Chapter 5 homework
Which of the following are included in GDP? A. paid child care B. repairs that a homeowner makes C. production of illegal drugs D. leisure time
EXPLANATION: GDP ignores transactions that do not take place in organized markets. The most important example is servicesdashsuch as cleaning, cooking, and providing free childcaredashthat people do for themselves in their own homes. Paid child care is included in GDP because it is a market transaction.
The circular flow describes the process by which GDP generates __________ which is spent on goods and services.
income
The provision of health care services _____________ counted as output in modern economies.
is
are transfer payments included in GDP?
no
is the entire budget of the federal government included in GDP?
no, a vast portion is not a part of GDP
The date that a recession starts is called the _____________.
peak
Personal income and personal disposable income refer to payments ultimately flowing to ______________.
households
goods and services are exchanged in __________ markets
product market
The GDP deflator is calculated for any given year by dividing nominal GDP by _____________ GDP and multiplying by 100.
real
The _____________ marks the date that ends a recession and output starts to increase again.
trough
If the base year is 2010, then real and nominal GDP in 2010 will be equal. True or false
true
Real GDP is always a greater number than nominal GDP. true or false
False, it depends on what base year is used.
Sales versus Value Added. In comparing a small country's GDP to a major corporation, why is it best to use the value added of the corporation rather than its total sales? A. A portion of a corporation's total sales may be made in foreign markets. B. A corporation's total sales will depend on nominal prices that change with inflation. C. Corporations typically buy goods such as inputs from many other companies to produce sales. D. None of the above.
C. Corporations typically buy goods such as inputs from many other companies to produce sales.
Understanding the Circular Flow Diagram. In the circular flow diagram, why do the arrows corresponding to the flow of dollars and the arrows corresponding to the flow of goods go in the opposite direction? A. GDP is growing and the value of the dollar is decreasing. B. Dollars are spent on foreign imports and dollars are earned from U.S. exports. C. Income is exchanged for goods and goods are exchanged for income. D. None of the above.
C. Income is exchanged for goods and goods are exchanged for income.
When we calculate GDP for a country, do we use the total sales of all goods and services? A. No. GDP only includes the sale of final goods and services regardless of the year of production. B. Yes. GDP includes the sale of all goods and services. C. No. GDP only includes the sale of final goods and services produced within a given year. D. No. GDP only includes the sale of final and intermediate goods and services produced within a given year.
C. No. GDP only includes the sale of final goods and services produced within a given year.
What is the largest component of national income? A. Net interest. B. Proprietor's income (income of unincorporated business). C. Corporate profits. D. Compensation of employees (wages and benefits). E. Rental income.
D. Compensation of employees (wages and benefits).
Which of the following are not included in GDP? A. A mother taking care of children at home. B. Economics textbooks sold in the bookstore. C. Professors teaching at a university. D. Strawberries sold in a grocery store.
A. A mother taking care of children at home.
Investment Spending versus Intermediate Goods. A publisher buys paper, ink, and computers to produce textbooks. Which of these purchases are included in investment spending and which are intermediate goods? A. Computers are included in investment spending, and paper and ink are intermediate goods. B. Computers, paper, and ink are included in investment spending and are not intermediate goods. C. Computers, paper, and ink are intermediate goods and are not included in investment spending. D. Paper and ink are included in investment spending, and computers are intermediate goods.
A. Computers are included in investment spending, and paper and ink are intermediate goods.
A Ban on Fracking. New York recently banned a technique known as "fracking" where fluids are injected into wells in order to produce more natural gas. The reason given for banning fracking was that it caused environmental damage. To measure whether this ban increased or decreased economic welfare, you would need to compare the value of the A. extra output produced and then subtract the estimates of environmental damage. B. extra output produced and then add the estimates of environmental damage. C. total output produced and then add the estimates of environmental damage. D. total output produced and then subtract the estimates of environmental damage.
A. extra output produced and then subtract the estimates of environmental damage.
Which of the following are included in GDP? A. paid child care B. production of illegal drugs C. repairs that a homeowner makes D. leisure time
A. paid child care
Looking at Both Sides. We can measure the output of an economy by looking at either production or income because A. production generates income. B. both are measured in the same units. C. production and income are the same. D. output and production is the same.
A. production generates income.
The four phases of the business cycle in the order in which they occur are: A. recession, trough, expansion, and peak. B. expansion, trough, recession, and peak. C. recession, expansion, trough, and peak. D. recession, peak, trough, and expansion.
A. recession, trough, expansion, and peak.
Investment Spending versus Intermediate Goods. A publisher buys paper, ink, and computers to produce textbooks. Which of these purchases are included in investment spending and which are intermediate goods? A. Computers, paper, and ink are intermediate goods and are not included in investment spending. B. Computers are included in investment spending, and paper and ink are intermediate goods. C. Paper and ink are included in investment spending, and computers are intermediate goods. D. Computers, paper, and ink are included in investment spending and are not intermediate goods.
B. Computers are included in investment spending, and paper and ink are intermediate goods. EXPLANATION: GDP measures the total value of final goods and services, where "final" indicates goods sold to ultimate or final purchasers, such as computers that will not be re-sold. Intermediate goods are those used in the production process that are not final goods and services, such as paper and ink that become part of textbooks.
how to calculate growth in GDP
- change in GDP from 2011-2012 = 1,710 - divide by 2011 GDP 1,710/23,310 = .0734 - multiplied by 100. .0734 x 100 = 7.34
A trade surplus occurs when our exports _____________ our imports.
exceed
In ___________ markets, households supply labor and capital to firms and they are compensated by the firms. The households use their ___________ to purchase goods and services in the _____________ markets. The firm uses the ______________ it receives from the sale of its products to pay for the factors of production (land, labor, and capital) in the ____________ market.
factor income product revenue factor
Real GDP is always a greater number than nominal GDP. True or False
false
GDP Statistics and Unemployed Workers. In Economy A, the government puts workers on the payroll who cannot find jobs for long periods, but these "employees" do no work. In Economy B, the government does not hire any long-term unemployed workers but gives them cash grants. Comparing the GDP statistics between the two otherwise identical economies, what can you determine about measured GDP and the actual level of output in each economy?
The "government purchases" component of GDP includes any goods that the government purchases plus the wages and benefits of all government workers (even if they produce no actual output). GDP excludes transfer payment to individuals that are not associated with the production of goods and services.
What do we add to GDP to reach GNP? A. Depreciation. B. Net income earned abroad by U.S. households. C. Personal income. D. Net exports.
B. Net income earned abroad by U.S. households.
What part of government spending is excluded from GDP? A. Education. B. Transfer payments. C. Purchases of police cars. D. National defense.
B. Transfer payments
We can summarize who purchases GDP with a simple equation that combines the four components of GDP: A. Y = C + I + G + EX. B. Y = C + I + G + NX. C. Y = C + F + G + IM. D. Y = H + I + G + NX.
B. Y = C + I + G + NX.
The four factors included in the expanded circular flow but not in the simple circular flow are A. government, investment, imports, and transfer payments. B. government, exports, imports, and taxes. C. consumption, exports, investment, and taxes. D. government, exports, depreciation, and taxes.
B. government, exports, imports, and taxes.
We should be cautious in interpreting GDP as a measure of our economic well-being because it does not take into account A. the underground economy, leisure, the aging workforce, or international trends. B. housework and childcare, leisure, the underground economy, or pollution. C. population changes, leisure, the underground economy, or pollution. D. housework and childcare, population changes, the underground economy, or government purchases.
B. housework and childcare, leisure, the underground economy, or pollution.
If the federal government provides subsidies for individuals to buy health care, this is A. included in the federal budget and GDP. B. included in the federal budget but not in GDP. C. not included in the federal budget but is included in GDP. D. not included in the federal budget or GDP.
B. included in the federal budget but not in GDP.
if the federal gov provides subsidies for individuals to buy health care, this is A. included in the federal budget and GDP. B. included in the federal budget but not in GDP. C. not included in the federal budget but is included in GDP. D. not included in the federal budget or GDP.
B. included in the federal budget but not in GDP.
Philippine Immigrants Abroad. Every year, the Philippines sends many workers abroad including nurses, health professionals, and oil workers. How do you think GNP and GDP in the Philippines compare? A. This increases the Philippines' GDP by the net income earned abroad but does not change its GNP. B. This increases the Philippines' GNP and GDP by the net income earned abroad. C. This increases the Philippines' GNP by the net income earned abroad but does not change its GDP. D. This does not change the Philippines' GDP or GNP.
C. This increases the Philippines' GNP by the net income earned abroad but does not change its GDP.
When calculating GDP using the production method, which of the following would you not include? A. Government purchases. B. Net exports. C. Value added. D. Investment. E. Consumption.
C. Value added.
National income is obtained from GDP by A. subtracting the net income foreign firms earn from the U.S., then adding depreciation. B. subtracting the net income U.S. individuals and firms earn from abroad, then adding depreciation. C. adding the net income U.S. individuals and firms earn from abroad, then subtracting depreciation. D. adding the net income foreign firms earn from the U.S., then subtracting depreciation.
C. adding the net income U.S. individuals and firms earn from abroad, then subtracting depreciation.
Depreciation and Your New Car. You just bought a new car for $23,000. After a year, you decide that you needed a slightly bigger car. But when you think about selling it, you can only get $19,000 for it. This is depreciation. Your car has depreciated in value because A. new buyers may want a different model of car. B. smaller cars, that are less expensive, became more popular. C. in the year since you bought the car comma there may be new features available. D. car prices fell over the year.
C. in the year since you bought the car comma there may be new features available.
Buying a Foreign Car. Buying a foreign car made abroad for $50,000 A. decreases consumption by $50,000, increases exports by $50,000, leaves imports unchanged, increases net exports by $50,000, but does not change GDP. B. increases consumption by $50,000, increases exports by $50,000, leaves imports unchanged, increases net exports by $50,000, and increases GDP by $50,000. C. increases consumption by $50,000, increases imports by $50,000, leaves exports unchanged, decreases net exports by $50,000, but does not change GDP. D. increases consumption by $50,000, decreases imports by $50,000, leaves exports unchanged, increases net exports by $50,000, and increases GDP by $50,000.
C. increases consumption by $50,000, increases imports by $50,000, leaves exports unchanged, decreases net exports by $50,000, but does not change GDP. Explanation: Although consumption rises by $50,000, net exports fall by $50,000 because of the increase in imports. The result is that GDP does not change.
Australian GNP and GDP. Australia contains many natural resources and foreign firms often come into Australia to extract them. The profits that those foreign firms make are sent back to their home countries. GDP in Australia is A. larger than GNP in Australia because the profits that are earned by domestic firms are sent overseas. B. smaller than GNP in Australia because the profits that are earned by foreign firms are sent back to their home country. C. larger than GNP in Australia because the profits that are earned by foreign firms are sent back to their home country. D. smaller than GNP in Australia because the profits that are earned by domestic firms are sent overseas.
C. larger than GNP in Australia because the profits that are earned by foreign firms are sent back to their home country.
Personal Income During Recessions. During the most recent recession, personal income fell by 2.8 percent. This was the only time since 1950 that personal income has fallen during a recession. During a recession, transfer payments increase. Decreases in personal income are rare, so this data suggests that the A. most recent recession was typical because personal income did not fall. B. last recession was so mild that even without the transfer payments, personal income rose. C. last recession was so severe that even with the transfer payments, personal income still fell. D. most recent recession was typical because personal income fell.
C. last recession was so severe that even with the transfer payments, personal income still fell.
When we subtract depreciation from gross investment, we arrive at A. consumption. B. net GDP. C. net investment. D. inventory investment.
C. net investment.
The profits Walmart sends back to the United States from its stores in Mexico is A. included in U.S. GDP and GNP. B. only included in U.S. GDP. C. only included in U.S. GNP. D. not included in U.S. GDP or GNP.
C. only included in U.S. GNP.
Measuring Value Added for a Charity. A typical charity does not sell products but does generate value added. You could measure its value added as the sum of A. earnings on assets, wages, and donations made. B. purchases of all goods and services from other firms. C. wages paid, earnings on assets, and rent paid. D. rent paid, wages, and donations made.
C. wages paid, earnings on assets, and rent paid.
GDP Statistics and Unemployed Workers. In Economy A, the government puts workers on the payroll who cannot find jobs for long periods, but these "employees" do no work. In Economy B, the government does not hire any long-term unemployed workers but gives them cash grants. Comparing the GDP statistics between the two otherwise identical economies, what can you determine about measured GDP and the actual level of output in each economy? A. Measured GDP is the same in each economy, though the actual level of output is higher in Economy A. B. Measured GDP is higher in Economy B, though the actual level of output in each economy is the same. C. Measured GDP and the actual level of output are the same in each economy. D. Measured GDP is higher in Economy A, though the actual level of output in each economy is the same.
D. Measured GDP is higher in Economy A, though the actual level of output in each economy is the same.
Which of the following statements is true? A. Real GDP is a measure of GDP that controls for changes in output, whereas nominal GDP is the value of GDP in constant dollars. B. Real GDP is the value of GDP in current dollars, whereas nominal GDP controls for changes in prices. C. Nominal GDP is a measure of GDP that controls for changes in prices, whereas real GDP is the value of GDP in current dollars. D. Real GDP is a measure of GDP that controls for changes in prices, whereas nominal GDP is the value of GDP in current dollars.
D. Real GDP is a measure of GDP that controls for changes in prices, whereas nominal GDP is the value of GDP in current dollars.
Economists divide GDP into four broad categories including: A. financial expenditures, private and public investment expenditures, government purchases, and net exports. B. consumption expenditures, private and public investment expenditures, government purchases, and exports. C. financial expenditures, private investment expenditures, government purchases, and imports. D. consumption expenditures, private investment expenditures, government purchases, and net exports.
D. consumption expenditures, private investment expenditures, government purchases, and net exports.
Buying a Foreign Car. Buying a foreign car made abroad for $50,000 A. decreases consumption by $50,000, increases exports by $50,000, leaves imports unchanged, increases net exports by $50,000, but does not change GDP. B. increases consumption by $50,000, increases exports by $50,000, leaves imports unchanged, increases net exports by $50,000, and increases GDP by $50,000. C. increases consumption by $50,000, decreases imports by $50,000, leaves exports unchanged, increases net exports by $50,000, and increases GDP by $50,000. D. increases consumption by $50,000, increases imports by $50,000, leaves exports unchanged, decreases net exports by $50,000, but does not change GDP.
D. increases consumption by $50,000, increases imports by $50,000, leaves exports unchanged, decreases net exports by $50,000, but does not change GDP.
How to calculate real GDP
P(apple) x Q(apples)
Does Spending Measure Welfare? Suppose a community spends $1 million on salaries and equipment for its police department. Because it believes that citizens are now more law abiding, the community decides to cut back on the number of police it employs. As a result, the community now spends $800,000 less on the police officers. The crime rate remains the same. a. What happens to measured GDP? A. GDP falls by $200,000. B. GDP does not change. C. GDP falls by $800,000. D. GDP increases by $800,000. b. Does this change in GDP accurately reflect welfare in this case? A. No, because the community is spending less on police officers. B. No, because the crime rate has not changed. C. Yes, because the savings on police officers can now be spent on welfare. D. Yes, because the community is spending less on police officers.
answer to question a: C. GDP falls by $800,000. answer to question b: B. No, because the crime rate has not changed.