ECO 154K Macro Ch.8

How does the Bureau of Economic Analysis of the U.S. Department of Commerce measure GDP?

By adding the value in dollar terms of all the final goods and services produced domestically.

In the equation that sums up the information on the components of GDP, Y = C + I + G + NX, which component has the largest dollar value?

C

Emily is a writer. She buys pens and paper for $20 and writes a 500-page novel that she sells to a publishing company for $500,000. If the publisher prints 1 million copies that sell for $25 each, what is the contribution to GDP of Emily's novel?

$25 million

Which of the following is true about the consumption component of U.S. GDP last year?

Consumer spending on services was greater than the sum of spending on durable and nondurable goods.

Which of the following is a true statement about the impact of World War II on the U.S. economy?

Increased production of tanks, ships, planes, and munitions accounted for most of the increase in GDP.

Suppose that the base year is 2000 and we want to calculate real GDP for 2009. Which procedure would you use?

Multiply the quantities in 2009 by the prices in 2000, and add up the results.

Between 2008 and 2009, if an economy's exports rise by $8 billion and its imports fall by $8 billion, by how much will GDP change between the two years, all else equal?

Net exports will increase GDP by $16 billion

Which of the following is counted in this year's GDP?

Only this year's production of goods and services.

Which of the following is true about the government purchases component of U.S. GDP last year?

Purchases by state and local governments are greater than purchases by the federal government.

The measure of production that values output using base-year prices is called

Real GDP

Which measure of GDP represents changes in the quantity of goods and services produced in the economy, holding prices constant?

Real GDP

Consumption spending is $4.5 billion, gross private domestic investment is $3 billion, and government expenditures are $2 billion. If GDP is $14 billion, which of the following could be true regarding exports and imports in the economy?

Exports are $15 billion, and imports are $10.5 billion.

When accounting for exports and imports in GDP, which of the following is correct?

Exports are added to the other categories of expenditures.

The ________ is a measure of the price level and is calculated by dividing ________ by ________ and multiplying by 100.

GDP deflator; nominal GDP; real GDP

Which of the following is not true of GDP?

GDP includes both intermediate and final goods

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.

National income is equal to

GDP minus depreciation

When a significant fraction of domestic production is done by firms owned by foreigners, a country's difference between GDP and GNP is as follows:

GDP will be much larger than GNP

Which of the following accurately describes an effect of hurricane Katrina on GDP?

GDP would increase reflecting the costs of cleanup.

Which of the following is a true statement about real and nominal GDP?

If real GDP increases from one year to the next, we know that production of goods and services has risen.

Which of the following is included in the economist's definition of investment?

The purchase of new machines, factories, or houses

How are intermediate goods treated in the calculation of GDP?

Their value is not counted separately, but included as part of the value of the final good for which they are an input.

Which of the following goods and services would be excluded from personal consumption expenditures in the Bureau of Economic Analysis (BEA) statistics?

a new house

Which of the following would not be included in the expenditure category called investment expenditures?

a purchase of shares of preferred stock

Marla is an architect who is designing a home for Chuck. Chuck is paying Marla $150 per hour to design his new home. When Chuck and Marla get married, Marla continues to work on designing the home, but she no longer charges Chuck for her work. As a result, GDP ________ because ________.

falls; Marla's architectural design services are no longer bought by Chuck once they're married

Growth in the economy is almost always measured as

growth in real GDP

Fill in the blank. The flow of funds from ___________ into the financial system makes it possible for government and firms to borrow.

households

In the circular-flow diagram, who supplies factors of production in exchange for income?

households

Assuming that the United States is the domestic economy, ________ are goods and services produced by ________ and purchased by ________.

imports; foreign countries; the United States

Which of the following are not considered of "final goods," as used in the definition of GDP?

intermediate goods

To calculate personal income from national income, which of the following must be done by the BEA?

add government transfer payments

If we add up the value of every final good and service produced in the economy, we must get a total that is exactly equal to the value of

all of the income in the economy.

Which of the following would increase GNP in the United States?

an increase in the production of U.S.-owned General Motors cars made in Mexico

Household production and the underground economy

are important but unaccounted for in the Commerce Department's estimate of GDP.

In many developing countries, the informal sector is ________ because taxes are ________ and government regulations are ___________.

large; high; extensive

Personal income is defined as

national income less retained earnings plus transfer payments and plus interest on government bonds.

Disposable personal income is equal to

national income minus corporate retained earnings plus government transfer payments minus personal tax payments

In an economy with rising prices, compared to the base year,

nominal GDP is larger than real GDP in years after the base year.

If real GDP increases we know for sure that

output has risen

Disposable personal income is defined as

personal income less personal taxes

If the GDP deflator has a value of 105.0, then

prices have risen 5% since the base year.

Over time, prices may change relative to each other. To allow for this, the Bureau of Economic Analysis calculates

real GDP and the price deflator using chain weights.

If prices are rising on average, then

real GDP will be greater than nominal GDP in the years before the base year.

The drawback to calculating real GDP using base-year prices is that

relative prices change over time and these are not reflected in base-year prices, and this distorts GDP.

Complete the following sentence: Total income in the economy equals the sum of wages, interest, _________ and ________.

rent; profit

The total national income actually received by a country's residents is

smaller than the value of GDP

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

spending by federal, state, and local governments

If Americans still worked 60 hour weeks, as they did in 1890,

the GDP would be much higher than it is but the well-being of the typical person would not necessarily be higher

Which of the following is counted in GDP?

the cost of a speed boat purchased by drug smugglers

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

Home Depot sells new and used doors to contractors who build new homes. Home Depot also sells new and used doors to homeowners. Which of the following would be counted in GDP?

the sale of a new door to homeowner

Which of the following is a macroeconomic study?

the study of how fast prices in general are increasing

Real GDP is

the value of goods and services evaluated at base year prices.

The circular flow diagram shows that

the value of total income is equal to the total value of expenditures on final goods and services.

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.

An example of a transfer payment is

welfare payment

If the GDP deflator rises from 185 to 190, what is the rate of inflation between the two years?

2.7%

A car that is produced in 2010 is not sold until 2011. According to the definition of GDP, in which year's GDP should it be counted?

2010

How would most economists respond to the following comment: Not counting household production or production in the underground economy is a serious shortcoming of GDP.

A. most economists would answer :no" because these types of production do not affect the most important use of the GDP measure, which is to see how the economy is performing over short periods of time.

Using the year 2000 as the base year, and assuming that prices during the 1990s were lower on average than prices in 2000, we can conclude that

A. nominal GDP was lower than real GDP in the 1990s.

Which of the following is not a shortcoming of GDP as a measure of welfare?

It only counts final goods and services and not intermediate goods.

Which of the following is counted in the gross private domestic investment category used by the Bureau of Economic Analysis when measuring GDP?

business fixed investment residential investment changes in business inventories

When a consumer purchases a new computer, how is that purchase counted in GDP?

by counting only the value of the computer and ignoring the value of the components

Which of the following would be considered a factor of production?

capital, natural resources, entrepreneurship

Investment spending includes spending on

changes in business inventories

Which is the largest component of GDP?

consumption

Which of the following do we subtract from GNP to obtain NNP?

depreciation

As the value of a country's GDP increases, the country is likely to

devote more resources to pollution reduction

The best measure of the income households actually have available to spend is

disposable personal income

Gross domestic product in the economy is measured by the

dollar value of all final goods and services produced in the economy