​ federal, state, and local governments

Gross domestic product is best defined as

the market value of all final goods and services produced in a country during a period of​ time, typically one year.

Which of the following is included in the​ economist's definition of​ investment?

the purchase of new​ machines, factories, or houses

An important conclusion to draw from the​ circular-flow diagram is that

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

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.

Which of the following is true about the consumption component of U.S. GDP in​ 2016?

Consumer spending on services was greater than the sum of spending on durable and nondurable goods.

​"Whenever real GDP LOADING... ​declines, nominal GDP LOADING... must also​ decline."

Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise.

Indicate whether you agree or disagree with the following​ statement: ​"In years when people buy few shares of​ stock, investment will be low ​and, therefore, so will gross domestic product LOADING... ​(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.

Even if GDP included these types of​ production, why would it still be an imperfect measure of economic​ well-being?

GDP is not adjusted for crime or other social problems. GDP is not adjusted for pollution and it does not account for unequal income distribution. The value of leisure is not included in GDP. (All of the above)

According to most​ economists, is it a serious shortcoming of GDP that it does not count household production or production in the underground​ economy?

Most economists would answer​ "no" because these types of production do not affect the most important use of the GDP​ measure, which is to measure changes in total production over short periods of time

Over​ time, prices may change relative to each other. To take this change into​ account, the Bureau of Economic Analysis calculates

real GDP using chain weights.

If government cannot accurately measure​ GDP,

businesses will not be able to correctly gauge the​ market, and the government will be unable to design efficient tax policies.

An underground economy involves all of the following except

buying and selling of goods and services by obtaining a permit from the government

When the number of people working outside the home decreases​, the measured level of GDP

decreases

An article in the Economist on the revisions to​ Nigeria's GDP​ commented, "The GDP revision is not mere trickery. It provides a truer picture of​ Nigeria's size by giving due weight to the bits of the​ economy, such as​ telecoms, banking and the Nollywood film​ industry, that have been growing fast in recent​ years." The Nigerian National Bureau of Statistics accomplished the task of giving these sectors their due weight by The more comprehensive approach used to calculate GDP provides a truer picture of the size of​ Nigeria's economy because

developed better measures of those sectors of the​ economy, which then allowed for better GDP estimates updating the year it used to measure real GDP from 1990 to 2010 and significantly increasing the number of businesses it surveyed. it resulted in the initial GDP estimate for 2013 almost doubling in size.

In the​ circular-flow diagram, who supplies factors of production in exchange for​ income?

households

Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana

not included

Some countries have larger underground economies than do other​ countries, because

of government policies that are retarding economic growth

If the GDP deflator in 2012 has a value of​ 98.0, then

prices have decreased 2 percent between the base year and 2012.

Why would we expect firms in the informal sector to be so much smaller than firms in the formal​ sector?

Because firms in the informal sector are operating​ illegally, they have less capital than firms operating legally.

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.

You purchase a new Ford Escape Hybrid from a Ford dealer. ▼

Consumption Expenditure

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?

Indicators of​ pollution, crime and other social​ problems, and the distribution of income.

Household production and the underground economy

are not accounted for in the Bureau of Economic​ Analysis' estimates of GDP.

Why qualify the statement about GDP as a summary statistic by including the phrase​ "or seems​ to"?

as a summary​ statistic, GDP overlooks some areas of production that take place in an economy.

In the base​ year, nominal GDP.... real GDP

equals

GDP figures are a measure of all the goods and services that are produced in an economy during a particular​ period."

​Disagree, because GDP measures the value of all final goods and services produced in an​ economy, not all the goods and services produced.

How does the size of a​ country's GDP affect the quality of life of the​ country's people?

​Generally, the more goods and services people​ have, the better off they are

GDP is an imperfect measure of economic​ well-being because it fails to measure what types of​ production?

Household production and the underground economy.

Michael Burda of Humboldt University in Germany and Daniel Hamermesh of the University of Texas examined how workers in the United States who lost their jobs between 2003 and 2006 spent their time. They discovered that during the period when they were​ unemployed, the reduction in the number of hours of paid work was almost completely replaced by an increase in the number of hours spent on household production.

If the workers had been paying other people to perform the household activities prior to​ unemployment, then total production will fall.

Why in microeconomics LOADING... can we measure production in terms of​ quantity, but in macroeconomics LOADING... we measure production in terms of market​ value?

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. When we measure total​ production, we​ can't just add together the quantities of every good and service because the result would be meaningless. Measuring production using market value in dollar terms allows us to add together many different goods and services. Both A and C. All of the above. (All of the above)

Ford purchases new machine tools to use in its Missouri Escape factory.

Investment expenditure

The purchase of tires from Bridgestone tire company by an automobile manufacturer.

Is not the purchase of a final good

The purchase of wheat from a wheat farmer by a bakery

Is not the purchase of a final good

. The purchase of a new machine tool by the Ford Motor Company.

Is the purchase of a final good

The purchase of a new fire truck by the local government.

Is the purchase of a final good

The purchase of a new machine tool by the Ford Motor Company

Is the purchase of a final good

Ford produces​ 1,000 Escapes in a factory in Missouri and ships them to a car dealer in​ Shanghai, China. ▼

Net export

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 LOADING... ​(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.

Which of the following is true about the government purchases component of U.S. GDP in​ 2016?

Purchases by state and local governments were greater than purchases by the federal government.

​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?

The increase in real GDP per capita between 1890 and today understates​ well-being because the value of leisure is not included in GDP.

According to research by Rafael La Porta of Tuck School of Business at Dartmouth and Andrei Shleifer of Harvard​ University, in developing​ countries, the average firm in the informal​ sector, or underground​ economy, employs 4 workers as opposed to 126 workers employed by the average firm in the formal sector.

The informal sector is the sector of the economy where production is concealed from the government

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.

Why does inflation make nominal GDP LOADING... a poor measure of the increase in total production from one year to the​ next?

When nominal GDP increases from year to​ year, the increase is due partly to changes in prices and partly to changes in quantities.

Which equation represents the relationship between GDP and the four major expenditure​ components?

Y= C+I+G+NX

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?" Is this federal government spending 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. ​No, because Social Security payments do not result in the production of new goods and services.

Is the value of intermediate goods and services LOADING... produced during the year included in Gross Domestic Product LOADING... ​(GDP)? For​ example, is aluminum used to produce 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

Is the value of intermediate goods and services LOADING... produced during the year included in Gross Domestic Product LOADING... ​(GDP)? For​ example, is cotton used to produce a new shirt included in​ GDP?

Yes. The value of the cotton is not directly counted in​ GDP, but the production of cotton is included in the​ value-added method of measuring GDP.

If higher tax rates cause more people to hide the income they​ earn, the measured GDP

decreases

An article in the Wall Street Journal noted that many economists believe that GDP data for India are unreliable because​ "most enterprises are tiny and​ unregistered, and most workers are employed off the books. The​ government's infrequent surveys represent only a best guess of the value being added in​ back-alley workshops, outdoor markets and other​ cash-based corners of the​ economy." Working​ "off the​ books" refers to

earning income that is not reported for tax purposes.

The state of Missouri builds a new highway to help improve access to the Ford Escape plant.

government expenditure

In years after the base​ year, nominal GDP..... real GDP.

greater than

During a business cycle​ expansion, total production​ ________ and total employment​ ___________.

increases, increases

The purchase of an aircraft carrier by the federal government.

yes

he purchase of domestic wine by a French consume

yes (NEtx)

The purchase of a new fleet of police cars by the local government

yes (government purchase)

The purchase of a new machine tool by the Ford Motor Company

yes (investment)

The average German worker worked about 400 fewer hours per year and earned nearly​ $14,000 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.

​No, because although the German worker earned less per​ year, they also worked less per year


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