Gross Domestic Product (GDP)

Refer the Table. Assuming the GDP deflator in 2010 was 96, in which year was inflation highest?

2013

Refer the Table. Assume 2011 is a base year. In which year was real GDP the highest?

2014

If nominal GDP is $16 trillion and real GDP is $24 trillion, then the GDP deflator is

67, and this indicates that the price level has decreased by 33 percent since the base year.

George lives in a home that was newly constructed in 2011 for which he paid $200,000.In 2014 he sold the house by himself for $250,000. Which of the following statements is correct regarding the sale of the house

The 2014 sale affected neither 2014 GDP nor 2011 GDP.

Shelly buys a new car for $10,000 and spends $200 on a used sofa. The end result of these two transactions is

U.S. consumption purchases increase by $10,000 and U.S. GDP increases by $10,000.

If the amount U.S. citizens earn abroad is larger than the amount foreign citizens working in the U.S. earn, then

U.S. net factor payments from abroad are positive, and GNP is larger than GDP.

Which of the following is an example of a durable good?

a television

The gross domestic production of a country

equals the income of its residents.

Unemployment benefits are

excluded from GDP because they do not reflect the economy's current production.

A farmer produces potatoes, and sells them to a company which uses them all to make potato chips. The potatoes produced by the farmer are called

intermediate goods.

If nominal GDP is three times its old value and the GDP deflator is twice its old value, then real GDP

is 1.5 times its original value.

The value of a carwash

is included in GDP only if it is sold in the market.

International studies of the relationship between real GDP per person and quality of life measures find that as real GDP per person rises

life expectancy and the percentage of the population that is literate tends to rise.

Countries with higher levels of real GDP per person tend to have

lower rates of infant mortality and more access to safe drinking water.

Real GDP is

not adjusted for differences in leisure time, nor adjusted for the differences in the quality of the environment

Which of the following items purchased by households are included in investment rather than consumption?

only the purchases of new houses

Of the following which is the best single measure of a country's economic well-being?

real GDP per person.

GDP is defined as the:

value of all final goods and services produced by domestic residents of a country in a given period of time.

In a simple circular-flow diagram, households buy goods and services with the income they get from

wages, rent, and profits.

Portland Sardines produced $14 million worth of cans of sardines. In producing these cans of sardines, it purchased $2 million dollars' worth of tin from foreign countries and paid workers who reside in Canada but commuted to the U.S. $1 million, all other labor was provided by U.S. residents. How much of the company's production was included in U.S. GDP?

$12 million

A farmer sells $50,000 worth of apples to individuals who take them home to eat, $75,000 worth to a company that uses them all to produce apple juice, and $100,000 worth of apples to a grocery store that sells all of them to households. How much of the farmer's sales will be included as apples in GDP?

$150,000

John plows snow from driveways. He spends $2 on gas and charges $25 each time he plows. What's the total contribution to GDP each time John plows a driveway?

$25

Refer the Table. Assume 2011 is a base year. In which year was real GDP the lowest?

2011

Country A has real GDP of $10,000,000 and a population of 200. Country B has real GDP of $20,000,000 and a population of 500.

Average income per person is higher in Country A than country B. This doesn't necessarily mean that the average person in country A is better off than the average person in Country B.

Suppose you make two purchases for yourself. Which of them is included in GDP?

Both a new textbook and a haircut.

Last year Country A had a population of 5 million, nominal GDP of 750,000 million, and a GDP deflator of 150. Country B had a population of 8 million, nominal GDP of 960,000 million and a GDP deflator of 160. Which country is likely to have the higher standard of living?

Country A because it has the higher level of real GDP per person.

Last year Country A had a population of 16 million, nominal GDP of 480,000 million, and a GDP deflator of 120. Country B had a population of 10 million a nominal GDP of 400,000 million and a GDP deflator of 125. Which country is likely to have the higher standard of living?

Country B because it has the higher level of real GDP per person.

If real GDP rises and the GDP deflator falls, then it must be that nominal GDP rose.

False

Which of the following statements about GDP is correct?

GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services.

When economists refer to intangible items, they are referring to such things as

Legal and medical services, and the value of such items is included in GDP.

Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. To do this, GDP primarily makes use of

Market Prices

A manufacturer produces 500,000 MP3 players in the first quarter of the year. It sells 400,000 of them and adds 100,000 of them to inventory. All the players added to inventory are purchased by consumers in the second quarter. How are the 100,000 that go into inventory counted in GDP?

The MP3 players will be counted as a change in inventory in the first quarter, and so will be included in first quarter GDP as part of investment.

Which of the following is a correct statement?

The value of leisure time is excluded in the calculation of GDP per person.

John restores cars. He buys a 1964 Mustang, new parts and paint, and spends time restoring it. He then sells the car. Which of the following is included in GDP?

The value of the new parts and paint, the value of John's time, but not his purchase of the old car.

Real GDP uses constant base year prices to place a value on the economy's production of goods and services, while nominal GDP uses current prices to place a value on the economy's production of goods and services.

True

Refer to the Figure. Which of the following pairs correctly identify households and firms respectively?

Y and W

Real GDP is computed using

base-year prices and current quantities.

A U.S. consumer buys toys made in China. The value of the toys is included only in the consumption component of GDP.

false

A country with a higher level of real GDP per person necessarily has a higher standard of living than a country with a lower level of real GDP per person.

false

An increase in total spending from one year to the next means that an economy's production of goods and services has risen.

false

If the price of a shirt is five times the price of a pair of socks, then a shirt contributes

five times the price of a pair of socks does to GDP.

Which of the following items is included in U.S. GDP?

goods produced by Mexican citizens working in the United States

Which of the following is not included in the consumption component of GDP?

household purchases of newly constructed homes.

In the simple circular-flow model

households spend all of their income but the government does not buy goods or services.

A U.S. company produces bicycle helmets some of which go into inventory, and are not sold during the current period. The helmets that go into inventory are

included in current period GDP as inventory investment.

Which of the following is included in the government purchases component of GDP?

the federal government buys fighter jets, a state government repairs highways, a local government pays its police

GDP equals:

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

During recessions what happens to profits and the unemployment rate?

the unemployment rate rises and profits fall.

McDermott's builds a new restaurant and David purchases stock sold by McDermott's.

the value of the new restaurant is included in GDP, but the value of the new stock is excluded from GDP.

GDP excludes most underground economic activity. The amount of underground economic activity tends to be larger relative to real GDP in countries that are less developed than in countries that are developed.

true

GDP is not adjusted to account for differences in the quality of the environment such as air quality and access to safe water.

true

GDP measures both an economy's production and its expenditures.

true

In the circular-flow diagram households receive income from wages, rents, and profits.

true