Homework 3: GDP

Assume that in 2002 the nominal GDP was $350 billion and in 2003 it was $375 billion. On the basis of this information, we:

cannot make a meaningful comparison of the economy's performance in 2002 relative to 2003

In an economy experiencing a persistently falling price level:

changes in nominal GDP understate changes in real GDP

The largest component of national income is:

compensation of employees

The largest component of total expenditures in the United States is:

consumption

Real GDP measures:

current output at base year prices

Net exports are:

exports - inputs (- means less)

Final goods and services refer to:

goods and services purchased by ultimate users, rather than for processing

Government purchases include government spending on:

government consumption goods and public capital goods

A nation's gross domestic product (GDP):

is the dollar value of all final output produced within borders of the nation during a specific period of time

If real GDP rises and the GDP price index has increased:

nominal GDP must have increased

The fact that nominal GDP has risen faster than real GDP:

suggests that general price level has risen

If intermediate goods and services were included in GDP:

the GDP would be overstated

GDP excludes:

the market value of unpaid work in the home

GDP tends to:

understate economic welfare because it does not take into account increases in leisure

Arthur sells $100 worth of cotton to Bob. Bob turns the cotton into cloth, which he sells to Camille for $300. Camille uses the cloth to make prom dresses that she sells to Donita for $700. Donita sells the dresses for $1,200 to kids attending the prom. The total contribution to GDP of this series of transactions is:

$1,200

Answer the question on the basis of the following information: Only three goods are produced in an economy in the following amounts: A = 10 B = 30 C = 5. The current year per unit prices of these three goods are A = $2 B = $3 C = $1 Refer to the information. Nominal GDP in the current year is:

$115

Answer the question on the basis of the following data. All figures are in billions of dollars: Government Purchases-$15 Consumption-$90 Gross Investment-$20 Consumption of Fixed Capital-$5 Exports-$8 Imports-$12 Refer to the data. GDP is:

$121

Answer the question based on the following data, using year 1 as the base year. All dollars are in billion. Year Nominal GDP Price Index 1 $3,166 100 2 $3,402 104 3 $3,774 108 4 $3,989 112 Refer to the above data. Real GDP in year 4 was approximately:

$3,562 billion

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Year Units of Output Price Per Unit 1 8 $2 2 10 $3 3 15 $4 4 18 $5 5 20 $6 Refer to the above data. If year 2 is the base year, then Real GDP in year 5 is:

$60

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Year Units of Output Price Per Unit 1 8 $2 2 10 $3 3 15 $4 4 18 $5 5 20 $6 Refer to the above data. In year 4, nominal GDP would be:

$90

Consider the following data for a nation: Year Nominal GDP Price Index 1 $35 90 2 $40 100 3 $45 110 4 $48 120 5 $56 140 The country's real GDP declined between years:

3 and 4

If real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for that year is:

300

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Year Units of Output Price Per Unit 1 8 $2 2 10 $3 3 15 $4 4 18 $5 5 20 $6 Refer to the above data. If year 2 is the base year, then the percentage increase in real GDP from year 2 to year 4 is:

80%

_________ is considered an investment according to economists

A fishing-company owner buys new fishing gear

The two ways of looking at GDP are the:

Expenditures approach and income approach

Real GDP accounts for changes in product quality; nominal GDP does not. True/False

False

The purchase of Walmart stock is a part of gross investment, but not of net investment. True/False

False

The simplest way to calculate GDP is to sum the total sales of all business firms True/False

False

An example of final goods in national income accounts would be:

Flowers and pots purchased by homeowner Joe Smith

Gordon is a person who sells narcotics "on the street." This type of illegal activity:

Is excluded from GDP figures

_________ is NOT included in personal consumption expenditures

Purchases of mutual funds by consumers

Nominal GDP differs from real GDP because:

Real GDP results from adjusting changes in the price level

_________ is included in the expenditures approach to GDP

Spending on meals by consumers at restaurants

Nominal GDP is adjusted for price changes through the use of:

The GDP price index

All expenditures on new construction are included as investments in calculating GDP True/False

True

Within the circular flow model, the level of total resource in spending on output will be approximately equal. True/False

True