macro quiz 4
Paul Mahoney of the University of Virginia compared the economic growth rates of nations with common law and civil law systems from 1960 to the 1990's. Summarize the results of this comparison.
He found that economic growth has been one-third higher in the common law nations than it has been in civil law nations. The increase in the standard of living was more than 20% greater in common law nations than in civil law nations.
The allowance for the private and publicly owned capital that has been used up or consumed in producing the year's GDP is
consumption of fixed capital
A refrigerator was produced by its manufacturer in year 1, sold to a retailer in year 1, and sold by the retailer to a final consumer in year 2. The refrigerator was
counted as investment in year 1
The annual charge that estimates the amount of private capital equipment used up in each year's production is called
depreciation
If gross private domestic investment is greater than depreciation, the economy will most likely be
expanding
GDP accounting includes
expenditures for equipment to reduce the pollution of the environment
GDP includes the sale of intermediate goods and excludes the sale of final goods.
false
GDP is a count of the physical quantity of output and is not a monetary measure.
false
GDP is a precise measure of the economic well-being of society.
false
Government purchases include spending by all units of government on the finished products of business but exclude all direct purchases of resources such as labor.
false
Gross domestic product measures at their market values the total output of all goods and services produced in the economy during a year.
false
If gross private domestic investment is greater than depreciation during a given year, the economy's production capacity has declined during that year.
false
Personal consumption expenditures include only expenditures for durable and nondurable goods.
false
Social Security payments and other public transfer payments are counted as part of GDP.
false
Taxes on production and imports are the difference between gross private domestic investment and net private domestic investment.
false
The expenditure made by a household to have a new home built is a personal consumption expenditure.
false
The external costs from pollution and other activities associated with the production of the GDP are deducted from total output.
false
The productive services of a homemaker are included in GDP.
false
To adjust nominal GDP for a given year to obtain real GDP, it is necessary to multiply nominal GDP by the price index (expressed in hundredths) for that year.
false
The sale in year 2 of an automobile produced in year 1 would not be included in the gross domestic product for year 2;doing so would involve
including a nonproduction transaction
GDP provides an indication of society's valuation of the relative worth of goods and services because it
is a monetary measure
Which is a major reason why GDP is not an accurate index of society's economic well-being?
it excludes many improvements in the product quality
What can happen to the allocation of corporate profits?
it is paid to stockholders as dividends
Which is a primary use for national income accounting?
it provides a basis for assessing the performance of the economy
To include the value of the parts used in producing the automobiles turned out during a year in gross domestic product for that year would be an example of
multiple counting
If both nominal gross domestic product and the level of prices are rising, it is evident that
no conclusion can be drawn concerning the real GDP of the economy on the basis of this information
According to national income accounting, money income derived from the production of this year's output is equal to
the amount spent to purchase this year's total output
Which would be considered an investment according to economists?
the construction of a new computer chip factory by Intel
Gross domestic product (GDP) is defined as
the market value of final goods and services produced within a country in 1 year
Which of the following is a public transfer payment?
the social security benefits sent to a retired worker
The service a babysitter performs when she stays at home with her baby brother while her parents are out and for which she receives no payment is not included in the gross domestic product because
this is a nonmarket transaction
A GDP that has been deflated or inflated to reflect changes in the price level is called real GDP.
true
Final goods are consumption goods, capital goods, and services that are purchased by their end users rather than being ones used for further processing or manufacturing.
true
If nominal GDP for an economy is $11,000 billion and the price index is 110, then real GDP is $10,000 billion.
true
In computing gross domestic product, private transfer payments are excluded because they do not represent payments for currently produced goods and services.
true
In national income accounting, any increase in the inventories of business firms is included in gross private domestic investment.
true
National income accounting allows us to assess the performance of the economy and make policies to improve that performance.
true
Net foreign factor income is the difference between the earnings of foreign-owned resources in the United States and the earnings from U.S.-supplied resources abroad.
true
The income approach to GDP includes compensation of employees, rents, interest income, proprietors' income, corporate profits, and taxes on production and imports.
true
The net exports of an economy equal its exports of goods and services less its imports of goods and services.
true
The sale of stocks and bonds is excluded from GDP
true
The total value added to a product and the value of the final product are equal.
true
Suppose nominal GDP rose from $500 billion to $600 billion while the GDP price index increased from 125 to 150. Real GDP
was constant
Provide an example of a "regrettable necessity."
A regrettable necessity doesn't yield consumer satisfaction in and of themselves. An example is police and fire protection.
What is the "biggest category of do-it-yourself services left out of the GDP statistics"?
Activities performed in the house by homemakers. It is widely estimated that the weekly value of a homemaker's services is several hundred dollars, none of which is included in the official figures for real GDP.
Nominal GDP was $3,774 billion in year 1 and the GDP deflator was 108 and nominal GDP was $3,989 in year 2 and the GDP deflator that year was 112. What was the GDP in years 1 and 2, repsectively?
$3,494 billion and $3,562 billion
GDP in an economy is $3,452 billion. Consumer expenditures are $2,343 billion, government purchases are $865 billion, and gross investment is $379 billion. Net exports are
-$135 billion
Distinguish between the English common law system and the French civil law system.
-Common law systems reflect a conscious decision in favor of a limited role for government and emphasize the importance of the judiciary in constraining the power of the executive and legislative branches of government. -Civil law systems favor the creation of a strong centralized government in which the legislature and the executive branch have the power to grant preferential treatment to special interests.
Distinguish between "inclusive" and "extractive" legal institutions.
-Inclusive institutions create incentives for everyone to invest in the future. -Extractive institutions protect the political and economic power of a small elite that takes resources from everyone else.
List the four key elements of the definition of Gross Domestic Product (GDP).
-Market value -New goods and services -Domestically produced -Final goods and services
Recent studies have found three fundamental political and legal institutions that are conducive to economic growth. List these three institutions.
-Political stability -Secure private property rights -Legal systems based on the rule of law
In an economy, the total expenditure for a market basket of goods in year 1 (the base year) was $4,000 billion. In year 2, the total expenditure for the same market basket of goods was $4,500 billion. What was the GDP price index for the economy in year 2?
113
A price index one year was 145, and the next year it was 167. What is the approximate percentage change in the price level from one year to the next as measured by that index?
15%
Some important parts of GDP are "imputed." What does it mean to be imputed? Provide an example of a GDP calculation that it imputed.
Imputed means estimated. Farmers consume some of the food items they produce before those items ever get to the market. The Commerce Department has devised ways to estimate the amount of food, which are included in the official GDP numbers.
Explain the impact of disease on the formation of political and legal institutions.
In Australia, New Zealand, and North America, the colonists found geography and climate that were conducive to good health. Permanent settlement in such locations was attractive, and so the settlers created institutions to protect private property and curb the power of the state. But when Europeans arrived in Africa and South America, they encountered tropical disease (yellow fever and malaria) that produced high mortality among the settlers. This discouraged permanent settlement and encouraged a mentality focused on extracting metals, cash crops, and other resources. This provided little incentive to promote democratic institutions or stable long-term property rights systems.
"But natural resources can be only a very small part of the answer, as witnessed by many counterexamples." Provide and briefly explain four countries that serve as "counterexamples."
Switzerland and Luxembourg are nearly devoid of key natural resources, yet decade after decade, the real income of citizens of those lands has grown rapidly, propelling them to great prosperity. Hong Kong, which consists of but a few square miles of rock and hillside, is one of the economic miracles of modern times, while in Russia, a land amply endowed with vast quantities of virtually every important resource, most people remain mired in economic misery.
Nominal GDP is less than real GDP in an economy in year 1. In year 2, nominal GDP is equal to real GDP. In year 3, nominal GDP is slightly greater than real GDP. In year 4, nominal GDP is significantly greater than real GDP. Which year is most likely to be the base year that is being used to calculate the price index for this economy?
year 2
