MACRO HW #1

Angus the sheep farmer sells $20 worth of wool to Barnaby the knitter. Barnaby makes two sweaters, each of which has a market price of $40. Collette buys one of them, while the other remains on the shelf of Barnaby's store to be sold later. What is GDP here?

$80 GDP measures the value of all goods produced (rather than sold) in a period, each of the two sweaters contributes $40 to GDP for a total of $80.

Lucia buys a new BMW, which was assembled in Germany.

(C) consumption (M) import

The Federal Aviation Administration expands the runways at Philadelphia International Airport, which is just a few miles from Kenji and Lucia's house.

(G) government purchases

Paolo buys a new set of tools to use in his plumbing business.

(I) investment

Lucia gets a haircut.

(c) consumption

Charlie's employer assigns him to provide consulting services to an Australian firm that's opening a manufacturing facility in China.

(x) exports

Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply. Correct

-The value produced by doing your own laundry -The quality of goods available to consumers -The loss of enjoyment people incur when scenic land is converted to commercial use

Which of the following statements are true about transfer payments with regard to computing GDP?

-transfer payments alter household income, but they do not reflect the economy's production -transfer payments are not accounted for in the consumption component of GDP -social security is an example of a transfer payment and is not included in GDP

If the price of a hot dog is $2 and the price of a hamburger is $4, then 30 hotdogs contribute as much to GDP has _____ hamburgers

15 ($2x30 hotdogs = $60 $60÷$4 per hamburger = 15 hamburgers)

Awake Cafe, a U.S. coffee company, produces a latte at its location in Minneapolis on January 21, 2017. It sells the latte to a customer immediately.

INCLUDED

Included or Exculded: Chocolate Express, a Swiss chocolate company, produces a chocolate bar at a plant in Illinois on December 9, 2015. An elementary school student buys the chocolate bar on December 24.

INCLUDED

Real GDP

Measures the production of goods and services valued at constant prices

An American buys a pair of shoes manufactured in Italy. How do the U.S. national income accounts treat the transaction?

Net exports fall, while GDP is unchanged. (When an American purchases a good or service from abroad, net exports falls.)

Percentage Change in X

New Value of X - Old Value of X ------------------------------------- x 100 Old Value of X

GDP Deflator

Nominal GDP ---------------- x 100 Real GDP Measures the change in nominal GDP from the base year that cannot be attributed to a change in real GDP

Percentage Change in Nominal GDP

Nominal GDP in X - Nominal GDP in Y ------------------------------------------ x 100 Nominal GDP in Y

Nominal GDP

Price x Quantity The production of goods and services valued at current prices

If all quantities produced rise by 10 percent, and all prices fall by 10 percent, which of the following occurs?

Real GDP rises by 10 percent, while nominal GDP is unchanged.

Consumption

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

Government Purchases

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

True or False: Gross domestic product (GDP) measures total expenditures on final goods and services during a given period of time.

TRUE

Which of the following does NOT add to U.S. gross domestic product?

The federal government sends a Social Security check to your grandmother. (Social Security checks are an example of a transfer payment. Transfer payments are not included in GDP because they do not reflect actual production within the economy.)

Investment

The purchase of goods that will be used in the future to produce more goods and services

True or False: Including the value of used goods that are resold would make GDP a less informative measure of economic well-being?

True

GDP formula

Y=C+I+G+NX (NX= net export= export-import)

For an economy as a whole, ________

income must equal expenditure

When a U.S. company purchases and imports automotive parts from Canada to use to build cars within the United States, this purchase increases the ------ component of GDP while also ------ net exports by the same amount. Therefore, the purchase of automotive parts from Canada causes ________ in US GDP.

investment, decreasing, no overall change

The gross domestic product (GDP) of the United States is defined as the _____ of all _______ by ______ in a given period of time

market value; final goods and services produced; resources within the U.S.

Which is the largest component of GDP?

Consumption

Included or Excluded: Athleticus, a U.S. shoe company, produces a pair of sneakers at a plant in Vietnam on March 27, 2015. Athleticus imports the pair of sneakers into the United States on May 18, 2015.

EXCLUDED

Rotato, a U.S. tire company, produces a set of tires at a plant in Michigan on September 6, 2015. It sells the set of tires to Speedmaster for use in the production of a two-door coupe that will be made in the United States in 2015. (Note: Focus exclusively on whether production of the set of tires increases GDP directly, and ignore the effect of production of the two-door coupe on GDP.)

EXCLUDED

You chop down a cherry tree on your property in California and make a dining room table in 2016. A similar table sells for $800 in a local furniture store.

EXCLUDED

Net Exports

Equal the foreign purchases of domestically produced goods (exports) minus the domestic purchases of foreign goods (imports)

True or False: Gross domestic product (GDP) cannot be used to measure the economy's income.

FALSE

1. What components of GDP (if any) would each of the following transactions affect? Explain. a. A family buys a new refrigerator. b. Aunt Jane buys a new house. c. Ford sells a Mustang from its inventory. d. You buy a pizza. e. California repaves Highway 101. f. Your parents buy a bottle of French wine. g. Honda expands its factory in Marysville, Ohio.

a. Consumption increases because a refrigerator is a good purchased by a household. b. increases because a house is an investment good. c. Investment decreases because the car in Ford's inventory had been counted as an investment good. d. Consumption increases because pizza is a good purchased by a household. e. Government purchases increase because the government spent money to provide a good to the public. f. Consumption increases because the bottle is a good purchased by a household, but net exports decrease because the bottle was imported. They get canceled out and GDP is not affected. g. Investment increases because new structures and equipment were built.

If GDP included goods that are resold, it would ________.

double-count goods that were sold more than once

net exports formula

exports - imports