8
Assume that a honey producer sells its annual harvest to an Internet retailer for $65,000. The retailer, in turn, brings in $97,500 from selling the honey directly to final customers. What amount would these two transactions add to personal consumption expenditures, and thus to GDP, during the year? GDP would increase by $________
$97,500
The flow of gross domestic product during a given interval must always be equivalent to the flow of gross domestic income within that same period because
Both (a) and (b) are correct.
GDP Formula
Consumption + Gross private Domestic Investment + Government Spending + Exports - Imports
Disposable personal income refers to the income used by households for all purchases of nondurable goods during a year.
False
In a simple economy with only businesses and households, suppose that the sum total of all the goods and services produced during the relevant period long dash —pairs of shoes, candy bars, digital devices, etc. all summed together long dash —is 420 420 trillion units. The total dollar value of this flow of output is $ 43 trillion. The total amount of factors of production long dash —labor, land, capital, entrepreneurship, all summed together long dash —is 0.5 billion units. What is the flow of income long dash —that is, the sum of wages, rents, interest, and profits? The flow of income long dash —the sum of wages, rents, interest and profits long dash —is
$45 trillion.
The adjustment in exchange rate conversions that takes into account differences in the true cost of living across countries is known as purchasing power parity.
true
The difference between real GDP and nominal GDP for the same year reflects the amount of inflation that occurred during that year.
true
A key limitation of using GDP to gauge the overall flow of economic activity occurs because of
underground transactions such as exchanges that people intentionally attempt to hide.
In the first stage of manufacturing each final unit of a product, a firm purchases a key input at a price of $3 per unit. The firm then pays a wage rate of $2 for the time that labor is exerted, combining an additional $3 of inputs for each final unit of output produced. The firm sells every unit of the product for $10. What is the contribution of each unit of output to GDP in the current year? The contribution of each unit of output to GDP in the current year is $
$10
Consider the following table for the economy of a nation whose residents produce five final goods: a. Assume 2017 is the base year. Calculate nominal GDP for 2017. $_______________ Calculate nominal GDP for 2021. $_________ b. Assume2017 is the base year. Calculate real GDP for 2017. $__________ Calculate real GDP for 2021. $________
$2,790.12 $2,735.78 $2,790.12 $2,116.15
Each year after a regular spring cleaning, Maria spruces up her home a little by retexturing and repainting the walls of one room in her house. In a given year, she spends $29 on magazines to get ideas about wall textures and paint shades, $48 on newly produced texturing materials and tools, $38 on new paintbrushes and other painting equipment, and $176 on newly produced paint. Normally, she preps the walls, a service that a professional wall-texturing specialist would charge $209 to do, and applies two coats of paint, a service that a painter would charge $365 to do, on her own. a. When she purchases her usual set of materials and does all the work on her home by herself in a given spring, how much does Maria's annual spring texturing and painting activity contribute to GDP?
$291 $500 $865
Which of the following equations is used to calculate gross domestic income (GDI)?
wages + interest + rent + profit + indirect business taxes + depreciation = GDI
The following table contains national income accounting data for a hypothetical economy: Disposable personal income $7,000 mil Personal income tax and nontax payments $900 mil Government & Business transfer payments $1500 mil Corporate taxes, social security contributions, & corporate retained earnings $1100 mil Indirect business taxes $900 mil Depreciation $1000 mil Starting from the value for disposable personal income (DPI), gross domestic product is calculated to be $_____________
$9,400
To correct nominal GDP for price changes, we first select a base year for our price index and assign it the number ▼ . Then we construct an index based on how a weighted average of prices has changed relative to that base year. For example, if in the next year a weighted average of the prices indicates that prices have increased by 10 percent, we would assign it the number ▼ . We then divide each year's price index, so constructed, into its respective nominal GDP figure (and multiply by 100). We can divide the ▼ into real GDP to obtain per capita real GDP. Statisticians often calculate relative GDP by adding up each country's GDP in its local currency and dividing by the dollar ▼ . Because not all goods and services are bought and sold in the world market, however, we must correct exchange rate conversions of other countries' GDP figures to take into account differences in the true ▼ across countries.
100 110 population exchange rate cost of living
Consider the following hypothetical data for the U.S. economy in 2020 (all amounts are in trillions of dollars): Consumption $10.6 Non-income related taxes net of subsidies 0.7 Deprecation 1.4 Government Spending 2.8 Imports 2.7 Gross private domestic investment 2.9 Exports 2.4 Based on the data above Calculate GDP$ tril Calculate NDP$ tril Calculate NI$ tril Suppose that in 2021, exports fall to $2.2 trillion, imports rise to $2.9 trillion , and gross private domestic investment falls to $2.4 trillion. Calculate GDP in 2021, assuming that other values do not change between 2020 and 2021. $____________trillion
17.4 16.2 15.5 16.3
Consider the diagram to the right, and answer the questions below. The base year is___________ The diagram shows that the Nominal GDP curve exhibits a steeper growth path, compared to the Real GDP curve after their intersection. This indicates
2016 this country has experienced inflation since the base year.
Which of the following equations is correct?
All of the above equations are correct. (A. GDP = C + netI + G + X + depreciation B. GDP minus − depreciation = NDP C. NDP = C + I + G + X minus − depreciation)
Total income can be viewed as the sum of
All of the above.
In the first stage of manufacturing each final unit of a product, a firm purchases a key input at a price of $7 per unit. The firm then pays a wage rate of $3 for the time that labor is exerted, combining an additional $4 of inputs for each final unit of output produced. The firm sells every unit of the product for $17. What is the contribution of each unit of output to GDP in the current year? consumption $9.5 Non-income-related taxes net of subsidies $0.9 Depreciation $1.2 Government Spending $2.8 Imports $2.4 Gross private domestic investment $3.2 Exports $2.6 The contribution of each unit of output to GDP in the current year is
GDP $15.7 NDP $14.5 NI $13.6 $14.6
NDP Formula
GDP - Depreciation In order to calculate Net Domestic Product, depreciation for the capital stock has to be subtracted from the year's GDP.
According to the circular flow of income and output, which of the following is not true?
Goods, services and money all flow in one direction since money pays for the goods and services.
Gross Domestic Income
Gross domestic income (GDI): The sum of all income — wages, interest, rent, and profits — paid to the four factors of production.
NI Formula
NDP-Non income related taxes net of subsidies
For a business, profit is a cost of production.
True
The dollar value of total output is always equal to total income.
True
To go from personal income to disposable personal income, personal income taxes must be subtracted.
True
Total income is the annual cost of producing the entire output of final goods and services. In product markets,
True consumer goods and services flow to households and money flows to businesses.
Real GDP is computed by adjusting nominal GDP for
changes in the price level.
The biggest component of GDP using the expenditure approach is ____________ and the biggest component of GDP using the income approach is _____________.
consumer expenditures; wages
To derive GDP using the expenditure approach, which of the following components are added togehter?
consumption expenditures, gross private domestic investment, government expenditures, and net exports
Suppose social security contributions rise by $1 billion while social security benefits also rise by $1 billion. Further, personal income taxes fall by $500 million. As a result,
disposable income should increase while personal income and national income are unchanged.
Gross domestic product (GDP) is the
total market value of all final goods and services produced during a year by factors of production located within a nation's borders.
Which of the following are production activities that are included in GDP? Which are not? a. Mr. King performs the service of painting his own house instead of paying someone else to do it. This activity is____________ in GDP b.Mr. King paints houses for a living. This activity is________ in GDP c. Mrs.. King earns income from parents by taking baby photos in her home photography studio. This activity is__________ in GDP. d. Mrs. King takes photos of planets and stars as part of her astronomy hobby. This activity is_________ in GDP. e. E*Trade charges fees to process Internet orders for stock trades.This activity is___________ in GDP
excluded included included excluded
The___________ approach to measuring GDP requires that we add up consumption expenditures, gross private investment, government purchases, and net exports. Consumption expenditures include consumer___________, consumer___________ and ______________ services. To derive GSP using the income approach, we add up all factor payments including __________ , ___________ , ___________ , and ___________. To get an accurate measure of GDP using the income approach, we must also add ___________ and _________ to those total factor payments
expenditure durbales nondurables services wages profit interest rent indirect business taxes deprecation
In the circular flow model of income and output, households sell ▼ services to businesses that pay for those services. The receipt of payments is total ▼ . Businesses sell goods and services to households that pay for them. The dollar value of total output is equal to the total monetary value of all ▼ The dollar value of final output must always equal total income. The variable that adjusts to make this so is known as ▼
factor income final profit
Personal income is the income received by households after personal income taxes are paid.
false
In the circular flow of income
households demand goods and services that are supplied by firms, while supplying resources that are demanded by firms.
To obtain ▼ we subtract indirect business taxes and transfers from net domestic product and add other business income adjustments and net U.S. income earned abroad. To obtain ▼ we must add government transfer payments, such as Social Security benefits and food stamps. We must subtract income earned but not received by factor owners, such as corporate retained earnings, Social Security contributions, and corporate income taxes. To obtain disposable personal income, we subtract all personal ▼ from personal income. Disposable personal income is income that individuals actually have for consumption or saving.
national income personal income income taxes
The problem with using foreign exchange rates to convert one country's GDP into dollars is that
not all goods and services are sold on world markets.
Per capita real GDP measures the amount of real GDP
per person
The income households actually receive before they pay personal income taxes is:
personal income.
An increase in corporate income taxes would reduce An increase in social security benefits will make
personal income. personal income larger.
Total income equals the dollar value of total output because
spending by one group represents income to the other group.
GDP excludes nonmarket production such as
the household services of homemakers.
If real GDP increases in any year, we know that
the output of goods and services produced this year has increased.
Gross domestic income (GDI) is identical to gross domestic product (GDP).
true
