c.19 problem sets

Which of the following is not considered a part of GDP? a. transfer payments b. building a new school c. purchasing a new tank for the Army d. building state highways

transfer payments • The only part of government spending counted in demand is government purchases of goods or services produced in the economy. Examples include the government buying a new fighter jet for the Air Force, building a new highway, or a new school. • A significant portion of government budgets consists of transfer payments, like unemployment benefits, veteran's benefits, and Social Security payments to retirees. The government excludes these payments from GDP because it does not receive a new good or service in return or exchange.

Which of the following equations is used to find the trade balance? Assume that both Imports and Exports are represented as positive numbers.

Exports - Imports The gap between imports and exports is called the trade balance, which is found by subtracting imports from exports.

True or false? A trade deficit is the gap, if any, between a nation's exports and its imports, when the exports exceed the imports.

False A trade deficit occurs when a nation's imports exceed its exports. The gap between exports and imports itself is known as the balance of trade or the trade balance.

True or false? Depression and recession can be used interchangeably.

False Depression and recession cannot be used interchangeably because they refer to different economic situations. We call a decline in real GDP that typically lasts at least two consecutive quarters a recession. We call an especially lengthy and deep recession a depression. The severe drop in GDP that occurred during the 1930s Great Depression is clearly visible in the figure, as is the 2008-2009 Great Recession.

True or false? Standard of living, which accounts for people's well-being, is measured by GDP.

False GDP can reflect standard of living, as people move from countries with a low GDP per capita to countries with a relatively high GDP per capita. However, GDP does not capture everything relevant to standard of living, such as environmental cleanliness, health, and learning.

True or false? If GDP is rising, standard of living will increase at the same rate.

False GDP can rise while standard of living falls if human health, environmental cleanliness, and other factors are worsening. Standard of living can rise faster than GDP if leisure, health, and other factors rise more significantly than GDP.

True or false? The government spending component of GDP only accounts for federal spending.

False Government spending accounts for 20% of GDP and is composed of spending by all three levels of government- federal, state and local.

True or false? We call the economy's movement from peak to trough and trough to peak the depression cycle.

False We call the economy's movement from peak to trough and trough to peak the business cycle.

If total GDP for this economy is $18.10 trillion for the year shown in the table below, what was the country's trade balance? Round your answer to the nearest hundredth if necessary.

GDP = consumption + investment + government + trade balance GDP = C + I + G + (X - M) **X - M = exports - imports

Which of the following is the best definition of GDP deflator?

a measure of inflation based on the prices of all the components of GDP • The GDP deflator is defined as a measure of inflation based on the prices of all the components of GDP. It is calculated by dividing nominal GDP by real GDP.

Which of the following statements is not always true? a. GDP has nothing to say about the level of inequality in society. b. A rise in GDP is representative of economic progress. c. GDP does not reflect all technology and products that are available. d. GDP accounts for production exchanged in the market.

b. A rise in GDP is representative of economic progress.

A(n) ______ is an especially lengthy period, where real GDP experiences a severe drop.

depression We call a decline in real GDP that typically lasts at least two consecutive quarters a recession. We call an especially lengthy and deep recession a depression. The severe drop in GDP that occurred during the 1930s Great Depression is clearly visible in the figure, as is the 2008-2009 Great Recession.

Even though GDP does not measure the broader standard of living with any precision, it does measure production well and it does indicate when a country is materially better or worse off in terms of ________________.

jobs and incomes • Even though GDP does not measure the broader standard of living with any precision, it does measure production well and it does indicate when a country is materially better or worse off in terms of jobs and incomes. In most countries, a significantly higher GDP per capita occurs hand in hand with other improvements in everyday life along many dimensions, like education, health, and environmental protection.

If nominal GDP is $175,000 and the GDP deflator is 143, what is real GDP? Round your answer to the nearest hundredth.

$122,377.62

Suppose that a new technology increases productivity and causes aggregate supply to increase and also increase the price level to 102 while nominal GDP increased to $15,000. What is real GDP? Round your answer to the nearest hundredth.

$14,705.88 150000 / (102/100)

Using the table below, calculate real GDP (in billions of dollars) in 2002. Round your answer to the nearest tenth. year → 2002 nominal GDP → 7,809.8 GDP deflator (2005 = 100) → 83.3

$9375.2 Real GDP = Nominal GDP / (Price Index/100)

Following an increase in expansionary monetary policy, nominal GDP increased by 16% and inflation is 17%. What is the real GDP growth rate?

-1% real GDP growth rate = growth rate in nominal GDP - inflation rate

A new pandemic wipes out most of humanity and decreases worldwide real GDP by $20,000 from $85,000. What is the percentage change in real GDP?

-23.5% • new: 65,000 • old: 85,000 (65000 - 85000) / 85000 x 100

Suppose an increase in productivity increases nominal GDP by 8% and inflation is −3%. (i.e. deflation). What is the real GDP growth rate?

11%

Renewable energy sources usher in an age of cheap and reliable energy, reducing energy prices and contributing to real GDP increasing from $100,000 to $130,000. What is the percent change in real GDP?

30% (New GDP - Old GDP) / Old GDP × 100% = % change

Using the table below, determine the growth in nominal GDP from 1970 to 1990. 1970: $1250 1990: $1900

52%

An increase in productivity increases aggregate supply which causes real GDP to increase from $7,500 to $8,000. What is the percent change in real GDP? Round your answer to the nearest tenth.

6.7%

An increase in population has increased aggregate demand within an economy, causing both output and prices to increase. Economists have estimated that this change has increased nominal GDP by 14% and the price level by 7%. What is the real GDP growth rate for this period?

7%

Which of the following explains the relationship between a country's GDP and the quality of life of its citizens with respect to health?

GDP includes what a country spends on healthcare, but does not measure actual levels of health in the country. • A limitation of GDP is that it does not measure levels of health, only how much is spent on healthcare. Since spending on health care alone does not determine the actual health of a society, GDP can't fully measure standard of living or quality of life.

Why do economists care about recessions?

Many people lose work and struggle to support themselves financially. • Economists care about recessions because during these periods many people lose work and struggle to support themselves financially. Even those who do not lose work may see cuts in hours or pay, which lowers their standard of living.

Which of the following terms refers to the commonly referenced value of a good or service that is not adjusted for inflation?

nominal value By definition, nominal value is the value of a good or service that is not adjusted for inflation. The nominal value of any economic statistic means that we measure the statistic in terms of actual prices that exist at the time.

GDP can understate standard of living by ______________.

not capturing increases in leisure time

Which term refers to the value of a good or service after adjusting for changes in inflation?

real value The nominal value of any economic statistic means that we measure the statistic in terms of actual prices that exist at the time. The real value refers to the same statistic after it has been adjusted for inflation. Generally, it is the real value that is more important.

A moderate decline in real GDP that lasts two or more consecutive quarters is known as a __________.

recession We call a decline in real GDP that typically lasts at least two consecutive quarters a recession. We call an especially lengthy and deep recession a depression.

Within an economy's business cycle, what is the lowest point of a recession called?

trough We call the highest point of the economy, before the recession begins, the peak. Conversely, the lowest point of a recession, before a recovery begins, is the trough. Thus, a recession lasts from peak to trough, and an economic upswing runs from trough to peak. We call the economy's movement from peak to trough and trough to peak the business cycle.

A high GDP may be misrepresented by an overestimated standard of living. Select two factors that demonstrate that a rise in the standard of living might be overestimated within a high GDP.

• Factors not included in GDP, such as human health and environmental cleanliness, are worsening. • Factors such as crime rates and income inequality are both increasing.