Chapter 8 Econ
"If a recession is so severe that the price level declines, then we know that both real GDP and nominal GDP must decline."
Agree. If both output and prices are falling, then both real GDP and nominal GDP will fall.
"If real GDP stayed the same while nominal GDP declined between 2008 and 2009, then the GDP deflator must also have declined."
Agree. If nominal GDP declined between 2008 and 2009, then the GDP deflator must also have declined.
An article in the Wall Street Journal states that a change in inventories "dragged down the overall growth in GDP by nearly a full percentage point" below what it otherwise would have been.
Decreased, since inventories are part of a firm's investment, which is a component of GDP, inventories must have fallen
"If nominal GDP is less than real GDP, then the price level must have fallen during the year."
Disagree. Nominal GDP is less than real GDP if the current price level is less than the base year price level. A fall in the price level during the year is neither necessary nor sufficient to cause nominal GDP to be less than real GDP.
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.
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.
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.
How does real GDP LOADING... deal with the problem inflation causes with nominal GDP?
Real GDP separates price changes from quantity changes. By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced. Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years. ( All of the above.)
As of 2017, 19 countries in Europe have adopted the euro as their common currency. These countries are called the euro zone. According to an article in the Economist, "The euro zone's GDP grew at an annualized rate of around 2% in the first quarter."
Real GDP, because it shows how the economy's overall production of goods and services changes over time.
An article in the Economist states that "the appeal of GDP is that it offers, or seems to, a summary statistic of how well an economy is doing.
Since GDP measures how much an economy produces during a period of time, it may also indicate well-being.
When the number of people working outside the home increases, the measured level of GDP
increase
If lower tax rates cause fewer people to hide the income they earn, the measured GDP
increases
If prices rise over time, then real GDP will be
larger than nominal GDP in years before the base year.
In years prior to the base year, nominal GDP...........real GDP.
less than
An article in the Wall Street Journal discussed the views of Canadian Minister of Finance Joe Oliver on the effect of falling oil prices on the Canadian economy. According to the article, Oliver argued that "lower oil prices would have a broadly neutral impact on real ... gross domestic product, but have a negative effect on nominal GDP."
lower the inflation rate, which would offset the reduction in nominal GDP.
When there is a sharp increase in the crime rate, the measured level of GDP
may increase or decrease
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.
In an economy with rising prices, compared to the base year,
nominal GDP is larger than real GDP in years after the base year.
The purchase of tires from Bridgestone tire company by an automobile manufacturer
not a purchase of final good
You purchase a 2013 (preowned) Ford Escape Hybrid from a friend.
not included
The purchase of domestic wine by a French consumer.
s the purchase of a final good
in calculating GDP, which levels of government spending are included in government purchases?
spending by federal, state, and local governments
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.
Which of the following is included in the economist's definition of investment?
the purchase of new machines, factories, or houses
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
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.
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.
"Whenever real GDP LOADING... declines, nominal GDP LOADING... must also decline."
Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise.
Indicate whether you agree or disagree with the following statement: "In years when people buy few shares of stock, investment will be low and, therefore, so will gross domestic product LOADING... (GDP)."
Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases.
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.
Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being?
GDP is not adjusted for crime or other social problems. GDP is not adjusted for pollution and it does not account for unequal income distribution. The value of leisure is not included in GDP. (All of the above)
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
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.
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.
An underground economy involves all of the following except
buying and selling of goods and services by obtaining a permit from the government
When the number of people working outside the home decreases, the measured level of GDP
decreases
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 Nigerian National Bureau of Statistics accomplished the task of giving these sectors their due weight by The more comprehensive approach used to calculate GDP provides a truer picture of the size of Nigeria's economy because
developed better measures of those sectors of the economy, which then allowed for better GDP estimates updating the year it used to measure real GDP from 1990 to 2010 and significantly increasing the number of businesses it surveyed. it resulted in the initial GDP estimate for 2013 almost doubling in size.
In the circular-flow diagram, who supplies factors of production in exchange for income?
households
Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana
not included
Some countries have larger underground economies than do other countries, because
of government policies that are retarding economic growth
If the GDP deflator in 2012 has a value of 98.0, then
prices have decreased 2 percent between the base year and 2012.
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.
The figure shows the values of the components of GDP for the year 2016. Based on the data shown, which of the following statements regarding the components of GDP is false?
Consumer spending on services is less than the sum of spending on durable and nondurable goods.
You purchase a new Ford Escape Hybrid from a Ford dealer. ▼
Consumption Expenditure
What measures besides average number of hours worked and real per capita GDP would you like to have to evaluate the well-being of workers in OECD countries?
Indicators of pollution, crime and other social problems, and the distribution of income.
Household production and the underground economy
are not accounted for in the Bureau of Economic Analysis' estimates of GDP.
Why qualify the statement about GDP as a summary statistic by including the phrase "or seems to"?
as a summary statistic, GDP overlooks some areas of production that take place in an economy.
In the base year, nominal GDP.... real GDP
equals
GDP figures are a measure of all the goods and services that are produced in an economy during a particular period."
Disagree, because GDP measures the value of all final goods and services produced in an economy, not all the goods and services produced.
How does the size of a country's GDP affect the quality of life of the country's people?
Generally, the more goods and services people have, the better off they are
GDP is an imperfect measure of economic well-being because it fails to measure what types of production?
Household production and the underground economy.
Michael Burda of Humboldt University in Germany and Daniel Hamermesh of the University of Texas examined how workers in the United States who lost their jobs between 2003 and 2006 spent their time. They discovered that during the period when they were unemployed, the reduction in the number of hours of paid work was almost completely replaced by an increase in the number of hours spent on household production.
If the workers had been paying other people to perform the household activities prior to unemployment, then total production will fall.
Why in microeconomics LOADING... can we measure production in terms of quantity, but in macroeconomics LOADING... we measure production in terms of market value?
If, in macroeconomics, we measured production using quantities, we would add tons of wheat grown by U.S. farmers to the number of iPods produced by Apple, to gallons of milk, and so on. When we measure total production, we can't just add together the quantities of every good and service because the result would be meaningless. Measuring production using market value in dollar terms allows us to add together many different goods and services. Both A and C. All of the above. (All of the above)
Ford purchases new machine tools to use in its Missouri Escape factory.
Investment expenditure
The purchase of tires from Bridgestone tire company by an automobile manufacturer.
Is not the purchase of a final good
The purchase of wheat from a wheat farmer by a bakery
Is not the purchase of a final good
. The purchase of a new machine tool by the Ford Motor Company.
Is the purchase of a final good
The purchase of a new fire truck by the local government.
Is the purchase of a final good
The purchase of a new machine tool by the Ford Motor Company
Is the purchase of a final good
Ford produces 1,000 Escapes in a factory in Missouri and ships them to a car dealer in Shanghai, China. ▼
Net export
Suppose a house is built and sold in the year 2008. If the house is resold in the year 2019, is the value of the house included in Gross Domestic Product LOADING... (GDP) for 2019? Would the services of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2019?
No. GDP for 2019 includes only production that occurs during 2019. Yes. GDP for 2019 includes the market value of final goods and services. This includes real estate services.
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.
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.
According to research by Rafael La Porta of Tuck School of Business at Dartmouth and Andrei Shleifer of Harvard University, in developing countries, the average firm in the informal sector, or underground economy, employs 4 workers as opposed to 126 workers employed by the average firm in the formal sector.
The informal sector is the sector of the economy where production is concealed from the government
What is the difference between the value of a firm's final product and the value added by the firm to the final product?
The value of a firm's final product is the sale price; value added is the difference between the sale price and the price of intermediate goods.
Why does inflation make nominal GDP LOADING... 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
During a discussion with a reporter, former Microsoft CEO Steve Ballmer discussed the data compiled on the usafacts.org Web site. Ballmer asked if the reporter knew how many people the government employed and provided the answer: "Almost 24 million. Would you have guessed that?" Is this federal government spending 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. No, because Social Security payments do not result in the production of new goods and services.
Is the value of intermediate goods and services LOADING... produced during the year included in Gross Domestic Product LOADING... (GDP)? For example, is aluminum used to produce a new mountain bike included in GDP?
Yes. The value of the aluminum is not directly counted in GDP, but the production of aluminum is included in the value-added method of measuring GDP
Is the value of intermediate goods and services LOADING... produced during the year included in Gross Domestic Product LOADING... (GDP)? For example, is cotton used to produce a new shirt included in GDP?
Yes. The value of the cotton is not directly counted in GDP, but the production of cotton is included in the value-added method of measuring GDP.
If higher tax rates cause more people to hide the income they earn, the measured GDP
decreases
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.
The state of Missouri builds a new highway to help improve access to the Ford Escape plant.
government expenditure
In years after the base year, nominal GDP..... real GDP.
greater than
During a business cycle expansion, total production ________ and total employment ___________.
increases, increases
The purchase of an aircraft carrier by the federal government.
yes
he purchase of domestic wine by a French consume
yes (NEtx)
The purchase of a new fleet of police cars by the local government
yes (government purchase)
The purchase of a new machine tool by the Ford Motor Company
yes (investment)
The average German worker worked about 400 fewer hours per year and earned nearly $14,000 less than did the average worker in the United States. Can we conclude anything about the well-being of the average German worker versus the well-being of the average worker in the United States from these data? What other measures would you like to see in evaluating the well-being of workers in these two countries? Source: stat.oecd.org.
No, because although the German worker earned less per year, they also worked less per year
