((Chapter 6)) GDP: Measuring Total Production and Income

IF real GDP stayed the same while nominal GDP declined between 2008 and 2009, then the GDP deflator must have also declined

Agree.

If a recession is so severe that the price level declines, then we know that both real GDP and nominal GDP must decline

Agree. If both output and prices are falling, then both real GDP and nominal GDP will fall

If nominal GDP is less than real GDP, the the price level must have fallen during the year

Agree. Nominal GDP will be less than real GDP if the price level falls and is lower than the base years prices

How does real GDP deal with the problem inflation causes with nominal GDP?

All of the above

In the US, GDP and GNP are close in value. under what circumstances would GNP be much larger than GDP?

All of the above would push GNP above GDP

Whenever real GDP declines, nominal GDP must also decline

Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise

How is the GDP deflator calculated?

GDP deflator=Nominal GDP/Real GDP X 100

Why is GDP an imperfect measurement of total production in the economy

GDP does not include household production or production from the underground economy.

National Income is

GDP minus depreciation

When a significant fractions of domestic production takes place in foreign-owned facilities, a country's

GDP will be much larger than GNP

U.S. GNP differs from 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.

All of the following are correct except

Gross domestic income does not include health insurance benefits received by the employees

GDP is an imperfect measure of economic well-being because it fails to measure what types of production?

Household production and the underground economy

Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being

The value of leisure is not included in GDP GDP is not adjusted for pollution... GDP is not adjusted for crime... ALL of the ABOVE!

Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next?

When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities

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

Most economists would answer "no" because these types of productions do not affect the most important use of the GDP measure

An underground economy involves all of the following except?

buying and selling of goods and services by obtaining a permit from the government.

National income = GDP - ____

depreciation

In the base year, nominal GDP ____ real GDP

is equal to

In years after the base year, nominal GDP ____ real GDP

is greater than

In years prior to the base year, nominal GDP _____ real GDP

is less than

When there is a sharp decrease in the crime rate, the measured level of GDP

may increase of decrease

In an economy with rising prices, compared to the base year,

nominal GDP is larger than real GDP in years after the base year

Disposable personal income is equal to

personal income minus personal tax payments

Disposable Personal Income is

personal income minus personal taxes

In the US, the difference between GNP and GDP is _____ that of many other countries

smaller than

Real GDP is

the value of goods and services evaluated at base year prices

Which component of gross domestic income is the largest

wages

What are the four major categories of expenditure?

Consumption, Investment, Government purchases, and Net exports.

To calculate person income from national income, which of the following must the BEA do?

add government transfer payments

Household production and the underground economy

are not accounted for in the Commerce Department's estimates of GDP