ECN 201- Chapter 8
Indicate whether each of the following is a final good, an intermediate good, or neither 1. Coffee beans purchased by a coffee shop 2. One share of Google stock 3. A new pick-up truck purchased by a consumer 4. A new home purchased by a family
1. Intermediate good 2. Neither 3. Final good 4. Final good
Indicate whether each of the following transactions represents the purchase of a final good 1. The purchase of tires from Bridgestone tire company Bridgestone tire company by an automobile manufacturer. 2. The purchase of two new elementary school buildings two new elementary school buildings by the state government. 3. The purchase of domestic wine by a French consumer. 4. The purchase of a new plane by American Airlines.
1. Is not the purchase of a final good 2. Is the purchase of a final good 3. Is the purchase of a final good 4. Is the purchase of a final good
Real GDP per capital is often used as a measure of generalwell-being. While increases in real GDP often do lead to increases in thewell-being of thepopulation, why is real GDP not a perfect measure ofwell-being?
A. The costs of pollution are not included. B. The value of leisure is not included. C. GDP does not include crime rates or income distribution. D. All of the above. (D)
What are the four major categories of expenditure?
Consumption, investment, government purchases, and net exports.
An article in the Wall Street Journal referred to "gross domestic productlong dash—the value of all goods and services produced in the U.S." Source: Harriet Tory, "U.S. Economy Grew at 3.2% Rate in First," Wall Street Journal, April 26, 2019. Briefly explain whether you agree with this definition of GDP.
Disagree, because GDP measures the value of all final goods and services produced in an economy, not all the goods and services produced.
How is the GDP deflator calculated?
GDP deflator = Nominal GDP divided by Real GDP×100
Why is GDP an imperfect measurement of total production in the economy?
GDP does not include household production or production from the underground economy
Which of the following is not a shortcoming of GDP as a measure of well-being? If Americans still worked 60-hour weeks, as they did in 1890
GDP only counts final goods and services and not intermediate goods. GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher
An article on bloomberg.com stated that "inventories gave GDP a small boost." Source: Katia Dmitrieva, "U.S. GDP Grows at 2.6% Pace as Business Spending Accelerates," bloomberg.com, February 28, 2019. For this result to occur, is it likely that inventories increased or decreased? Briefly explain.
Increased, since inventories are part of a firm's investment, which is a component of GDP, inventories must have risen.
Which of the following equations sums up the components of Gross Domestic Product (GDP)?
NXY = C+I+G+NX
Suppose a house is built and sold in the year 2015. If the house is resold in the year 2025, is the value of the house included in Gross Domestic Product (GDP) for 2025? Would the services of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2025?
No. GDP for 2025 includes only production that occurs during 2025. Yes. GDP for 2025 includes the market value of final goods and services. This includes real estate services.
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? How does real GDP deal with the problem inflation causes with nominal GDP?
When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities All of the above
Briefly explain which component of GDP, if any, will be affected by each of the following transactions involving FedEx. a. During the holidays, you ship 10 packages to friends and family members using FedEx. b. FedEx purchases 400 delivery trucks from Spartan Motors located in Ephrata, Pennsylvania c. FedEx purchases new computer software from IBM. d. FedEx ships 500 packages from New York City to Tokyo, Japan e. FedEx purchases cardboard boxes for its shipping customers to use. f. The state of Tennessee builds a new highway to improve access to FedEx's shipping facilities in Memphis.
a. (D) Consumption b. (B) Investment c. (C) Investment d. (A) Net exports e. (E) None of the GDP components f. (D) Government purchases
The country of Alaine produces 1,000 tons of corn during a year. It is valued at $500 per ton. A lobbyist for the corn industry in Alaine argues that the total value of corn production should be included in the country's GDP for the same year. The lobbyist's claim is based on the assumption that
corn is not used in the production of other goods
If prices rise over time, then real GDP will be
larger than nominal GDP in years before the base year.
