MyEconLab Chapter 8 (Gross Domestic Product)

Indicate whether each of the following transactions represents the purchase of a final good. 1) The purchase of wheat from a wheat farmer by a bakery. 2) The purchase of two new elementary school buildings by the state government. 3) The purchase of domestic wine by a French consumer. 4) The purchase of a new machine tool by the Ford Motor Company.

1) Not a purchase of a final good. 2) Is the purchase of a final good. 3) Is the purchase of a final good. 4) Is the purchase of a final good.

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

1)Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years. 2) By keeping prices​ constant, we know that changes in real GDP represent changes in the quantity of output produced. 3) Real GDP separates price changes from quantity changes.

Which of the following is included in the​ economist's definition of​ investment? A. the purchase of new​ machines, factories, or houses Your answer is correct. B. the purchase of a rare coin or a deposit in a savings account C. the purchase of a share of stock D. All of the above.

A.

An underground economy involves all of the following except: A. trying to avoid government regulations. Your answer is not correct. B. buying and selling of goods and services by obtaining a permit from the government. This is the correct answer. C. avoiding tax payment on the earned income. D. dealing in illegal goods and​ services, such as drugs or prostitution.

B.

What are the four major components of expenditures in​ GDP?

Consumption, Investment, Government​ Purchases, and Net Exports

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

Household production and the underground economy.

We often use real GDP per capita as a measure of a​ country's well-being. Review the definition of real GDP per capita before answering the following question. ​Today, the typical American works fewer than 40 hours per week. In​ 1890, the typical American worked 60 hours per week. Would the difference between the real GDP per capita in 1890 and the real GDP per capita today understate or overstate the difference in the​ population's 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.

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.

Which equation represents the relationship between GDP and the four major expenditure​ components?

Y = C + I + G + NX

Assuming that inflation has occurred over​ time, what is the relationship between nominal GDP and real GDP in each of the following​ situations? a. In years after the base​ year, nominal GDP is _______________ real GDP. b. In the base​ year, nominal GDP is _______________ real GDP. c. In years prior to the base​ year, nominal GDP is _______________ real GDP.

a. greater than b. equal to c. less than

Some countries have larger underground economies than do other​ countries, because

of government policies that are retarding economic growth.

In calculating​ GDP, which levels of government spending are included in government​ purchases?

spending by​ federal, state, and local governments

If the U.S. Bureau of Economic Analysis​ (BEA) added up the values of every good and service sold during the​ year, would the total be larger or smaller than measured gross domestic product​ (GDP)?

Larger: The value of all goods and services sold would include intermediate goods.

Indicate which component of GDP will be affected by each of the following transactions involving the Ford Motor Company. a. You purchase a new Ford Escape Hybrid from a Ford dealer. b. You purchase a 2011​ (preowned) Ford Escape Hybrid from a friend. c. Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana. d. Ford produces​ 1,000 Escapes in a factory in Missouri and ships them to a car dealer in​ Shanghai, China. e. Ford purchases new machine tools to use in its Missouri Escape factory. f. The state of Missouri builds a new highway to help improve access to the Ford Escape plant.

a. Consumption Expenditure b. Not included in GDP calculation c. Not included in GDP calculation d. Net Export Expenditure e. Investment Expenditure f. Government Expenditure