MyEconLab HW#1
Which component of GDP will be affected by each of the following transactions involving Ford 1) You buy a car 2) You buy a preowned car 3) Ford buys parts for the car from Indiana 4) Ford sells cars to China 5) Ford buys machines for the factory 6) Missouri builds a highway to help improve access to Ford plant
1) Consumption 2) Not Included 3) Not Included 4) Net Export 5) Investment 6) Government
Which of the following is not a shortcoming of GDP as a measure of well-being? A. GDP only counts final goods and services and not intermediate goods. B. GDP is not adjusted for the effects of pollution caused by the production of goods and services. C. GDP does not include the value of leisure. D. GDP is not adjusted for crime and other social problems.
A. GDP only counts final goods and services and not intermediate goods.
What are the four main components of expenditures in GDP
Consumption, investment, government purchases, and net exports
Why in microeconomics can we measure production in terms of quantity, but in macroeconomics we measure production in terms of market value?
If in macroeconomics, we measured production using quantities, we would add tons of wheat grown by US farmers to the number of iPods produced by Apple, etc 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
If the US Bureau of Economic Analysis added up the values of every good and service sold during the year, would the total be larger or smaller than measured GDP?
Larger; the value of all goods and services sold would include intermediate goods
GDP is
Market value of all final goods and services produced in a country during a period of time
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.
What are the four categories of income?
Wages, interest, rent, and profit.
Which equation represents the relationship between GDP and the four major expenditure components?
Y = C + I + G + NX
What does GDP exclude?
financial assets (stock and bond), raw materials/intermediate goods, used goods, non market output, government transfers, output produced abroad
value added approach
firm revenue minus the amount paid for goods and services purchased from other firms. its the most detail oriented GDP measurement
An artist buys scrap metal from a local steel mill as a raw material for her sculptures. Last year, she purchased $6000 worth of scrap metal. With the steel she produced 10 authentic sculptures that she sold for $900 each to a local art dealer. The art dealer then sold all of the sculptures to art collectors for an average of $1100 each. What is the total value added of the artist and the art dealer
Artist added $3000 Dealer added $2000
Why do some countries have larger underground economies than other countries?
Because of government policies that are retarding economic growth.
Which of the following statements about the consumption component of GDP is not correct? A. The consumption component of GDP in the U.S. is greater than all three of the other components (government, investment, and net exports) combined. B. Consumption as a fraction of total GDP in the U.S. is larger compared to all other high income nations in the world. C. Spending on services is smaller than the amount of consumption spending on durable and nondurable goods. D. Since 1960, the consumption component of GDP has generally increased as a fraction of GDP.
C. Spending on services is smaller than the amount of consumption spending on durable and nondurable goods.
"In years when people buy few shares of stock, investment will be low and, therefore, so will gross domestic product (GDP)."
Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases.
Determine the largest percentage increase in the price level
Find the change in the gdp deflator of each year and the greatest is the largest increase
Inventories are part of investment and therefore included in GDP because
Firms produce goods, however sometimes the goods may be unsold at the time GDP is computed
Even if GDP included these type of production, why would it still be an imperfect measure of economic well-being?
GDP is not adjusted for pollution and it doesn't account for unequal income distribution; the value of leisure is not included in GDP; GDP is not adjusted for crime or other social problems
Total spending method (expenditure)
GDP= consumption + government purchase + investment (business) + net exports (exports-imports)
total income approach (factor)
GDP= wages and salaries + rent + interest + profits
U.S. Gross National Product (GNP) differs from U.S. Gross Domestic Product (GDP) in which of the following ways?
GNP is the value of final goods and services produced by residents of the U.S. GNP considers production that occurs outside the U.S.
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
Assuming that inflation has occurred over time, what is the relationship between nominal GDP and real GDP in each of the following situations? In years after the base year, nominal GDP is _______ real GDP (less, greater, equal to) greater than In base year, nominal GDP is _______ real GDP In years prior to the base year, nominal GDP is _______ real GDP
Greater than Equal to Less than
GDP is an imperfect measure of economic well-being because it fails to measure what types of production?
Household production and the underground economy
In the circular-flow diagram, who supplies factors of production in exchange for income?
Households
Indicate whether each of the following is a final good, an intermediate good, or neither. Coffee beans purchased by a coffee shop One share of google stock A new truck purchased by a consumer A new home purchased by a family
Intermediate Neither Final Final
Identify whether the following topics belong in microeconomics or macroeconomics: How does the price of corn change if the price of wheat increases? Identify the best measurement of total output in the US economy How will an increase in gov spending impact inflation rate The most efficient market structure is perfect competition
Micro Macro Macro Micro
One major component of gdp that can be negative is
Net exports
Suppose a house is built and sold in the year 2006. It the house is resold in the year 2015, is the value of the house included in Gross Domestic Product for 2015?
No. GDP for 2015 only included production that occurs during 2015.
How is the GDP deflator calculated?
Nominal/Real * 100
According to an article in the Economist, "China's GDP grew by 7% in the second quarter, which was higher than had been expected." Is it likely that percentage the article is referring to is the change in
Real GDP
In the US, the difference between GNP and GDP is ___ that of many other countries
Smaller
In calculating GDP, which levels of government spending are included in government purchases?
Spending by federal, state, and local governments
How do you calculate Nominal Gross Domestic Product
Step 1: Multiply the quantity and price of each product. Step 2: Figure out which products are final goods and which are intermediate goods. Step 3: Sum the total market value for all final goods in this simple economy to get the nominal GDP for 2011.
Today, the typical American works fewer than 40 hours per week. In 1890, the typical American worked 60 hours per week. Would the difference between the real GDP per capita in 1890 and the real GDP per capita today understate or overstate the difference in the population's economic well-being?
The increase in real GDP per capita between 1890 and today understates well-being because the value of leisure is not included in GDP
What is included in the economist's definition of investment?
The purchase of new machines, factories, or houses
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
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.
The circular-flow diagram shows that ___ should equal ___
Total expenditure should equal 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
An important conclusion to draw from the circular-flow diagram is that:
We can measure GDP by calculating the total value of expenditures on final goods and services, or we can measure GDP by calculating the value of total income.
Would the services of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2015?
Yes. GDP for 2015 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 GDP? For example, is the aluminum used to produce a new mountain bike included in GDP?
Yes; the value of aluminum is not directly counted in GDP, but the production of aluminum is included in the value added method of measuring GDP
Three types of investment are
business, residential, changes to inventory
Limitations of GDP?
doesn't count non-market output and misses unreported market output (underground economy)
3 ways to calculate GDP
total income(factor payments), total spending(expenditure),total value added
