Macro - Chapter 8 GDP: Measuring Total Production and Income
In the circular flow diagram, the value of all the income in the economy is greater than the value of goods and services produced in the economy.
False
How is the GDP deflator calculated?
GDP deflator = nominal GDP/Real GDP x 100
Scott is a woodworker and charges $125 an hour for his time manufacturing custom made wood products. For his wife's birthday, he designs and creates an intricate birdseye maple jewelry box that takes him 15 hours to complete. By how much and in what direction does GDP change as a result of his efforts?
GDP is not affected by Scott's production of the jewelry box.
When a significant fraction of the 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
In the circular flow model, who supplies factors of production in exchange for income?
Households
Which of the following are not counted as final goods and used in the GDP calculation?
Intermediate goods
Which of these 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 not directly counted in GDP?
intermediate goods
The purchase of a new house is included in
investment expenditures.
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
The purchase by a foreign government of an airplane produced in the United States is included in U.S.
net exports.
Real GDP will increase
only if the quantity of final goods and services produced rises.
If real GDP increases we know for sure that
output has risen.
Disposable personal income is equal to personal income minus:
personal tax payments
The flow of funds from __________ into the financial system makes it possible for government and firms to borrow.
households
The GDP deflator is the
ratio of nominal GDP to real GDP multiplied by 100.
The GDP per capita is computed by dividing a country's:
real GDP by its population
Which component of consumption spending is the greatest in a typical industrialized economy?
services
The total national income actually received by a country's residents is:
smaller than the value of GDP
An example of an intermediate good would be
the bread that goes into a sub sandwich that is sold by Quiznos.
If prices in the economy rise, then
the purchasing power of a dollar declines.
Gross domestic product understates the total production of final goods and services because of the omission of
the underground economy.
Real GDP is:
the value of goods and services evaluated at base year prices
The circular-flow diagram shows that ________ should equal ________. The circular-flow diagram shows that all sources of income are owned by
total expenditure; total income households.
Transfer payments are not included in GDP calculations because
transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.
The buying and selling of goods and services that is hidden from the government in order to avoid taxes and/or regulation is known as the:
underground economy.
Nominal GDP is GDP in a given year
valued in the prices of that year.
Real GDP is GDP in a given year
valued in the prices of the base year.
The largest component of gross domestic income is
wages.
Which letter best represents the demand for factors of production in this circular flow model?
C, between factor market and firms
Which of the following equations correctly measures GDP in an economy?
GDP = C + I + G + NX
What is the largest component of spending in the U.S.?
consumption spending
What are the four categories of income?
Wages, Interest, Rent, and Profit.
What are the four major categories of expenditure?
Consumption, investment, government purchases, and net exports.
During a business cycle expansion, total production ________ and total employment ___________.
increases; increases
Which is the largest component of GDP?
Consumption
Personal income is
national income minus retained corporate earnings plus government transfer payments and interest on government bonds.
One major component of GDP that can be negative is
net exports.
When consumers are less confident about their jobs or incomes, they are more likely to
reduce purchases of durable goods than nondurable goods.
If Americans still worked sixty 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 highe
correct, 8.1-16 Product Quantity Price Sweatshirts 50 $35 Dental examinations 40 75 Coffee drinks 1,000 4 Coffee beans 2,000 0.50 Suppose that a simple economy produces only four goods and services: sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are used in the production of the coffee drinks. Using the information in the above table, nominal GDP for this simple economy equals
8750
indicate whether each of the following is a final good, an intermediate good, or neither.
Coffee beans purchased by a coffee shop Intermediate good One share of Google stock Neither A new pick-up truck purchased by a consumer Final good A new home purchased by a family Final good
Why in microeconomics can we measure production in terms of quantity, but in macroeconomics 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.
To calculate personal income from national income, which of the following must be done by the BEA?
Add government transfer payments
If the GDP deflator rises from 185 to 190, what is the rate of inflation between the two years?
. 2.7%
The size of the underground economy would tend to decrease if the government of a country
decreased government regulations on businesses.
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.
Which measure of GDP represents changes in the quantity of goods and services produced in the economy, holding prices constant?
Real GDP
As the value of a country's real 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.
Macroeconomics seeks to understand
economic growth, business cycles, and inflation.
A period of real economic growth, where production and employment are both moving higher is known as:
expansion.
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.
Which of the following transactions represents the purchase of a final good?
Your father buys a new John Deere riding lawn mower.
Which of the following goods is directly counted in GDP?
a 12 inch Subway sandwich purchased by a student
A recession occurs when an economy experiences a period in which there is___. The business cycle exists because____
a decrease in total production.; total production experiences periods of increases and periods of decreases.
Economic growth is important to an economy because it typically translates to:
a higher standard of living for the country's population.
Which of the following is considered a durable good?
a washing machine
An example of a transfer payment is
a welfare payment.
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.
Indicate whether each of the following is a final good, an intermediate good, or neither.
Coffee beans purchased by a coffee shop Intermediate good One share of Google stock Neither A new pick-up truck purchased by a consumer Final good A new home purchased by a family Final good
Which of these do we subtract from GDP to obtain national income?
Depreciation
If the GDP deflator is 142, by how much have prices changed since the base year?
Prices have increased by 42%.
Real GDP per capita is often used as a measure of general well-being. While increases in real GDP often do lead to increases in the well-being of the population, why is real GDP not a perfect measure of well-being?
The costs of pollution are not included. GDP does not include crime rates or income distribution. The value of leisure is not included. All of the above.
2017 2018 Nominal GDP $10,000 $12,000 Real GDP 9,500 10,500 Given the information, what can we say has happened in the economy from 2017 to 2018?
The price level has risen.
Which of the following is included in the economist's definition of investment?
The purchase of new machines, factories, or houses
In 2016, Ford Motor Company's sales were rising. These events were caused by
an economic expansion.
Government spending ________ is included in gross domestic product.
at federal, state, and local levels of government
An alternating period of economic contraction and economic expansion measured over time with real GDP is known as the:
business cycle.
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
Consider the following data on nominal GDP and real GDP (values are in billions of dollars): Year Nominal GDP Real GDP 2015 $7,400 $7,537 2016 7,813 7,813 2017 8,301 8,165 2018 8,760 8,516
2016.
