23 - Gross Domestic Product
When economists refer to intangible items, they are referring to such things as
Legal and medical services, and the value of such items is included in GDP.
Which of the following is a correct statement?
The value of leisure time is excluded in the calculation of GDP per person.
An American company operates a coffeehouse in Lisbon, Portugal. Which of the following statements is accurate?
The value of the goods and services produced by the coffeehouse is included in Portuguese GDP, but not in U.S. GDP.
John restores cars. He buys a 1964 Mustang, new parts and paint, and spends time restoring it. He then sells the car. Which of the following is included in GDP?
The value of the new parts and paint, the value of John's time, but not his purchase of the old car.
Shelly buys a new car for $10,000 and spends $200 on a used sofa. The end result of these two transactions is
U.S. consumption purchases increase by $10,000 and U.S. GDP increases by $10,000.
If a U.S. company buys a computer server made in China by a Chinese firm, and the Chinese firm uses the payment to buy stocks issued by a U.S. company then other things the same
U.S. imports increase but U.S. exports are unchanged.
If the amount U.S. citizens earn abroad is larger than the amount foreign citizens working in the U.S. earn, then
U.S. net factor payments from abroad are positive, and GNP is larger than GDP.
Real GDP is computed using
base-year prices and current quantities.
If you buy pizza at your favorite local pizzeria,
both GDP and consumption spending will be higher.
The gross domestic production of a country
equals the income of its residents.
GDP:
excludes most goods and services produced at home and most goods and services produced illegally.
An increase in total spending from one year to the next means that an economy's production of goods and services has risen.
false
If real GDP rises and the GDP deflator falls, then it must be that nominal GDP rose.
false
Which of the following items is included in U.S. GDP?
goods produced by Mexican citizens working in the United States
Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. To do this, GDP primarily makes use of
market prices.
In a simple circular-flow diagram, households buy goods and services with the income they get from
wages, rent, and profits
Refer the Table. In which year was nominal GDP the lowest?
2012
Refer the Table. Assume 2011 is a base year. In which year was real GDP the highest?
2014
Which of the following is an example of a durable good?
a television
If nominal GDP is three times its old value and the GDP deflator is twice its old value, then real GDP
is 1.5 times its original value.
During recessions what happens to profits and the unemployment rate?
the unemployment rate rises and profits fall.
GDP excludes most underground economic activity. The amount of underground economic activity tends to be larger relative to real GDP in countries that are less developed than in countries that are developed.
true
GDP is not adjusted to account for differences in the quality of the environment such as air quality and access to safe water.
true
GDP measures both an economy's production and its expenditures.
true
A farmer sells $50,000 worth of apples to individuals who take them home to eat, $75,000 worth to a company that uses them all to produce apple juice, and $100,000 worth of apples to a grocery store that sells all of them to households. How much of the farmer's sales will be included as apples in GDP?
$150,000
Refer to the Table. The market value of all final goods and services produced within Urshek in 2015 is
$400
In 2014, a farmer grew and sold $2 million worth of green beans to a company that froze and bagged them. The company produces $4 million worth of bags of frozen beans in 2014, with sales to households during the year of $3 million. The unsold $1 million worth of frozen beans remains in the company's inventory. The transactions just described contribute how much to GDP for 2014?
4 million
An economy recently had nominal GDP of 5 trillion euro and a GDP deflator of 125. What was real GDP?
4 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP.
If nominal GDP is $16 trillion and real GDP is $24 trillion, then the GDP deflator is
67, and this indicates that the price level has decreased by 33 percent since the base year.
Suppose you make two purchases for yourself. Which of them is included in GDP?
Both a new textbook and a haircut.
Which of the following is the way that Net National Product is calculated?
Depreciation losses are subtracted from the total income of a nation's citizens.
Which of the following statements about GDP is correct?
GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services.
U.S. GDP and U.S. GNP are related as follows.
GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad.
The residents of Ecuador earn $700 million of income from abroad. Residents of other countries earn $200 million in Ecuador. The earnings of Ecuadorian residents abroad are accounted for in Ecuador's
GNP which is larger than its GDP.
International data on GDP and socioeconomic variables indicate that in countries with low levels of real GDP per person, socioeconomic variables indicating a better quality of life are
generally significantly lower than in countries with higher levels of real GDP per person.
In the simple circular-flow model
households spend all of their income but the government does not buy goods or services
Juan, a Mexican citizen, works only in the United States. The value of the output he produces is
included in U.S. GDP, but it is not included in U.S. GNP.
A U.S. company produces bicycle helmets some of which go into inventory, and are not sold during the current period. The helmets that go into inventory are
included in current period GDP as inventory investment.
The underground economy
includes otherwise legal transactions that go unreported or unrecorded.
GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad.
only the purchases of new houses
Which of the following is included in the investment component of GDP?
purchases of new capital goods, but not purchases of stocks and bonds
Country A has a higher real GDP than Country B. Which of the following could make country B's standard of living higher than Country A's?
Country B has a smaller population but a difference in the GDP deflator does not matter.
Country A has a higher real GDP than Country B. Country B has a larger underground economy.
Country B's standard of living could be higher if it had a smaller population than Country A and if underground economic activity was added to GDP.
If an economy's income falls, then it must be the case that the economy's
GDP and expenditures both fell
GDP
Includes the value of government services but not the value of services provided by major household appliances purchased in a previous period.
The U.S. computes that $3 trillion of GDP was produced in the second quarter of 2014. What, if any, adjustments will it make to this number when it reports GDP for the second quarter?
It will adjust for seasonality and multiple by four.
George lives in a home that was newly constructed in 2011 for which he paid $200,000.In 2014 he sold the house by himself for $250,000. Which of the following statements is correct regarding the sale of the house?
The 2014 sale affected neither 2014 GDP nor 2011 GDP.
Refer to the Figure. Which of the following pairs correctly identify households and firms respectively?
Y and W
A U.S. grocery chain purchases cans of sardines from a cannery in Morocco and sells them to U.S. consumers. In which of the following is this transaction included?
both U.S. consumption and U.S. imports
International studies of the relationship between real GDP per person and quality of life measures find that as real GDP per person rises
life expectancy and the percentage of the population that is literate tends to rise.
Countries with higher levels of real GDP per person tend to have
lower rates of infant mortality and more access to safe drinking water.
The GDP deflator equals
nominal GDP divided by real GDP multiplied by 100.
Suppose an economy produces only eggs and ham. In 2015, 100 dozen eggs are sold at $4.50 per dozen and 50 pounds of ham sold at $3 per pound. In 2014, the base year, eggs sold at $3 per dozen and ham sold at $4 per pound. For 2015
nominal GDP is $600, real GDP is $500, and the GDP deflator is 120
Sally drives an automobile she purchased several years ago. This year she bought gasoline and some parts and spent five hours making repairs. Which of the following is included in this year's GDP?
the amount she paid to buy gasoline and new parts, but not the value of her time.
Which of the following is included in the government purchases component of GDP?
the federal government buys fighter jets, a state government repairs highways, a local government pays its police
McDermott's builds a new restaurant and David purchases stock sold by McDermott's.
the value of the new restaurant is included in GDP, but the value of the new stock is excluded from GDP.
In the circular-flow diagram households receive income from wages, rents, and profits
true
In the circular-flow diagram there are two markets one for goods and one for factors of production.
true
The government purchases component of GDP includes salaries paid to soldiers but not Social Security benefits paid to the elderly.
true
GDP is defined as the:
value of all final goods and services produced by domestic residents of a country in a given period of time.