chapter 8

When accounting for exports and imports in GDP, which of the following is correct?

Exports are added to the other categories of expenditures

Household production and the underground economy

are important but unaccounted for in the Commerce Department's estimate of GDP.

Which is the largest component of GDP?

consumption

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.

Which of the following is a macroeconomic study?

the study of how fast prices in general are increasing

When a consumer purchases a new computer, how is that purchase counted in GDP?

by counting only the value of the computer and ignoring the value of the components

The best measure of the income households actually have available to spend is

disposable personal income

Which of the following is counted in this year's GDP?

only this year's production of goods and services

Disposable personal income is equal to

personal income minus personal tax payments plus government transfer payments

If the GDP deflator in 2013 has a value of 110, then

prices have increased 10 percent between the base year and 2013

In the National Income and Product Accounts (NIPA), sales taxes are referred to as

indirect business taxes.

Which of the following are not considered as final goods, as used in the definition of GDP?

intermediate goods

In many developing countries, the informal sector is ________ because taxes are ________ and government regulations are ___________.

large; high; extensive

Real GDP is

the value of goods and services evaluated at base year prices.

The difference between the price the firm sells a good for and the price it paid other firms for intermediate goods is called

value added.

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.

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.

When a significant fraction of domestic production takes place in foreign-owned facilities, a country's difference between GDP and GNP is as follows:

GDP will be much larger than GNP.

Which of the following is not a shortcoming of GDP as a measure of welfare?

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

Which of the following goods and services would be excluded from personal consumption expenditures in the Bureau of Economic Analysis (BEA) statistics?

a new house

Which of the following do we subtract from GNP to obtain NNP?

depreciation

As the value of a country's GDP increases, the country is likely to

devote more resources to pollution reduction.

Which of the following is not true of GDP?

GDP includes both intermediate and final goods

Which of the following is counted in the gross private domestic investment category used by the Bureau of Economic Analysis when measuring GDP?

a. business fixed investment b. residential investment c. changes in business inventories

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

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

Using the year 2013 as the base year, and assuming that prices during 2000 were lower on average than prices in 2010, we can conclude that

nominal GDP was lower than real GDP in 2000.

The total national income actually received by a country's residents is

smaller than the value of GDP.

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

Which of the following is true about the consumption component of U.S. GDP in 2010?

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

According to most economists, is not counting household production or production in the underground economy a serious shortcoming of GDP?

Most economists would answer "no" because these types of production do not affect the most important use of the GDP measure, which is to see how the economy is performing over short periods of time

Suppose that the base year is 2000, and we want to calculate real GDP for 2013. Which procedure would you use?

Multiply the quantities in 2013 by the prices in 2000, and add up the results.

Which of the following is true about the government purchases component of U.S. GDP in 2012?

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

Which of the following would be considered a factor of production?

a. capital b. natural resources c. entrepreneurship

To calculate personal income from national income, which of the following must be done by the BEA?

add government transfer payments

If we add up the value of every final good and service produced in the economy, we must get a total that is exactly equal to the value of

all of the income in the economy.

How does the Bureau of Economic Analysis of the U.S. Department of Commerce measure GDP?

by adding the value in dollar terms of all of the final goods and services produced domestically

Which of the following is not a component of GDP from the expenditure point of view?

government taxes

Growth in the economy is almost always measured as

growth in real GDP

Fill in the blank. The flow of funds from ___________ into the financial system makes it possible for government and firms to borrow.

households

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

households

Which measure of GDP represents changes in the quantity of goods and services produced in the economy, holding prices constant?

real GDP

Over time, prices may change relative to each other. To allow for this, the BEA calculates

real GDP and the price deflator using chain weights.

Complete the following sentence: Total income in the economy equals the sum of wages, interest, _________ and ________.

rent; profit

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

spending by federal, state, and local governments

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

the purchase of new machines, factories, or houses