Chapter 8
The nominal GDP of the U.S. in 2015 was approximately $17.3 trillion. This means that...
All of the above are true.
Scott is a woodworker and charges $125 an hour for his time manufacturing custom−made wood products. For his wife's birthday, he designs and creates an intricate birds eye maple jewelry box that takes him 15 hours to complete. By how much and in what direction does GDP change as a result of his efforts?
GDP is not affected by Scott's production of the jewelry box.
If real GDP in 2016 (base year = 2015) is lower than nominal GDP of 2015, then...
Real GDP in 2015 is greater than real GDP in 2016.
The factors of production include...
capital
The size of the underground economy would tend to decrease if the government of a country...
decreased government regulations on businesses.
The best measure of the income households actually have available to spend is...
disposable personal income.
The underground economy can be described as...
economic activity that is hidden from the government to avoid taxes or because the activity is illegal.
Which of the following is NOT an example of a transfer payment?
health insurance payments to an army private
Gross domestic product understates the total production of final goods and services because of the omission of....
household production
Nominal GDP will increase...
if either the price level or the quantity of goods and services produced rises.
If the quantity of goods and services produced in the economy decreases...
it may be possible for nominal GDP to increase.
Disposable personal income equals personal income...
minus tax payments
In 2014, which component of GDP had a negative value?
net exports
Consumption expenditures do not include household purchases of...
new houses.
Disposable personal income is defined as...
personal income less personal taxes
To examine how the total production of an economy has changed over time, it would be better to examine...
real GDP
If prices are rising on average, then...
real GDP will be greater than nominal GDP in the years before the base year.
The measure of production that values output using base−year prices is called...
real GDP.
National income is derived from gross domestic product by...
subtracting depreciation from gross domestic product.
An example of an intermediate good would be...
the rims on a new car
Which of the following is included in gross domestic product for an economy in a given year?
the value of final goods produced in that year
Suppose, in 2016, you purchased a house built in 2003. Which of the following would be included in the gross domestic product for 2016?
the value of the services of the real estate agent
Nominal GDP for Vicuna for 2013 equals... add up value
$4,920.
Consider the table of production and price statistics for a small economy in 2013. If the economy only produces the four goods listed below, what is GDP for 2013?
$428,000
Given the information above, calculate the GDP deflator in 2015. Nominal/Real X 100
105
If nominal GDP exceeds real GDP for a specific year, then the GDP deflator must be...
greater than 100
The output of U.S. citizens who work in Canada would be included in the...
gross domestic product of Canada.
If an American firm opens a production facility in India, the total value of the production will be included in the...
gross domestic product of India.
The GDP deflator is equal to...
nominal GDP divided by real GDP, multiplied by 100.
If real GDP increases we know for sure that...
output has risen.
Gross Domestic Product is calculated by summing up...
the total market value of final goods and services produced in the economy during a period of time.
Gross domestic product understates the total production of final goods and services because of the omission of...
the underground economy
In a small economy, gross investment is $1,500, consumption spending is $6,000, net investment is $200, government spending is $1,500, exports are $2,000, and imports are $1,000. What is GDP for this economy?
$10,000
The retail canoe store then sells the canoe to a consumer for $1,200. Refer to the scenario above. The value of each canoe in gross domestic product equals...
$1200
Based on the table to the right, what is national income for this economy?
$2950 billion
An inflation rate of 5% between 2015 and 2016 would be implied by a change in the GDP deflator from ________ in 2015 to ________ in 2016.
400;420
Recent estimates put the size of the underground economy in the United States at ________ of measured GDP.
8%
Under what circumstances would the GDP deflator be less than 100 after the base year?
The GDP deflator will be less than 100 if there has been deflation relative to the base year.
Which of the following could cause nominal GDP to decrease, but real GDP to increase?
The price level falls and the quantity of final goods and services produced rises.
How are intermediate goods treated in the calculation of GDP?
Their value is not counted separately, but included as part of the value of the final good for which they are an input.
If an increase in crime causes households to spend money on police and security systems, GDP will rise. T/F
True
If the GDP deflator is equal to 100, then for that year nominal GDP is equal to real GDP T/F
True
The values of real GDP and real GNP are almost the same for the United States. T/F
True
Using "chain−weighted" prices to calculate real GDP remedies the distortions causes by changed in relative prices over time. T/F
True
If a U.S. firm produces cars in Mexico, that production should count towards...
U.S. GNP.
Which of the following is considered a durable good?
Washing machine
Which of the following goods is directly counted in GDP?
a 12 inch Subway sandwich purchased by a student
Which of the following would not be included in the expenditure category called investment expenditures?
a purchase of shares of preferred stock
An example of a transfer payment is...
a welfare payment
In the United States in 2013, the Bureau of Economic Analysis began counting spending by firms and individuals on developing entertainment products as investment. This change will...
add to GDP
Increases in real GDP would understate the well-being of a country over time if, over that time period, the...
amount of pollution decreased.
The GDP deflator is a measure of the...
average level of prices of final goods and services in the economy.
When the BEA calculates real GDP using the average of prices in the current year and the year preceding it, and this average changes from year to year, this is called calculating GDP using...
chained-weighted prices
In the circular flow model, the value of total income for an economy ________ the value of total production.
equals
If the size of the underground economy is large,
government agencies have difficulty measuring nominal and real GDP.
In comparing China to Canada, China's relatively ________ growth rate in GDP would make you more likely to take a job in China, and China's relatively ________ level of GDP would make you less likely to take a job in China.
high; low
A sharp increase in the divorce rate increases the number of lawyers hired to determine divorce settlements. This will...
increase GDP and decrease well-being in the economy.
The size of the underground economy would tend to increase if the government of a country...
increased income tax rates.
In the United States in 2013, the Bureau of Economic Analysis began counting spending on research and development as ________, which counts as a part of GDP.
investment
If GDP calculations included measurements of pollution and environmental damage, GDP values would most likely be...
less than their values without these measurements.
Personal income is defined as...
national income less retained earnings plus transfer payments and plus interest on government bonds.
The purchase by a Chinese household of a CD produced in the United States is included in U.S...
net exports
The purchase by a foreign government of an airplane produced in the United States is included in U.S....
net exports
Presently, GDP is ________ to compensate for the costs of environmental damage.
not adjusted
When consumers are less confident about their jobs or incomes, they are more likely to...
reduce purchases of durable goods than nondurable goods.
In 2015, the U.S. auto industry experienced rising sales. The automobile industry was experiencing the effects of...
the business cycle
If prices in the economy rise, then..
the purchasing power of a dollar declines.
To calculate GDP using the value−added method, one would add up...
the value added by each firm involved in the production of final goods and services.
Gross national product is defined as...
the value of final goods and services produced by residents of the United States even if the production takes place outside of the United States.
A very simple economy produces three goods: movies, burgers, and bikes. The quantities produced and their corresponding prices for 2011 and 2016 are shown in the table above. What is real GDP in 2016, using 2011 as the base year?
$6,360
Home Depot sells new and used doors to contractors who build new homes. Home Depot also sells new and used doors to homeowners. Which of the following would be counted in GDP?
the sale of a new door to homeowner
Total income in an economy is equal to...
the sum of wages, interest, rent, and profit.
Which of the following is counted in GDP?
the cost of a speed boat purchased by drug smugglers
Refer to the table above showing three stages of production of an automobile. The value of each automobile in gross domestic product equals...
$25000 (Consumer purchase)
Caroline is an artist. She purchases canvas, paints, brushes, and accessories for $75. She sells one of her original paintings to an art gallery for $1,500, even though an art lover would pay $4,500 for that painting. How much value does Caroline add?
$1,425
Based on the table to the right, what is personal income for this economy?
$2,030 billion
A very simple economy produces three goods: movies, burgers, and bikes. The quantities produced and their corresponding prices for 2011 and 2016 are shown in the table above. What is real GDP in 2016, using 2011 as the base year?
$6,360
The GDP deflator in year 2 is 105, using year 1 as the base year. This means that, on average, the cost of goods and services is...
5% higher in year 2 than in year 1.
The value of what a U.S. owned McDonald's produces in South Korea is included in the U.S. ________ and the South Korean _________.
GNP; GDP
Marla is an architect who is designing a home for Chuck. Chuck is paying Marla $150 per hour to design his new home. When Chuck and Marla get married, Marla continues to work on designing the home, but she no longer charges Chuck for her work. As a result, GDP ________ because ________.
falls; Marla's architectural design services are no longer bought by Chuck once they're married
Assuming that the United States is the domestic economy, ________ are goods and services produced by ________ and purchased by ________.
imports; foreign countries; the United States
Because workers in the United States work fewer hours per week, on average, than they did over 100 years ago,
GDP is lower than it would be if U.S. workers worked the same workweek they had 100 years ago.
A country in which a significant fraction of domestic production takes place in foreign owned factories and facilities is most likely a country where...
GDP is much larger than GNP.
National income is equal to...
GDP minus depreciation.
Suppose Bob works for Mary as a proofreader. Mary and Bob fall deeply in love, marry, and have eight children. Bob stops working for Mary in order to care for the children. What will be the effect on GDP?
GDP will decrease.
If China decides to enact laws to clean up the environment, what would be the effect on GDP?
GDP would decrease if the pollution controls reduce productivity by more than the cost of the controls.
The ________ is a measure of the price level and is calculated by dividing ________ by ________ and multiplying by 100.
GDP deflator; nominal GDP; real GDP
When Ford increases the production of cars in Romania, which of the following occurs?
GNP in the United States rises.
In 2011, Kendall Ford, an automobile dealership, spent $20,000 on a new car lift for its repair shop, $2,000 on a new copy machine for its sales division, and $600,000 on Ford Motor company stock. Unsold cars and trucks were valued at $400,000 on January 1, 2016 and unsold cars and trucks were valued at $900,000 on December 31, 2016. What is Kendall Ford's total investment spending in 2016?
$522,000
Which of the following would result in GDP for an economy equal to $10 trillion?
C = $5 trillion I = $5 trillion G = $2 trillion NX =−$2 trillion
For developed countries like the U.S., GDP will always exceed GNP. T/F
False
If Gladys sells her 1998 Jeep Cherokee for $3,500 in 2016, the sale of her car contributes $3,500 to 2016 GDP. T/F
False
If nominal GDP is less than real GDP, then the GDP deflator will be greater than 100. T/F
False
Real GDP per capita is calculated by dividing the value of real GDP for a country by the country's adult population. T/F
False
The size of the underground economy as a percent of GDP is larger in the United States as compared to poorer countries such as Zimbabwe. T/F
False
Which of the following statements about the underground economy is true?
Omitting underground economy production from measured GDP causes errors in GDP growth estimates in the long run.