Econ Midterm 1
A factory sells $500,000 of products per year. The factory's run-off pollutes a beautiful river. The estimated damage of this pollution is $204,000. What is the contribution of the factory to gross domestic product (GDP)?
$500,000
If Samsung sells a TV for $849, but spends $110 in purchasing goods and services from other manufacturers, what is the value added of each television?
$739
Real-Time Data Analysis Exercise The following table contains data from FRED* for real exports and real imports for two recent years. *Real-time data provided by Federal Reserve Economic Data (FRED), Federal Reserve Bank of Saint Louis. Year Real Exports Real Imports 2016 $2,382.258 billion $3,145.881 billion 2015 $2,375.244 billion $3,094.791 billion Using the data above, calculate net exports for the following two years: (Enter your responses rounded to one decimal place.) Year Net Exports 2016 $ --billion 2015 $--billion When net exports possess the sign they had in 2016, the country is said to have--
-763.6 billion - 719.5 billion trade deficit
Since World War II, the United States has experienced -- recessions.
11
The table below shows purchases for the small island of Renuzit. Purchases Value (in millions) Consumption Expenditures $80 Private Investment Expenditures $30 Government Purchases $36 Imports $37 Exports $23 Renuzit's GDP was $-- million. (Enter your response as a whole number.)
132
Real-Time Data Analysis Exercise The following table contains the most recent household expenditure data from FRED*. *Real-time data provided by Federal Reserve Economic Data (FRED), Federal Reserve Bank of Saint Louis. Using the data from FRED, compute the value for personal consumption expenditures for the first quarter of 2021. (Enter your response rounded to one decimal place.) Title Value Personal Consumption Expenditures $--------- billion Personal Consumption Expenditures: Durable Goods $1,940.662 billion Personal Consumption Expenditures: Nondurable Goods $3,278.25 billion Private Residential Fixed Investment $1,051.278 billion Personal Consumption Expenditures: Services $9,851.208 billion According to these data, the share of total household expenditures devoted to goods is ----- percent. (Enter your response rounded to one decimal place.) From this result it may be concluded that, all else constant, any given reduction in household spending will be felt more significantly in the --- sector of the economy.
15,070.120 34.6 service
A recession occurs if real GDP falls for ____ consecutive quarters.
2
Which of the following will most likely cause the US stock market to rise?
A business cycle expansion in China
Which of the following are not included in GDP?
A mother taking care of children at home.
Which of the following will most likely cause the US stock market to rise?
A. current business cycle expansion in the US B.Lower US interest rates C.Expected productivity gains in the US D.All of these things
Air Quality and Measured GDP. Air quality in Los Angeles deteriorated in the 1950s through the 1970s and then improved in the 1980s and 1990s. Can a change in air quality such as this be incorporated into our measures of national income?
All of the above are reasonable arguments.
Which of the following is generally pro-cyclical (moving in the same direction as GDP)?
All of these are generally pro-cyclical
Suppose a community spends $1 million on salaries and equipment for its police department. Because it believes that citizens are now more law abiding, the community decides to cut back on the number of police it employs. As a result, the community now spends $800,000 less on the police officers. The crime rate remains the same. What happens to measured GDP? Does this change in GDP accurately reflect welfare in this case?
B. GDP falls by $800,000. No, because the crime rate has not changed.
Which of the following are not included in GDP?
C. A mother taking care of children at home.
Which of the following are included in GDP?
C.paid child care
What is the largest component of national income?
Compensation of employees (wages and benefits).
Related to Application: Using Value Added to Measure the True Size of WalmartLOADING... Sales versus Value Added. In comparing a small country's GDP to a major corporation, why is it best to use the value added of the corporation rather than its total sales? When we calculate GDP for a country, do we use the total sales of all goods and services?
Corporations typically buy goods such as inputs from many other companies to produce sales. No. GDP only includes the sale of final goods and services produced within a given year.
Which government department produces the National Income and Product Accounts?
D. The Department of Commerce.
Does Money Buy Happiness? Although people with high incomes appear to be happier than those with low incomes, people in the United States in general have become less happy over the last 30 years even though real GDP has risen. Why might increases in real GDP not necessarily have increased happiness?
Everyday life has become more stressful.
Investment is a smaller component of GDP than consumption, but it is much more stable.
False
Investment spending rises in recessions.
False
Which of the following explains the circular flow between production and income?
Households supply labor and capital to firms in return for money. Households use this money to buy products from firms.
Disappearing Fish and National Income. Suppose you were worried that national income does not adequately take into account thedepletion of the stock of fish in the economy. How would you advise the Commerce Department to take this into account in its calculations?
Identify the value of the proven fish stock, and subtract the net change in the proven fish stock from national income.
Suppose you were worried that national income did not adequately take into account the depletion of the stock of fish in the economy. Describe how you would advise the Commerce Department to take this into account in their calculation.
Identify the value of the trees that provide shade, and subtract the net change in the extracted trees that provide shade from national income.
All other things being equal, which of the following would MOST likely lead to an increase in stock prices?
Lower interest rates
All other things being equal, an increase in interest rates would MOST likely lead to
Lower stock prices
In Economy A, the government puts workers on the payroll who cannot find jobs for long periods, but these "employees" do no work. In Economy B, the government does not hire any long-term unemployed workers but gives them cash grants. Comparing the GDP statistics between the two otherwise identical economies, what can you determine about measured GDP and the actual level of output in each economy?
Measured GDP is higher in Economy A, though the actual level of output in each economy is the same.
The organization that officially dates recessions is the
National Bureau of Economic Research.
What do we add to GDP to reach GNP?
Net income earned abroad by U.S. households.
Does this mean that movements in stock prices cause movements in investment spending?
Not necessarily—another possible explanation could be that investor optimism causes both to move together.
Which of the following statements is true? Economists divide GDP into four broad categories including:
Real GDP is a measure of GDP that controls for changes in prices, whereas nominal GDP is the value of GDP in current dollars. consumption expenditures, private investment expenditures, government purchases, and net exports.
Which of the following would be considered an intermediate good?
The cord for a vacuum cleaner.
In Europe, the average resident takes several weeks more of vacation time than in the United States. Per-capita income, however, is higher in the United States than the European average. What can you say about relative economic welfare in Europe versus the United States?
To compare the two regions in terms of true economic welfare, you would have to put some value on the additional leisure time.
What part of government spending is excluded from GDP?
Transfer payments.
If the GDP deflator equals 100, then real and nominal GDP in 2010 will be equal.
True
If the GDP deflator equals 100, then real and nominal GDP in 2010 will be equal.
True
Related to Application: The Links Between Self-Reported Happiness and GDP Men's reported happiness has increased relative to women's reported happiness in the last several decades.
True
Suppose the base year is 2009 and prices were increasing every year from 2009 to 2018. Then nominal GDP will exceed real GDP in 2018.
True
When calculating GDP using the production method, which of the following would you not include?
Value added.
We can summarize who purchases GDP with a simple equation that combines the four components of GDP:
Y = C + I + G + NX.
If current interest rates increase, then old bonds sold on the secondary bond market are most likely to
be less attractive to current investors because they offer a lower rate of return than new bonds will
If secondary bond market prices fall then, all other things being equal
bond yields are rising
As real interest rates rise, investment spending in the economy will
decrease
A trade surplus occurs when our exports --our imports.
exceed
A trade surplus occurs when our exports --our imports.
exceed
The state of New York banned a technique known as "fracking" where fluids are injected into wells in order to produce more natural gas. The reason given for banning fracking was that it caused environmental damage. To measure whether this ban increased or decreased economic welfare, you would need to compare the value of the--
extra output produced and then subtract the estimates of environmental damage.
The resources that firms use in production, including land, buildings, and equipment, are called --.
factors
When a firm's stock price is high, it can issue shares at a premium and use the proceeds from their sale to finance new investments. The higher a firm's share price, the --shares the firm needs to sell to raise capital. This means, essentially, that the cost of the project the firm wants to undertake --as the company's stock price climbs. In other words, --stock prices lead to --investment.
fewer falls high
Ch5 17
full credits
Ch5 Extension Finance 6
full credits
Related to Application: Comparing Recoveries From Recessions. Measuring the Speed of a Recovery. Some economists have suggested that the time it takes the economy to recover to the level where it originally was when the recession started is a good measure of the speed of a recovery. This measure tells you how long it takes to
get back to the peak before the recession started.
the non-income happiness components in Louisiana must be higher than in California.
gross investment.
Personal income and personal disposable income refer to payments ultimately flowing to -- .
households
If the federal government provides subsidies for individuals to buy health care, this is
included in the federal budget but not in GDP.
The circular flow describes the process by which GDP generates --,which is spent on goods and services.
income
The circular flow describes the process by which GDP generates --which is spent on goods and services.
income
Buying a Foreign Car. Buying a foreign car made abroad for $50,000
increases consumption by $50,000, increases imports by $50,000, leaves exports unchanged, decreases net exports by $50,000, but does not change GDP.
Stock Prices, Interest Rates, and Corporate Earnings. Stock Prices, Interest Rates, and Corporate Earnings. a. Holding other factors constant, stock prices tend to rise when expected corporate earnings rise because higher expected corporate earnings increase investors' expectations about future dividends, -- the demand for stock and stock prices. b. When interest rates fall, lower interest rates make borrowing --expensive, -- the total level of investment. All other things being equal, when investment spending rises, stock prices --
increasing less increasing rise
The provision of health care services --counted as output in modern economies.
is
Which of the following are included in GDP?
paid child care
The date that a recession starts is called the -- .
peak
The date that a recession starts is called the--
peak
Because investment spending moves in conjunction with GDP, investment spending is:
procyclical.
goods and services are exchanged in --market
product
We can measure the output of an economy by looking at either production or income because
production generates income.
The GDP deflator is calculated for any given year by dividing nominal GDP by -- GDP and multiplying by 100.
real
The GDP deflator is calculated for any given year by dividing nominal GDP by ----GDP and multiplying by 100.
real
As stock prices rise, investment spending
rises along with stock prices.
If current interest rates increase, then old bonds sold on the secondary bond market are most likely to
sell at a lower price, which will increase the rate of return on those bonds for buyers
Investment is a -- portion of GDP than consumption, but is substantially--volatile. Investment rises
smaller more
Related to Application: Using Value Added to Measure the True Size of WalmartLOADING... Measuring Value for Facebook. Facebook does not sell products but does generate value added. You could measure its value added as the sum of
the payments it makes to its factors, including its profit.
Depreciation is
the reduction in the value of capital goods over a one-year period due to wear and tear.
If current interest rates decrease, then, all other things being equal
the stock market will go up even if firms are no more productive than before
Measured price changes do not depend on the particular base year chosen when calculating
the chain-weighted GDP deflator.
Measuring Happiness Across States. Suppose statisticians find from survey data that the residents of California and Louisiana report that they are equally happy. However, incomes in California are higher, on average, than those in Louisiana. One could make a case that living in Louisiana actually makes you happier than living in California since--
the non-income happiness components in Louisiana must be higher than in California.
The --marks the date that ends a recession and output starts to increase again.
trough
Which of the following is NOT considered a transfer payment, and therefore is included in the calculation of the GDP?
wage payments to government employees
Click the following link to view personal income and outlays data from FRED.* Then use that data to answer the following questions. *Real-time data provided by Federal Reserve Economic Data (FRED), Federal Reserve Bank of Saint Louis. For this exercise you will need to enter data from FRED for personal income, disposable income, and personal consumption expenditures. Using the data from FRED, enter the values for the first quarter of 2021 (shown as 2021−Jan−01 in FRED) for the following series IDs: (Enter your responses exactly as they appear in FRED.) Title Series ID Value Personal Income PINCOME --billion Disposable Personal Income DPI --billion Personal Consumption Expenditures PCEC --billion The difference between personal income and disposable personal income represents personal ------which, in the first quarter of 2021, amounted to -------- billion. Given the ratio of personal consumption to disposable income shown in the table above along with the fact that disposable income rises dollar-for-dollar with a tax reduction, it may be concluded that a tax cut will be largely ---by households.
$22,101.641 billion $19,787.535 billion $15,070.120 billion tax payments 2,314.106 billion spent
In Central and South America, the size of the underground economy is
41% of GDP.
A method for calculating price changes that takes an average of price changes using base years from consecutive years produces a--
chain-weighted index.
The four phases of the business cycle in the order in which they occur are:
recession, trough, expansion, and peak.
