Unit 5 Chapter 8
If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is A)12.5. B)80. C)125. D)800.
C)125.
Which of the following goods is directly counted in GDP? A)the lettuce that Subway purchases for its sandwiches B)a 12-inch Subway sandwich purchased by a student C)the bread that Subway purchases for its sandwiches D)the plastic bags that Subway purchases to wrap its sandwiches
B)a 12-inch Subway sandwich purchased by a student
Gross domestic product understates the total production of final goods and services because of theomission of A)exports. B)the underground economy. C)inflation. D)intermediate goods.
B)the underground economy.
If Americans still worked 60-hour weeks, as they did in 1890,
GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher.
business cycle recession
a period during which total production and total employment are decreasing.
In the circular-flow diagram, who supplies factors of production in exchange for income?
households
Which of the following statements about real GDP per capita is true?
it doesnt account for pollution
The more comprehensive approach used to calculate GDP provides a truer picture of the size of Nigeria's economy because
it resulted in the initial GDP estimate for 2013 almost doubling in size. - When the new data on GDP were released in 2014, the results were dramatic. The estimate for real GDP for 2013 was changed from $270 billion to $510 billion, an 89 percent increase. The increase was large enough for Nigeria to pass South Africa as the largest economy in Africa.
To calculate personal 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 Bureau of Economic Analysis' estimates of GDP.
If prices rise over time, then real GDP will be
larger than nominal GDP in years before the base year.
GDP
measure of an economy's total production of goods and services
If the GDP deflator in 2012 has a value of 98.0, then
prices have decreased 2 percent between the base year and 2012.
Over time, prices may change relative to each other. To take this change into account, the Bureau of Economic Analysis calculates
real GDP using chain weights.
In calculating GDP, which levels of government spending are included in government purchases?
spending by federal, state, and local governments
Economic growth
the ability of an economy to produce increasing quantities of goods and services
Real GDP is
the value of goods and services evaluated at base year prices.
An important conclusion to draw from the circular-flow diagram is that
we can measure GDP by calculating the total value of expenditures on final goods and services, or we can measure GDP by calculating the value of total income.
Is local, state, and federal government spending on salaries and benefits for these employees considered production as measured by GDP? Briefly explain.
Yes, because the government purchases component of GDP includes spending on salaries and benefits for government employees.
Suppose the amount of output doesn't change in an economy, but the consumer price index (CPI) increases. What happens to nominal gross domestic product (GDP) and real GDP?
nominal GDP increase, real GDP does not change
In an economy with rising prices, compared to the base year,
nominal GDP is larger than real GDP in years after the base year.
Which of the following is included in the economist's definition of investment?
the purchase of new machines, factories, or houses
Indicate whether you agree or disagree with the following statement:
Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases.
According to data on the usafacts.org site, in 2014 the federal government spent $850.5 billion on Social Security payments to retired and disabled people. Is this federal government spending considered production as measured by GDP? Briefly explain.
No, because Social Security payments do not result in the production of new goods and services.
Gross domestic product understates the total production of final goods and services because of theomission of A)exports. B)intermediate goods. C)inflation .D)household production.
.D)household production.
Which of the following is included in both the U.S. GDP and U.S. GNP? A)the value of all cars produced by General Motors in the United States B)the value of all cars produced by Nissan in Japan and the United States C)the value of all cars produced by Ford in Mexico D)the value of all cars produced by Toyota in the United States
A)the value of all cars produced by General Motors in the United States
Value added equals the market price of the firm's product minus A)depreciation on plant and equipment. B)the price of intermediate goods. C)wages and salaries. D)the price of all factors of production.
B)the price of intermediate goods.
A criticism of gross domestic product (GDP) is that it can both underestimate and overestimate production and well-being in an economy. Which of the following is a reason that GDP might underestimate the actual production and well-being in an economy?
GDP excludes production not traded in markets. Goods that are not traded in markets still add to well-being, but they are not counted in GDP because they are not sold in markets. For example, if a household grows tomatoes in its garden, those tomatoes are enjoyed by the household. But, that production is not counted in GDP, leading GDP to underestimate well-being.
What happens if we measure GDP by adding up the value of every good and service produced in the economy?
GDP is overestimated because of double counting. --> ONLY measure by adding up FINAL goods
When using the expenditures approach, which category of gross domestic product (GDP) changes when domestic firms anticipate that a recession will occur soon?
Investment Investment includes spending by firms, such as spending on inventory and capital. If firms think that a recession is coming, they reduce spending on inventory and don't expand. So, they don't spend as much on capital spending.
A change in which of the following will have no effect on the country's GDP?
Stocks Financial assets like stocks represent ownership of an asset, not production. Stocks might be referred to as an "investment" in everyday language, but in the terminology of economics, spending on investments means spending on capital goods or intellectual property.
What is one potential problem that may result from calculating real GDP using constant prices of products in a base year?
When the prices of some goods fall over time, calculating their value in constant prices makes these goods seem like a larger share of GDP than they really are When goods like desktop computers and cell phones get cheaper due to decreasing costs, they should make up a smaller proportion of total GDP than when they cost much more in the past. Therefore, calculating GDP using prices from past years can overstate the actual amount of output when certain goods tend to get cheaper over time.
final good or service
a good or service purchased by a final user
Disposable personal income is equal to
personal income minus personal tax payments.
The Nigerian National Bureau of Statistics accomplished the task of giving these sectors their due weight by
updating the year it used to measure real GDP from 1990 to 2010 and significantly increasing the number of businesses it surveyed.
The difference between the price the firm sells a good for and the price the firm paid other firms for intermediate goods is called
value added
In calculating gross domestic product, the Bureau of Economic Analysis uses the sum of the market value of final goods and services produced. This means that the BEA
values goods and services at their market prices, multiplies them by the quantity produced,and then adds them up.
Burgin, Burgin, and Burgin, LLC began 2016 with $100 million in capital. In 2016, the company spent $30 million on inventory, $40 million on new capital, and experienced 10% depreciation of the capital it had at the beginning of 2016. **Based on this information, what is the this company's contribution to gross domestic product (GDP) in 2016, and in what category is that contribution counted?
$70 million is counted in investment. The investment category of GDP includes spending on inventory and gross investment in capital by firms. Therefore, the total amount of spending by this firm that contributes to GDP is $30 million + $40 million = $70 million.
Hamsterville and Gerbilia are two neighboring countries with identical populations and identical GDP. Which of the following would most likely make Hamsterville better off than Gerbilia even if neither country's GDP changes? Choose 1 answer:
An increase in life expectancy in Hamsterville but not Gerbilia If life expectancy increased Hamsterville would have a better quality of life even if GDP has not changed.
Why would we expect firms in the informal sector to be so much smaller than firms in the formal sector?
Because firms in the informal sector are operating illegally, they have less capital than firms operating legally.
In 2009, Kendall Ford, an automobile dealership, spends $20,000 on a new car lift for its repairshop, $2,000 on a new copy machine for its sales division, and $600,000 on Ford Motor companystock. Unsold cars and trucks were valued at $400,000 on January 1, 2009 and unsold cars andtrucks were valued at $900,000 on December 31, 2009. What is Kendall Ford's total investmentspending in 2009?A)$22,000 B)$322,000 C)$522,000 D)$1,022,000
C)$522,000
The value of what a U.S.-owned McDonald's produces in South Korea is included in the U.S.________ and the South Korean ________. A)GDP; GNP B)GNP; GNP C)GNP; GDP D)GDP; GDP
C)GNP; GDP
Which of the following could cause nominal GDP to decrease, but real GDP to increase? A)The price level falls and the quantity of final goods and services produced falls. B)The price level rises and the quantity of final goods and services produced rises. C)The price level falls and the quantity of final goods and services produced rises. D)The price level rises and the quantity of final goods and services produced falls.
C)The price level falls and the quantity of final goods and services produced rises.
Which of the following is true about the consumption component of U.S. GDP in 2016?
Consumer spending on services was greater than the sum of spending on durable and nondurable goods.
In the circular flow model, the value of total income for an economy ________ the value of total production. A)is greater than B)may be greater than or less than C)is less than D)equals
D)equals
Suppose that nominal GDP in 2009 was less than real GDP in 2009. Given this information, weknow for certain that A)the price level in 2009 was greater than the price level in the base year. B)real GDP in 2009 was greater than real GDP in the base year. C)real GDP in 2009 was less than real GDP in the base year. D)the price level in 2009 was less than the price level in the base year.
D)the price level in 2009 was less than the price level in the base year.
In the circular flow of expenditure and income, why must the total value of production in an economy equal the total value of income?
Every penny spent on a good or service must end up as someone's income.
Which of the following is not a shortcoming of GDP as a measure of well-being?
GDP only counts final goods and services and not intermediate goods.
When a significant fraction of domestic production takes place in foreign-owned facilities, a country's difference between GDP and GNP is as follows:
GDP will be much larger than GNP.
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 production do not affect the most important use of the GDP measure, which is to measure changes in total production over short periods of time.
Which of the following best describes the distinction between real GDP and nominal GDP?
Nominal GDP uses current prices; real GDP uses constant prices Nominal GDP will increase when prices increase, even if output doesn't change at all. Using constant prices allows GDP to reflect actual changes in production instead of changes in prices
Which of the following is true about the government purchases component of U.S. GDP in 2016?
Purchases by state and local governments were greater than purchases by the federal government.
What is the informal sector, or underground economy?
The informal sector is the sector of the economy where production is concealed from the government.
business cycle expansion
a period during which total production and total employment are increasing.
If government cannot accurately measure GDP,
businesses will not be able to correctly gauge the market, and the government will be unable to design efficient tax policies.
Which of the following do we subtract from GDP to obtain national income?
depreciation
An article in the Economist on the revisions to Nigeria's GDP commented, "The GDP revision is not mere trickery. It provides a truer picture of Nigeria's size by giving due weight to the bits of the economy, such as telecoms, banking and the Nollywood film industry, that have been growing fast in recent years." The phrase "giving due weight" to the sectors of the economy that have been growing quickly means that analysts
developed better measures of those sectors of the economy, which then allowed for better GDP estimates. - New data gave a more accurate picture of the structure of the Nigerian economy. For example, where previously the service sector was believed to make up less than one third of the economy, it was shown to actually be more than half the economy. The telecommunications sector turned out to make up 9 percent of the economy, rather than 1 percent as in previous estimates, and the oil industry shrank from 33 percent of the economy to 14 percent.
An article in the Wall Street Journal noted that many economists believe that GDP data for India are unreliable because "most enterprises are tiny and unregistered, and most workers are employed off the books. The government's infrequent surveys represent only a best guess of the value being added in back-alley workshops, outdoor markets and other cash-based corners of the economy." Working "off the books" refers to
earning income that is not reported for tax purposes.
Which of the following best describes why we cannot always compare living standards between countries using real GDP per capita?
it might not represent living conditions of the typical household
The problems of small firms working off the books and far from major cities would make it difficult for the Indian government to accurately measure GDP because the
measures of GDP will be understated if these practices are common.
business cycle
the alternating periods of expansion and recession that the U.S. economy has experienced since at least the early nineteenth century.
Gross domestic product is best defined as
the market value of all final goods and services produced in a country during a period of time, typically one year.
Economists use gross domestic product (GDP)
to measure total production
