Econ 120 Chapter 8 Homework Examples

GDP deflator by year

GDP deflator year 2= GDP deflator yr2-GDP deflator yr1/GDP deflator yr1×100.

Which of the following is NOT a shortcoming of GDP as a measure of​ well-being? If Americans still worked​ 60-hour weeks, as they did in​ 1890,

GDP only counts final goods and services and not intermediate goods. GDP would be much higher than it​ is, but the​ well-being of the typical person would not necessarily be higher.

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

U.S. Gross National Product​ (GNP) differs from U.S. Gross Domestic Product​ (GDP) in which of the following​ ways? ​

GNP is the value of final goods and services produced by residents of the U.S. GNP considers production that occurs outside the U.S.

A simple economy produces two​ goods, Corn Bread andVideo Games. Price and quantity data are as​ follows: Production and Prices in Year 1​ (Base year) Product Quantity Price Per Unit Corn Bread 110​ $1.00 Video Games 900 ​$30.00 Production and Prices in Year 2 Corn Bread 137.50 ​$1.50 Video Games 1,350.00 $60.00

In Year​ 2, nominal GDP is equal​ to: ​$81206.25, and real GDP is ​$40637.5 N GDP = 137.5 x 1.5 + 1350 x 60 = 81206.25 Real GDP = 137.5 x 1 + 1350 x 30 = 40637.5

Indicate whether the following statement is correct or incorrect. ​"Corporate profits are much too​ high: Most corporations make profits equal to 50 percent of the price of the products they​ sell."

Incorrect: The largest component of gross domestic income is​ wages, which are about three times as large as profit.

2011 2012 Nominal GDP ​$13,495 billion ​$14,241 billion Real GDP ​$11,919 billion ​$12,007 billion

In​ 2011, the value of the GDP deflator is 13,495/11,919 x 100 = 113. ​(Enter your response rounded to the nearest whole​ number.) In​ 2012, the value of the GDP deflator is 14241/12007 x 100 = 119. ​(Enter your response rounded to the nearest whole​ number.)

Suppose that a simple economy produces only the following four goods and​ services: shoes,​ hamburgers, shirts, and cotton. ​ Further, assume that all of the cotton is used in the production of shirts. Use the information in the following table to calculate Nominal Gross Domestic Product ​(Nominal GDP) for 2015. PRODUCTION AND PRICE STATISTICS FOR 2015 Product Quantity Price Shoes 100 60.00 Hamburgers 100 2.00 Shirts 50 25.00 Cotton 8,000 .60

The Nominal GDP for the year 2015 is ​$7450. Shoe Q x P + Hamburger Q x P + Shirt Q x P = NGDP

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 the GDP deflator in 2012 has a value of​ 98.0, then

prices have decreased 2 percent between the base year and 2012.

In the United​ States, the difference between GNP and GDP is _________ that of many other countries.

smaller than

In the​ U.S., gross domestic product ​(GDP ​) and gross national product ​(GNP) are close in value. Under what circumstances would GNP be much larger than​ GDP?

Few foreign citizens currently work in the U.S. and few foreign firms maintain facilities in the U.S. Many U.S. citizens currently work in foreign countries while few foreign citizens currently work in the U.S. Few foreign firms maintain facilities in the U.S. while many U.S. firms are currently operating abroad. All of the above would push GNP above GDP.

GDP deflator

GDP deflator = Nominal GDP / Real GDP × 100.

GDP is an imperfect measure of economic​ well-being because it fails to measure what types of​ production? Even if GDP included these types of​ production, why would it still be an imperfect measure of economic​ well-being?

Household production and the underground economy. GDP is not adjusted for pollution and it does not account for unequal income distribution. GDP is not adjusted for crime or other social problems. The value of leisure is not included in GDP.

Suppose the amount the federal government collects in personal income taxes increases​, while the level of GDP remains the same. What will happen to the values of national​ income, personal​ income, and disposable personal​ income?

National income will remain the same . Personal income will remain the same . Disposable personal income will decrease .

If nominal GDP is less than real​ GDP, then the price level must have fallen during the​ year ​"Whenever real GDP ​declines, nominal GDP must also​ decline." "If a recession is so severe that the price level​ declines, then we know that both real GDP and nominal GDP must​ decline." "If real GDP stayed the same while nominal GDP declined between 2008 and​ 2009, then the GDP deflator must also have​ declined."

Agree. Nominal GDP will be less than real GDP if the price level falls and is lower than the base​ year's prices. Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise. Agree. If both output and prices are​ falling, then both real GDP and nominal GDP will fall. Agree. If nominal GDP declined between 2008 and​ 2009, then the the GDP deflator must also have declined.

Indicate whether each of the following transactions represents the purchase of a final good

1. The purchase of tires from Bridgestone tire company by an automobile manufacturer. Is not the purchase of a final good 2. The purchase of a new fleet of police cars by the local government. Is the purchase of a final good 3. The purchase of French wine by a U.S. consumer. Is the purchase of a final good 4. The purchase of a new machine tool by the Ford Motor Company. Is the purchase of a final good

Which of the following do we subtract from GDP to obtain national​ income?

depreciation

Suppose the base year is 2001. Looking at GDP data from the United States from 2001 to the​ present, what would be true of the relationship between nominal GDP and real GDP?

RGDP​ < NGDP because prices are rising. (less than)

Consider the following simple economy that produces only three​ goods: 2000​ (Base Year) 2009 Product Quantity Price Quantity Price Denim pants 80 ​$40 100 ​$50 Wine 90 11 80 10 Textbooks 15 90 20 100

Real GDP in 2009 equals ​$6680. 2009 Q x 2000 P = Value Denim Value+Wine Value + Textbook Value= RGDP 110x40 + 80x11 + 20x90

An artist buys scrap metal from a local steel mill as a raw material for her sculptures. Last​ year, she purchased ​$7,000 worth of scrap metal. With the steel she produced 10 authentic sculptures that she sold for ​$1,000 each to a local art dealer. The art dealer then sold all of the sculptures to art collectors for an average of ​$1,200 each.

The total value added of the artist is ​$3000 7000-10000 =3000

The​ (annual) growth rate

Valueperiod 2 − Valueperiod 1 / Valueperiod 1×100. ​ 2015 GDP - 2014 GDP / 2014 GDP x 100 = 2015growth rate

Is the value of intermediate goods and services produced during the year included in Gross Domestic Product ​(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

Year 1 Year 2 Nominal GDP 1540.0 1960.0 Real GDP 1,400 1680.0

Based on the​ table, in Year​ 2, the value of the GDP deflator is 1960/1680 x 100 = 116.7 ​ (Round your answer to one decimal place​.) The inflation rate between Year 1 and Year 2 is Deflator yr 1 = 1540/1400 x 100 = 110 Deflator yr 2 = 116.7 116.7-110/110 x 100 = 6.1​%. ​

If you were attempting to forecast the level of consumer spending by​ households, which measure of total production or total income might be most helpful in making your​ forecast?

Disposable personal income

Billions of dollars GNP $13,300 Depreciation 1,400 Indirect Business Taxes 40 Corporate earnings 1,250 Transfer Payments 600 Personal Tax Payments 1,500

National income​ (NI) equals ​$11860 billion. ​(Enter your response as an​ integer.) NNP = GNP - Depreciation = 13300-1400 = 11900 NI = NNP - Indirect Business taxes =11900 - 40 = 11860 Personal income​ (PI) equals ​$11210 billion. ​(Enter your response as an​ integer.) PI = NI - Corp earnings + Gov Transfer Payments = 11860 - 1250 + 600 = 11210 Disposable personal income​ (DPI)equals ​$9710 billion. ​(Enter your response as an​ integer.) DPI = PI - Personal tax payments = 11210 - 1500 = 9710

Which of the following would be included in the gross national product​ (GNP) of the United​ States?

Production from a U.S. firm that operates in Mexico.

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.

which of the following are likely to increase the measured level of GDP and which are likely to reduce​ it?

a. When the number of people working outside the home decreases​, the measured level of GDP decreases . b. When there is a sharp increase in the crime​ rate, the measured level of GDP may increase or decrease . c. If lower tax rates cause fewer people to hide the income they​ earn, the measured GDP increases .