19.2 Q&A

GDP is an imperfect measure of economic well being because it fails to measure what type of production? Even if GDP included these types of production, why would it still be an imperfect measure of economic well being?

Household production and the underground economy. All of the above - Not crime adjusted - value of leisure not included - Not adjusted for pollution and unequal distribution

Which of the following is NOT a shortcoming of GDP as a measure? If Americans still worked 60-hours weeks, as they did in 1890,..?

GDP only counts final goods and services, not intermediate goods. GDP would be much higher than it is, but the well being of the typical person would not necessarily be higher.

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 of they are.

We often use real GDP per capita as a measure of a country's well-being. [...] Today the typical American works fewer than 40h per week. In 1890 it was 60 hours. Would the difference between real GDP per capita in 1890 and the real GDP per capita today understate or overstate the difference in the populations 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.

[Related to making the connection] Think about the increase in spending for the Department of Homeland security [..] These all represent government expenditures that have increased GDP yet the typical person might not e better who as a result. Why?

All of the above GDP - not adjusted for pollution - Value for leisure not included - not adjusted for crime - does not account for income distribution

Michael Burda of Humbolt University..? Based on these findings, what can we predict about total production - whether or not that production is included in GDP - in the economy when these workers became unemployed?

If the workers had been paying other people to perform the household activities prior to unemployment, then total production will fall.

Which of the following are likely to increase the measured level of GDP and which are likely to reduce it? a. When the number of people working outside the home decreases, the measured GDP...? b. When there is a sharp increase in the crime rate, the measured level of GDP...? c. If higher tax rates cause more people to hide the income they earn, the measured GDP ...?

a. decreases b. may increase or decrease c. decreases

Each year, the United Nations publishes the Human Development Report [...] a. Rank each country from highest real GNI per person to lowest real GNI per person (1. for highest, 2...) b. Next, rank each country from highest HDI to lowest HDI c. Why are there differences between the two lists?

a/b rank values in table (see picture) c. All of the above GNI - not adjusted for pollution - Value for leisure not included - not adjusted for crime - does not account for income distribution

Household production in the underground economy...? According to most economists, is it a serious shortcoming of GDP that it does not count household production or production in the underground?

are not accounted for in the commerce departments estimation of GDP "NO" because these types of production do not affect the most important use of the GDP measure, which is to measure changes in total production over short periods of time.

An underground economy involves all of the following except..? Some countries have larger underground economies than do other countries, because..?

buying and selling goods and services by obtaining a permit from the government. of government policies that retard economic growth

[Related to making the connection] .. "Many economists believe that the rise of [use of] cash is strongly related to growth in the so-called underground economy" The underground economy is...? Buyers and sellers in the underground economy prefer to use cash because...?

buying and selling of goods and services that is concealed from the government. Cash leaves little in the way of evidence or a paper-trail

Economic historians Roger Ransom and Richard Sutch.... The farmers well-being After the civil war, US GDP...

would NOT have been higher as a result of working these additional hours because value of an individual well-being is not included in GDP calculation could have been higher if the farmers did not reduced their work hours