macro chapter 5 qestions

how do you calculate GDP deflator?

(nominal GDP/real GDP) x 100

If a cobbler buys leather for $100 and thread for $50 and uses them to produce and sell $500 worth of shoes to consumers, the contribution to GDP is

500

Which contributes more when measuring GDP, a new diamond necklace purchased by a wealthy person or a soda purchased by a thirsty person? Why?

A diamond necklace because GDP measures market value

Why does income = expenditure = GDP?

Because the income of the seller equals the expenditure of the buyer and GDP can be measured with either one

How is your purchase of a $40,000 BMW automobile that was produced entirely in Germany recorded in the U.S. GDP accounts?

Consumption increases by $40,000, and net exports decrease by $40,000.

TF A new car produced in 2015, but first sold in 2016, should be counted in 2016 GDP because that is when it was first sold as a final good.

False goods are counted in year they are produced

Explain the difference between GDP and GNP.

GDP is the production within the borders of the United states. GNP is the production of americans no whether where the production takes place.

If your neighbor hires you to mow her lawn instead of doing it herself, what will happen to GDP? Why? Did output change?

GDP will rise because the mowing of the lawn was a market transaction. However, output didn't really rise.

what does it mean to say that net exports are negative

It means imports exceed exports

Define GDP and explain the important terms in the definition

Market value of all final goods and services produced within a country in a given period of time. market value = price paid of all = all legal production final = to end users goods and services = includes services produced = no used items within a country = inside borders in a given period = per quarter or year

If you buy a $20,000 Toyota that was produced entirely in Japan, does this affect U.S. GDP? Show how this transaction would affect the appropriate expenditure categories that make up GDP.

No. Consumption would increase by $20,000 and net exports would decrease by $20,000. As a result, U.S. GDP is unaffected.

Provide an example of a transfer payment. Do we include it in GDP? Why or why not?

Social Security payments. No, because the government received no good or service in return.

TF A country with a larger GDP per person generally has a greater standard of living or quality of life than a country with a smaller GDP per person.

TRUE

TF A recession occurs when real GDP declines.

TRUE

TF f U.S. GDP exceeds U.S. GNP, then foreigners produce more in the United States than U.S. citizens produce in the rest of the world.

TRUE

If nominal GDP in 2016 exceeds nominal GDP in 2015, did real output rise? Did prices rise?

We can't be certain which rose, prices or real output, because an increase in either prices or real output will cause nominal output to rise.

GDP deflator

a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100

GDP would include which of the following? housework illegal drug sales intermediate sales consulting services the value of taking a day off from work

consulting services

In the united states what is the largest component of GDP

consumption

What are the components of expenditure? Provide an example of each

consumption (food) investment (factory) government purchases (military equipment net exports (sale of a Ford to France minus purchase of a Toyota produced in japan

U.S. GDP would exclude which of the following? lawyer services purchased by a home buyer lawn care services purchased by a homeowner a new bridge purchased by the state of Texas cotton purchased by Lee Jeans the purchase of a new Mazda produced in Illinois

cotton purchased by lee jeans

The value of plant and equipment worn out in the process of manufacturing goods and services is measured by

depreciation

TF If nominal GDP in 2016 exceeds nominal GDP in 2015, real output must have risen.

false prices could not have risen

TF When the city of Chicago purchases a new school building, the investment component of GDP increases.

false purchase is included in government purchases

TF Wages are an example of a transfer payment because there is a transfer of payment from the firm to the worker.

false transfer payments are expenditures for which no good or service is received in return

Net national product always exceeds a nation's GNP because of depreciation.

false, GNDP - depreciation = NNP

Gross domestic product is the sum of the market value of the

final goods and services

If U.S. GDP exceeds U.S. GNP, then

foreigners are producing more in the United States than Americans are producing in foreign countries.

If your grandparents buy a new retirement home, this transaction would affect consumption. investment. government purchases. net exports. none of the above.

investment

If the residents of the United States generate as much production in the rest of the world as the rest of the world produces in the United States, what should be true about U.S. GDP and GNP?

it should be equal

does the investment include the purchase of stocks and bonds?

no because that transaction is a purchase of an asset not a purchase of currently produced capital goods.

Do government purchases include government spending on unemployment checks?

no because unemployment benefits are expenditures for which the government receives no production in return

real GDP

production of goods and services valued at constant price

If real GDP in 2016 exceeds real GDP in 2015, did real output rise? Did prices rise?

real output rose because the value of each year is measured in constant base year prices. we have no info on prices.

If nominal GDP in 2016 exceeds nominal GDP in 2015, then the production of output must have

risen or fallen because there is not enough information to determine what happened to real output.

consumption

spending by households on goods and services with the exception of purchases of new housing

investment:

spending on business capital, residential capital and inventories

net exports

spending on domestically produced goods by foriegners (exports) minus spending on foreign goods by domestic residents (imports)

government purchases

spending on goods and services by local, state, and federal governments

If the lumberyard sells $1,000 of lumber to a carpenter and the carpenter uses the lumber to build a garage that he sells for $5,000, the contribution to GDP is?

the garage is the final good valued at $5,000

gross domestic product (gdp)

the market value of al final goods and services produced within a country in a given period of time

nominal GDP

the production of goods and services valued at current prices

TF Cigarettes should be valued in GDP at $5.50 per pack even though $1.00 of that price is tax because the buyers paid $5.50 per pack.

true

TF Depreciation is the value of the wear and tear on the economy's equipment and structures.

true

TF Nominal GDP employs current prices to value output while real GDP employs constant base-year prices to value output.

true

An example of a transfer payment is

unemployment benefits