Exam Questions Chapter 5 and 6

John and Sue are married and live in the United States. John is a Canadian citizen and stays home with their two children, Micah and Madison; his caretaking would cost $20,000 per child if purchased in the market. He also programs video games from home in the evenings for a Japanese-based online poker site for $50,000 per year. Sue works as a high-powered lawyer for Berkshire Hathaway at their London branch for the U.S. dollar equivalent of $1,000,000 per year Refer to the above scenario. How much does John contribute to U.S. GNP

$0 Canadian citizen

Refer to the above scenario. How much does Sue contribute to U.S. GDP

$0 Works in London

A bundle of goods that costs $1 in the United States is worth 5 units in Country A's currency. If Country A's GDP in its own currency is 5,000,000 units, Country A's GDP in PPP-adjusted dollars will b

$1,000,000 5,000,000/5

Assume the market basket for the consumer price index has two products — meat and potatoes — with the following values in 2006 and 2011 for price and quantity: The Consumer Price Index for 2011 equals Meat in 2006 (base) = Quan:100 Price:10 Meat in 2011 = Quan:120 Price:15

(120*15/120*10) * 100 = 150 CPI = Target year Market basket/Base year Market Basket *100

Suppose that instead of Greg buying his lunch at a fast-food restaurant for $15.00, he buys $5 worth of food at the grocery store and spends half an hour of his time preparing his lunch. By how much would GDP change

-$10 15 - 5 Only contributes 5 dollars so -10 GDP

Suppose that inventories were $80 billion in 2012 and $70 billion in 2013. How much does this add to the investment (I) component of GDP in 2013 (assume that prices are constant)

-$10 billion

Refer to the above scenario. How much does Sue contribute to U.S. GNP

1,000,000 U.S. Citizen

Which of the following will be included directly in the calculation of GDP using the expenditure method

A pizza restaurant's purchases of new ovens

A country produces only one good. It produced 5,000 units of the good during Year 1 and 6,000 units of the good in Year 2. The price of each unit of the good in Year 1 was $280 and it was $320 in Year 2. Year 1 is the base year for the calculation of GDP. Refer to the scenario above. Real GDP of the country has grown by

20 percent

is the market value of the final goods and services produced in a country during a particular period of time.

GDP

How does the income approach to measuring GDP compare to the production and expenditure approach to measuring GDP?

It is the same, because all revenues are either payed to workers at the company or to the owners of the company

Peg's Nail salon did 4,000 manicures in the year 2015 and 4,500 manicures in the year 2016. The price of a manicure was $20 in 2015 and $22 in 2016. If 2015 is the base year, Peg's contribution to real GDP in 2016 was _____ and to nominal GDP in 2016 was ____

Nominal GDP = 4,500*22 = 99,000 Real GDP = 4,500*20 = 90,000

Consider an aggregate production function that has the expected shape and assume there is no technological change or change in efficiency units of labor. Then if the United States increases capital per worker by $40,000 every year between 2014 and 2018, we would expect to see that

Output per worker increases by decreasing amounts between 2014 and 2018 Marginal diminishing returns

If the CPI changes from 125 to 120 between 2010 and 2011, how did prices change between 2010 and 2011

Prices decreased by 4% 120-125/125 * 100

Suppose the U.S. government pays a Scottish citizen $1,000 to caddy for the president while he is golfing during a trip in Scotland. As a result, ________.

U.S. government purchases increase by $1,000; U.S. net exports decrease by $1,000; and U.S. GDP is unaffected taking place in scotland

Suppose, in 2012, you purchased a house built in 2003. Which of the following would be included in the gross domestic product for 2012?

the value of the services of the real estate agent Do not count it into GDP because it was already accounted for in 2003

Investment, as defined in national income accounting, would not include which of the following?

buys U.S. government bonds.

Gross domestic product understates the total production of final goods and services because of the omission of

home production

Because different countries use different currencies, comparisons of real GDP across countries usually use the concept of "purchasing power parity." This means

pricing the same market basket in different countries to convert other currencies to dollar

The main reason income per capita and income per worker vary across countries is because

productivity varies across countries

Workers in an economy are likely to be more productive if

the economy has a large physical capital stock

Suppose the price of an iPhone in the United States is $399. The table below lists the income per capita and the price of the same iPhone in the domestic currencies of four different countries in 2014. Country 1 iPhone Price is 999

2.5 units of Country 1's currency for $1 999: 399

A country produces only one good. It produced 5,000 units of the good during Year 1 and 6,000 units of the good in Year 2. The price of each unit of the good in Year 1 was $280 and it was $320 in Year 2. Year 1 is the base year for the calculation of GDP. Refer to the scenario above. The real GDP of the country in Year 1 was

$1,400,00 5,000 * 280

A country produces only one good. It produced 5,000 units of the good during Year 1 and 6,000 units of the good in Year 2. The price of each unit of the good in Year 1 was $280 and it was $320 in Year 2. Year 1 is the base year for the calculation of GDP. Refer to the scenario above. The real GDP of the country in Year 2 was

$1,680,000 6,000 * 280

A country produces only one good. It produced 5,000 units of the good during Year 1 and 6,000 units of the good in Year 2. The price of each unit of the good in Year 1 was $280 and it was $320 in Year 2. Year 1 is the base year for the calculation of GDP. Refer to the scenario above. The nominal GDP of the country for Year 2 was

$1,920,000 6,000 * 320

If Dell buys a computer from a foreign producer for $500 and sells it to Best Buy for $800, who then sells it to a consumer for $1,200, what is Dell's value added, Best Buy's value added, and the computer's contribution to GDP?

$300, $400, and $700 subtract the foreign cost for final GDP

Refer to the above scenario. How much non-market based economic production occurs in the United States

$40,000 20,000 * 2

Suppose the price of an iPhone in the United States is $399. The table below lists the income per capita and the price of the same iPhone in the domestic currencies of four different countries in 2014 Country 2 Income per capita is 34,500 iPhone price is 2300

$5,985 399:2300 * 34,500

Refer to the above scenario. How much does John contribute to U.S. GDP?

$50,000 made in the U.S.

There is only one firm in a small island country. The firm produced 1,000 units of Good X during a particular year, out of which it could sell 900 units. If each unit of the good sells for $500, what is the GDP of the country?

$500,000, You include the inventory since it will be sold later on

Mr. Clooney inherited a sum of $30,000 in 1990. If the price index was 100 for 1990 and 188 for 2014, the value of the money he inherited in 2014 dollars is

$56,400 188/100 * 30,000

Product, Quantity, Price Shoes, 40, 60 DVDs, 100, 18 Tomatoes, 2000, 1 Ketchup, 300, 4 Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households. Using the information in the above table, nominal GDP for this simple economy equals

$6,400 40 *60 + 100 *18 + 1000 *1 + 300*4 You only use 1,000 tomatoes with 1 dollar mark since the other 1,000 are going to ketchup

A country produces only one good. It produced 5,000 units of the good during Year 1 and 6,000 units of the good in Year 2. The price of each unit of the good in Year 1 was $280 and it was $320 in Year 2. Year 1 is the base year for the calculation of GDP. Refer to the scenario above. The GDP deflator for Year 2 is

114.3 nominal/real * 100

In a graph that measures output in the y-axis and the efficiency units of labor in the x-axis, which of the following causes an upward movement along the aggregate production function

An increase in the total efficiency units of labor

The example about why the average American is richer than the average Indian suggested that

B) India is poorer because it has less human capital and physical capital per worker. C) India is poorer because its technology is not as good as in the U.S. D) Both B and C

A flour mill produces two bags of flour. One bag is sold for $1.00 to a bakery, which uses it to bake two loaves of bread that are sold for $3.00 each to consumers. The second bag is sold for $1.00 to a grocery store, which sells it to a consumer for $2.00. All of this activity takes place in the U.S. What does it add to our GDP

GDP increases by $8.00 Only account the final good 3*2 + 2*1

Which of the following is not true about the circular-flow diagram discussed in class?

The sellers in the model are always business firms and the buyers are always household

The circular flow diagram implies that if accounting is done correctly, the market value of ________ the market value of ________

expenditure must equal; income everything must equal

The ________ in output due to each additional unit of a factor of production is ________ when other factors are held constant.

increase; smaller Diminishing marginal returns