Chapter 10: Measuring a Nation's Income

Sam bakes a cake and sells it to Carla for $10. Woody pays Diane $30 to tutor him. In this economy, GDP is

$40

Angus the sheep farmer sells wool to Barnaby the knitter for $20. Barnaby makes two sweaters, each of which has a market price of $40. Collette buys one of them, while the other remains on the shelf of Barnaby's store to be sold later. What is GDP here?

$80

Which is the largest component of GDP?

consumption

If the price of a hot dog is $2 and the price of a hamburger is $4, then 30 hot dogs contribute as much to GDP as _____ hamburgers.

15

An economy produces 10 cookies in year 1 at a price of $2 per cookie and 12 cookies in year 2 at a price of $3 per cookie. From year 1 to year 2, real GDP increases by

20%

An American buys a pair of shoes made in Italy. How do the U.S. national income accounts treat the transaction?

Net exports fall, while GDP does not change.

If all quantities produced rise by 5 percent and all prices fall by 5 percent, which of the following best describes what occurs?

Real GDP rises by 5 percent, while nominal GDP is unchanged.

Which of the following does NOT add to U.S. GDP?

The federal government sends a Social Security check to your grandmother.

GDP deflator

a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100

GDP is an imperfect measure of well-being because it

ignores the environmental degradation from economic activity.

After graduation, an American college student moves to Japan to teach English. Her salary is included

only in Japan's GDP

consumption

spending by households on goods and services, with the exception of purchases of new housing

investment

spending on business capital, residential capital, and inventories

net exports

spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports)

government purchases

spending on goods and services by local, state, and federal governments

gross domestic product (GDP)

the market value of all final goods and services produced within a country in a given period of time

real GDP

the production of goods and services valued at constant prices

nominal GDP

the production of goods and services valued at current prices

An economy's gross domestic product is

total income and total spending

If Mr. Keating quits his job as a teacher to home school his own children, GDP

falls because his market income decreases.