Chapter 8
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. -The value of leisure is not included. -GDP does not include crime rates or income distribution
Indicate whether you agree or disagree with the following statement: "In years when people buy many shares of stock, investment will be high and, therefore, so will gross domestic product (GDP)."
Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and inventory, not stock purchases.
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?
-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. -Few foreign citizens currently work in the U.S. and few foreign firms maintain facilities in the U.S.
How does real GDP deal with the problem inflation causes with nominal GDP?
-Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years. -By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced. -Real GDP separates price changes from quantity changes.
We often use real GDP per capita as a measure of a country's well-being. Review the definition of real GDP per capita before answering the following question. 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 is considered to be a problem in using GDP as a measure of national well-being?
GDP is not adjusted for changes in crime and other social problems.
Scott is a woodworker and charges $125 an hour for his time manufacturing customminus 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.
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
GDP minus depreciation.
National income is
GDP minus depreciation.
Which of the following is not a shortcoming of GDP as a measure of well-being?
GDP only counts final goods and services and not intermediate goods.
If Americans still worked 60-hour weeks, as they did in 1890,
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 accurately describes an effect of hurricane Katrina on GDP?
GDP would increase reflecting the costs of cleanup.
How does the size of a country's GDP affect the quality of life of the country's people?
Generally, the more goods and services people have, the better off they are.
All of the following are correct except
Gross domestic income does not include health insurance benefits received by the employees.
The largest component of gross domestic income is
Wages
What are the four categories of income?
Wages, Interest, Rent, and Profit.
Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next?
When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities
According to most economists, is it a serious shortcoming of GDP that it does not count household production or production in the underground economy?
Most economists would answer "no" because these types of production do not affect the most important use of the GDP measure, which is to measure changes in total production over short periods of time.
Between 2015 and 2016, 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.
One major component of GDP that can be negative is
Net exports.
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.
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.
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? Personal income will________________________.
Remain the same.
Which equation represents the relationship between GDP and the four major expenditure components?
Y=C+I+G+NX
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? Disposable personal income will____________________.
decrease
Gross domestic product understates the total production of final goods and services because of the omission of
household production.
Indicate whether each of the following transactions represents the purchase of a final good The purchase of tires from the Bridgestone tire company by an automobile manufacturer
is not a purchase of a final good
Indicate whether each of the following transactions represents the purchase of a final good The purchase of French wine by a U.S. consumer
is the purchase of a final good
Indicate whether each of the following transactions represents the purchase of a final good The purchase of a new machine tool by the Ford Motor Company.
is the purchase of a final good
Indicate whether each of the following transactions represents the purchase of a final good The purchase of a new fleet of police cars by the local government
is the purchase of a final good
Personal income is
national income minus retained corporate earnings plus government transfer payments and interest on government bonds.
Indicate whether each of the following is a final good, an intermediate good, or neither. One share of Google stock.
neither
Disposable personal income is
personal income minus personal taxes.
If the GDP deflator in 2012 has a value of 98.0, then
prices have decreased 2 percent between the base year and 2012.
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, typically one year.
Gross Domestic Product (GDP) is
the market value of all final goods and services produced in a country during a period of time.
The Gross National Product (GNP) of the United States is equal to
the value of final goods and services produced by U.S. factors of production.
Which component of gross domestic income is the largest?
wages
f a large amount of production within a country takes place at foreign owned facilities, then it is likely that the country's GDP will be ________________ GNP.
Larger than
If the U.S. Bureau of Economic Analysis (BEA) added up the values of every good and service sold during the year, would the total be larger or smaller than measured gross domestic product (GDP)?
Larger: The value of all goods and services sold would include intermediate goods.
What are the four major components of expenditures in GDP?
Consumption, Investment, Government Purchases, and Net Exports
What are the four major categories of expenditure?
Consumption, investment, government purchases, and net exports.
Indicate whether each of the following is a final good, an intermediate good, or neither. Coffee beans purchased by a coffee shop
Intermediate good
Household production and the underground economy
are not accounted for in the Bureau of Economic Analysis' estimates of GDP.
Indicate whether each of the following is a final good, an intermediate good, or neither. A new pick-up truck purchased by a consumer
final good
Indicate whether each of the following is a final good, an intermediate good, or neither. A new home purchased by a family.
final good