Global Econ Ch 12
2011 2012 Nominal GDP $13 comma 295 billion $14 comma 041 billion Real GDP $11 comma 519 billion $11 comma 767 billion In 2011, the value of the GDP deflator is In 2012, the value of the GDP deflator is
115 119
The following table gives nominal and real GDP for an economy for two years. Year 1 Year 2 Nominal GDP 1650.0 2100.0 Real GDP 1 comma 500 1800.0 Based on the table, in Year 2, the value of the GDP deflator is The inflation rate between Year 1 and Year 2 is
116.7 6.1
Suppose the information in the following table is for a simple economy that produces only the following four goods: shoes, hamburgers, shirts, and cotton. Further, assume that all of the cotton is used to produce shirts. a. If the base year is the year 2009, then real GDP for 2016 equals $ (round your answer to the nearest penny) and the real GDP for 2017 equals $ (round your answer to the nearest penny). b. The (annual) growth rate of real GDP in 2017 is (Enter your response as a percentage rounded to two decimal places.)
8580.00 9360 9.09%.
Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being?
ALL OF THE ABOVE GDP is not adjusted for pollution and it does not account for unequal income distribution. The value of leisure is not included in GDP. GDP is not adjusted for crime or other social problems.
"If a recession is so severe that the price level declines, then we know that both real GDP and nominal GDP must decline."
Agree. If both output and prices are falling, then both real GDP and nominal GDP will fall.
"If real GDP stayed the same while nominal GDP declined between 2008 and 2009, then the GDP deflator must also have declined."
Agree. If nominal GDP declined between 2008 and 2009, then the GDP deflator must also have declined.
How does real GDP LOADING... deal with the problem inflation causes with nominal GDP?
All of the above Real GDP separates price changes from quantity changes. 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.
Why in microeconomics can we measure production in terms of quantity, but in macroeconomics we measure production in terms of market value?
All of the above If, in macroeconomics, we measured production using quantities, we would add tons of wheat grown by U.S. farmers to the number of iPods produced by Apple, to gallons of milk, and so on. When we measure total production, we can't just add together the quantities of every good and service because the result would be meaningless. Measuring production using market value in dollar terms allows us to add together many different goods and services.
What are the four major components of expenditures in GDP?
Consumption, Investment, Government Purchases, and Net Exports
Indicate whether you agree or disagree with the following statements. "If nominal GDP is less than real GDP, then the price level must have fallen during the year."
Disagree. Nominal GDP is less than real GDP if the current price level is less than the base year price level. A fall in the price level during the year is neither necessary nor sufficient to cause nominal GDP to be less than real GDP.
"Whenever real GDP LOADING... declines, nominal GDP LOADING... must also decline."
Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise.
If you were attempting to forecast the level of consumer spending by households, which measure of total production or total income might be most helpful in making your forecast?
Disposable personal income
In the circular flow of expenditure and income, why must the total value of production in an economy equal the total value of income?
Every penny spent on a good or service must end up as someone's income.
How does the size of a country's GDP affect the quality of life of the country's people?
Generally, the more goods and services people have, the better off they are.
The table and figure above show GDP measured in terms of the total income received by households. Use the table and figure to help determine which of the following statements about the division of income is false.
Gross domestic income is measured precisely.
GDP is an imperfect measure of economic well-being because it fails to measure what types of production?
Household production and the underground economy.
Identify whether the following topics belong in microeconomics or macroeconomics: How does the price of corn change if the price of wheat increase? Identify the best measurement of total output in the US economy. How will an increase in government spending impact the inflation rate? The most efficient market structure is perfect competition.
MICRO MACRO MACRO MICRO
Suppose a house is built and sold in the year 2006. If the house is resold in the year 2017, is the value of the house included in Gross Domestic Product (GDP) for 2017?
No. GDP for 2017 includes only production that occurs during 2017.
Suppose that a simple economy produces only the following four goods and services: shoes, hamburgers, shirts, and cotton. Further, assume that all of the cotton is used in the production of shirts. Use the information in the following table to calculate Nominal Gross Domestic Product (Nominal GDP) for 2017. PRODUCTION AND PRICE STATISTICS FOR 2017 Product Quantity Price Shoes 100 $60.00 Hamburgers 100 2.00 Shirts 50 25.00 Cotton 8 comma 000 0.60
The Nominal GDP for the year 2017 is $ 7450.
An artist buys scrap metal from a local steel mill as a raw material for her sculptures. Last year, she purchased $5 comma 000 worth of scrap metal. With the steel she produced 10 authentic sculptures that she sold for $800 each to a local art dealer. The art dealer then sold all of the sculptures to art collectors for an average of $1 comma 000 each.
The total value added of the art dealer is $ 2,000.
What is the difference between the value of a firm's final product and the value added by the firm to the final product?
The value of a firm's final product is the sale price; value added is the difference between the sale price and the price of intermediate goods.
Why does inflation make nominal GDP LOADING... 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 equation represents the relationship between GDP and the four major expenditure components?
Y=C+I+G+NX
Would the services of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2017?
Yes. GDP for 2017 includes the market value of final goods and services. This includes real estate services.
Is the value of intermediate goods and services produced during the year included in Gross Domestic Product (GDP)? For example, is cotton used to produce a new shirt included in GDP?
Yes. The value of the cotton is not directly counted in GDP, but the production of cotton is included in the value-added method of measuring GDP.
A recession occurs when an economy experiences a period in which there is
a decrease in total production.
Indicate which component of GDP will be affected by each of the following transactions involving the Ford Motor Company.
a. You purchase a new Ford Escape Hybrid from a Ford dealer. Consumption Expenditure b. You purchase a 2011 (preowned) Ford Escape Hybrid from a friend. Not included in GDP calculation c. Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana. Not included in GDP calculation d. Ford produces 1,000 Escapes in a factory in Missouri and ships them to a car dealer in Shanghai, China. Net Export Expenditure e. Ford purchases new machine tools to use in its Missouri Escape factory. Investment Expenditure f. The state of Missouri builds a new highway to help improve access to the Ford Escape plant . Government Expenditure
An underground economy involves all of the following except
buying and selling of goods and services by obtaining a permit from the government.
The country of Alaine produces 1,000 tons of corn during a year. It is valued at $500 per ton. A lobbyist for the corn industry in Alaine argues that the total value of corn production should be included in the country's GDP for the same year. The lobbyist's claim is based on the assumption that
corn is not used in the production of other goods.
[Related to the Making the Connection] An article in the Wall Street Journal notes that many economists believe that GDP data for India are unreliable because "the average firm employs just a handful of people and the overwhelming majority of the adult population works off the books and far from major cities." Source: Raymond Zhong, "Just How Bad Are India's Official GDP Numbers?" Wall Street Journal, August 27, 2014. Working "off the books" refers to The problems of small firms working off the books and far from major cities would make it difficult for the Indian government to accurately measure GDP because the If government cannot accurately measure GDP,
earning income that is not reported for tax purposes measures of GDP will be understated if these practices are common. businesses will not be able to correctly gauge the market, and the government will be unable to design efficient tax policies.
The circular-flow diagram shows that all sources of income are owned by
households.
The difference between microeconomics and macroeconomics is
microeconomics studies smaller parts of the economy such as markets and individuals, while macroeconomics studies the economy as a whole.
Some countries have larger underground economies than do other countries, because
of government policies that are retarding economic growth.
In calculating GDP, which levels of government spending are included in government purchases?
spending by federal, state, and local governments
Gross Domestic Product (GDP) is
the market value of all final goods and services produced in a country during a period of time.
Which of the following is included in the economist's definition of investment?
the purchase of new machines, factories, or houses
The business cycle exists because
total production experiences periods of increases and periods of decreases.
The circular-flow diagram shows that ________ should equal ________.
total expenditure; total income
Transfer payments are not included in GDP calculations because
transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.
The difference between the price the firm sells a good for and the price the firm paid other firms for intermediate goods is called
value added.
If the U.S. Bureau of Economic Analysis (BEA) added up the values of every good and service sold during the year, would the total be larger or smaller than measured gross domestic product (GDP)?
Larger: The value of all goods and services sold would include intermediate goods.
