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.
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 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.
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.
Which of the following equations sums up the components of Gross Domestic Product (GDP)?
Y=C-I-G-NX
In an economy with rising prices, compared to the base year,
nominal GDP is larger than real GDP in years after the base year.
Disposable personal income is
personal income minus personal taxes.
In calculating GDP, which levels of government spending are included in government purchases?
spending by federal, state, and local governments
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.
How does real GDP deal with the problem inflation causes with nominal GDP?
By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced. Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years. Real GDP separates price changes from quantity changes.
Why is GDP an imperfect measurement of total production in the economy?
GDP does not include household production or production from the underground economy.
Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being?
GDP is not adjusted for crime or other social problems. The value of leisure is not included in GDP. GDP is not adjusted for pollution and it does not account for unequal income distribution.
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.
GDP is an imperfect measure of economic well-being because it fails to measure what types of production?
Household production and the underground economy.
What measures besides average number of hours worked and real per capita GDP would you like to have to evaluate the well-being of workers in OECD countries?
Indicators of pollution, crime and other social problems, and the distribution of income.
Coffee beans purchased by a coffee shop One share of Google stock A new pick-up truck purchased by a consumer A new home purchased by a family
Intermediate good Neither Final good Final good
Which of the following is included in the economist's definition of investment?
the purchase of new machines, factories, or houses
What are the four major categories of expenditure?
Consumption, investment, government purchases, and net exports.
Can we conclude anything about the well-being of the average German worker versus the well-being of the average worker in the United States from these data?
No, because although the German worker earned less per year, they also worked less per year.
