Chapter 8

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Real GDP per capita is often used as a measure of general​ well-being. While increases in real GDP often do lead to increases in the​ well-being of the​ population, why is real GDP not a perfect measure of​ well-being?

The costs of pollution are not included. The value of leisure is not included. GDP does not include crime rates or income distribution.

Which of the following would be included in the gross national product​ (GNP) of the United​ States?

Production from a U.S. firm that operates in Mexico.

Suppose the base year is 2001. Looking at GDP data from the United States from 2001 to the​ present, what would be true of the relationship between nominal GDP and real GDP

RGDP​ < NGDP because prices are rising.

Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the​ next?

When nominal GDP increases from year to​ year, the increase is due partly to changes in prices and partly to changes in quantities.

Which of the following equations sums up the components of Gross Domestic Product​ (GDP)?

Y=C-I-G-NX

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

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

Disposable personal income is

personal income minus personal taxes.

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

spending by​ federal, state, and local governments

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, typically one year.

How does real GDP deal with the problem inflation causes with nominal​ GDP?

By keeping prices​ constant, we know that changes in real GDP represent changes in the quantity of output produced. Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years. Real GDP separates price changes from quantity changes.

Why is GDP an imperfect measurement of total production in the​ economy?

GDP does not include household production or production from the underground economy.

Even if GDP included these types of​ production, why would it still be an imperfect measure of economic​ well-being?

GDP is not adjusted for crime or other social problems. The value of leisure is not included in GDP. GDP is not adjusted for pollution and it does not account for unequal income distribution.

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.

National income is

GDP minus depreciation.

GDP is an imperfect measure of economic​ well-being because it fails to measure what types of​ production?

Household production and the underground economy.

What measures besides average number of hours worked and real per capita GDP would you like to have to evaluate the​ well-being of workers in OECD​ countries?

Indicators of​ pollution, crime and other social​ problems, and the distribution of income.

Coffee beans purchased by a coffee shop One share of Google stock A new​ pick-up truck purchased by a consumer A new home purchased by a family

Intermediate good Neither Final good Final good

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

the purchase of new​ machines, factories, or houses

What are the four major categories of​ expenditure?

​Consumption, investment, government​ purchases, and net exports.

Can we conclude anything about the​ well-being of the average German worker versus the​ well-being of the average worker in the United States from these​ data?

​No, because although the German worker earned less per​ year, they also worked less per year.


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