ECON ch.16
________ measures the output of final goods in a country in a given year, valued at a particular base year's prices.
real GDP
The best measure of a country's standard of living discussed in this chapter is _______
real GDP per capita
_____ are income earned by landlords, ____ are income earned by business owners, and _____ are income earned by workers
rents, profits, wages
2019 Production of cupcakes: 10 Production of candy bars: 20 Price of cupcake: $4 Price of candy bar: $3 Nominal GDP:$____ Real GDP Base Year 2019:$____ 2020 Production of cupcakes: 20 Production of candy bars: 40 Price of cupcake: $2 Price of candy bar: $1 Nominal GDP:$____ Real GDP Base Year 2019:$____ Thus, using your calculations, it ______ possible for nominal GDP to decrease while real GDP increases.
100, 100, 80, 200, is
Bolivia has an official GDP per capita of $5 comma 300; the country's underground economy is estimated to be two-thirds the size of its official economy. Cambodia has an official GDP per capita of about $2 comma 650, and its underground economy is about half the size of its official economy. When the transactions of the underground economy are included, GDP per capita in Bolivia is $_____ When the transactions of the underground economy are included, GDP per capita in Cambodia is $_____ Because of the underground economy, the typical Bolivian is _____ _____ _____ as well off as the typical Cambodian.
8833, 3975, more than twice
The goal of GDP is to measure a country's overall production of goods and services. Why do we quote GDP in terms of dollars rather than in terms of physical goods? A. It provides a common denominator to add up the value of everything the economy produces into one piece of data. B. If we quoted GDP in terms of physical goods, then the intermediate goods would be counted twice. C. All else equal, people are likely to work harder and work more when they see GDP expressed in dollar terms. D. If we quoted GDP in terms of physical goods, it would overestimate the true value of GDP.
A
______ focus on studying one market at a time, such as the market for television programs A. Microeconomists B. Macroeconomists C. Isolationists D. Political scientists
A
If the quantity of goods and services produced in an economy decreases, A. it may be possible for real GDP to increase. B. it may be possible for nominal GDP to increase. C. real GDP will certainly increase. D. nominal GDP will certainly decrease.
B
Suppose that between the years 2524 and 2525, U.S. production remains unchanged but prices increase by 6%. Then A. Nominal GDP increases and real GDP decreases B. Nominal GDP increases and real GDP is unchanged C. Nominal GDP increases and real GDP increases D. Nominal GDP is unchanged and real GDP increases
B
The economy of Paulonia grows at 3.5% per year. How many years will it take for real GDP in Paulonia to double? A. 20 B. 35 C. 70 D. 2
B
Which of the following statements best captures the story of the world's economic growth? A. The world's most developed countries experienced large spurts of growth that catapulted them to wealth. B. Most of the world's economic growth has taken place in the past 300 years. C. Most of the world's wealthy economies have had slow and sustained growth for the last 200 years. D. People in 1900 lived little different than people in the year 1000.
B
Who declares when the U.S. economy officially enters a recession? A. The president of the United States B. The National Bureau of Economic Research C. The Department of Commerce D. The Bureau of Economic Analysis
B
A __________ is a downturn of the economy, as determined by the NBER. A.Depreciation B. Boom C. Recession D. Bust
C
Building houses, or residential fixed investment, is a type of ______ expenditure A. Consumption B. Government spending C. Investment D. Inventory investment
C
Table 16.2 Year 2015 Production of surfboards: 10 Production of umbrellas: 50 Price of surfboards: $200 Price of umbrellas: $15 Year 2016 Production of surfboards: 16 Production of umbrellas: 75 Price of surfboards: $250 Price of umbrellas: $20 Consider the data above for Fredonia, a country that produces only two products: surfboards and umbrellas. Refer to Table 16.2. Real GDP for Fredonia for 2016 using 2015 as the base year equals A. $2,750. B. $3,500. C. $4,325. D. $5,500.
C
Which of the following transactions is included in the current calculations of US GDP? A. General Mills buys oats to make Cheerios B. General Motors builds a pickup truck at a manufacturing facility in Brazil C. General Electric purchases a machine that will be used to produce LED light bulbs D. General Colin Powell purchases a Victorian-era mansion from former Vice President Al Gore
C
Give an example of a U.S. import that is a consumer durable good. A. Ford pickup truck. B. A box of Swiss chocolates. C. Bottles of Coca minus Cola. D. Toyota Camry.
D
Physical capital makes workers ________, so a declining capital stock ________. A. more productive; helps an economy grow B. less productive; helps an economy grow C. less productive; hinders economic growth D. more productive; hinders economic growth
D
Which of the following has been shown to positively affect countries' economic growth? A. A more educated workforce B. A large stock of physical capital C. Government that establishes and protects property rights D. All of the above positively affect countries' growth
D
How many goods and services will the country's labor force produce?
Macroeconomics
What is the overall level of unemployment in the economy?
Macroeconomics
How many hours should you work this week?
Microeconomics
How many workers should a particular firm hire?
Microeconomics
The study of decisions made by individuals, businesses, and other entities such as governments
Microeconomics
In the United States, the typical worker works about 32 hours per week; in Singapore, the typical worker works about 43 hours per week. In the United States, GDP per capita is about $52,000; in Singapore, it is about $60,000. Explain the effect that workweek length might have on the relative well-being of people in the United States and Singapore. Americans are likely _________than GDP numbers suggest because they enjoy ______ leisure compared to Singapore.
better off, more
Deviations from the long, steady trend of GDP are called ________
business cycles
A person buys a new set of sheets for his bed. That purchase is counted in the ______ component of GDP
consumption
The following are examples of shocks that could originate on the buyers' side of the market. Identify the result of the shock and then identify the type of spending that is affected. Income taxes increase, which ________ consumers' disposable incomes, so ______ falls. Government faces a budget deficit, so it _______ spending and ______ _____falls. Interest rates increase, which _______ the cost of borrowing, so ______ falls.
decreases, consumption, decreases, government spending, increases, investment
True or False The omission of the underground economy can cause GDP to be overstated ___ Household production is not included in GDP _____ If GDP included the value of leisure, then measured GDP would decrease _____ GDP fails to account for economic "bads" like pollution____ GDP reflects the distribution of income and thus adequately reveals income inequality _____
false, true, false, true, false
The graph shows that women in rich countries tend to have _____ children than women in poor countries. The graph shows that as GDP per capita increases, life expectancy ______ The graph shows that as GDP per capita increases, the mean number of years in school _______ Thus, there is a _____ correlation between real GDP per capita and meaningful life outcomes.
fewer, increases, increases, strong
_____ _____ _____ is the market value of all final goods and services produced in a country in a given year
gross domestic product
The _____ to calculating GDP adds up wages, rents, and profits to determine GDP
income approach
Raw materials or components that will eventually be transformed into a finished product are called _______
intermediate goods
_____ include spending by businesses on factories, tools, and research and development
investment expenditures
The study of the economy as a whole is called ______
macroeconomics
______ is the study of the economy as a whole and ______ is the study of one market at a time
macroeconomics, microeconomics
_____ are the sum of the goods produced in America and sold abroad, minus the goods and services that were produced abroad but purchased in America
net exports
A small island economy produces 10 rafts in 2015 and sells them at a price of $30 per raft. In 2016, the island produces 14 rafts and sells them at $35 per raft. Nominal GDP in 2015 is $____ Nominal GDP in 2016 is $____ Real GDP in 2015, using 2015 as the base year, is $____ Real GDP in 2016, using 2015 as the base year, is $____
300, 490, 300, 420
All of the following are vital ingredients for experiencing economic growth except ____________. A. Closed door trade policy. B. International trade. C. Property rights. D. Political stability.
A
Can the news media affect the economy? A. Yes, the media can create uncertainty about the economy and cause people to change their spending decisions. B. No, other things equal, the media is simply reporting the facts about the factors that drive the economy. C. No, in general, people are rational, so the media likely has no effect on their behavior and spending decisions. D. Maybe, but many people are skeptical of the media, so it likely has no effect on people and their spending habits. The news media is more likely to be responsible for a _______
A
GDP for a given year valued in that year's prices is called ________________. A. Nominal GDP B. Real GDP C. Adjusted GDP D. Per capita GDP
A
Which of the following are topics macroeconomists study that microeconomists generally do not? A. Price of a specific product. B. Overall level of prices. C. Number of workers employed by a certain firm. D. Unemployment rate. E. GDP.
A, D, E
"The job of the macroeconomist is simple: All he or she must do is summarize what happens in microeconomic markets." Is this statement true or false? Why? A. True: Compared to microeconomists, who analyze a single market at a time, the job of a macroeconomist is simple. B. False: They develop models so policymakers know what decisions to make to keep the economy growing. C. True: If they are only summarizing what happens in microeconomic markets, microeconomists have the hard job. D. False: Macroeconomists care more about what happens in a single market than they do about the whole market.
B
Expenditures on physical plants and equipment, which are then used to produce other goods, are referred to as _______ A. Intermediate goods B. Fixed investment C. Inventory investment D. Consumer durables
B
An example of fixed investment spending for a business is A. a purchase of a home by a household. B. $15 million of unsold furniture at a furniture store. C. a purchase of a pizza oven by an Italian restaurant. D. a purchase of a corporate bond by Google.
C
Suppose that in the economy of Tilden, real GDP per capita grows at 10%, doubling every 7 years. In 35 years, the typical resident of Tilden will be ________ times as rich as the typical resident today. A. 5 B. 2 C. 32 D. 10
C
"Over long time horizons, small differences in economic growth between countries lead to correspondingly small differences in standard of living." A. True: If countries want to increase their well-being, they must experience growth at a rapid and aggressive pace. B. True: A country would require a growth rate of at least 10% in order to experience an increase in living standards. C. False: Growth rates are not related to standard of living. D. False: Even small growth rateslong dashsay, as little as 2% sustained over time, can result in large increases in real GDP
D
Pro or Con? GDP provides a summary measure of an economy's performance ____ There is a strong correlation between GDP and important life outcomes _____ It measures income but not equality ____ GDP is an objective measure of economic performance ____ GDP measures only legitimate market transactions ____
pro, pro, con, pro, con
Events that fundamentally reduce society's ability to produce goods and services are called _______
supply shocks
If an automobile is produced by chevrolet in 2008 but is not sold until 2010, the automobile is included in which year's GDP? A. 2008 B. 2010 C. Both 2008 and 2010 D. 2009 minus the average of the two
A
In discussing the recovery from the Great Recession, one economist stated that he was in favor of greater government involvement in the economy because government constitutes one of the components of GDP. Yet, the government does not produce many tangible goods. What approach to calculating GDP is the economist referring to? A. Expenditures approach B. Accounting approach C. Absorption approach D. Income approach
A
In places where production causes a great deal of pollution, ____________. A. Society is poorer than GDP numbers suggest B. Society is richer than GDP numbers suggest C. GDP numbers accurately measure society's well-being
A
Is real GDP a better indicator of economic progress than nominal GDP? A. Yes, it adjusts for rising prices so that a change in real GDP represents a true change in an economy's production. B. No, since nominal GDP filters out the effects of rising prices, it can reveal true changes in an economy's production. C. Yes, by measuring current production at current prices, it can better determine the material well-being of a country. D. No, nominal GDP measures output at current market prices, so it is a better determinant of economic well-being.
A
Macroeconomics includes the study of A. economic growth, the unemployment rate, and inflation. B. product demand, product supply, and profit maximization. C. industry sales, corporate growth, and home prices. D. decisions made by individuals, businesses, and governments.
A
Do countries that open their borders to international trade tend to grow more rapidly than countries that do not? A. No, the increased competition from foreign imports forces most of the domestic producers out of the market. B. Yes, it opens up opportunities for countries to tap into the global market to sell the goods they are best at producing. C. No, it forces countries to specialize in products that they may not like to produce or be forced out of the market. D. Maybe, but success is usually limited to a few countries, with only minimal differences noted in overall well-being.
B
Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico in 2005. This drove up the prices of natural gas, gasoline, and heating oil. This is an example of a A. negative externality. B. supply shock. C. depression. D. demand shock.
B
In Japan, real GDP per capita is higher than it is in Greece. However, people in Japan work much longer hours than people in Greece. This disparity in work hours suggests that ____________. A. Greece looks richer relative to Japan than it really is B. Greece looker poorer relative to Japan than it really is C. The real GDP per capita numbers accurately capture the well-being of Greece and Japan
B
The money you spend on college tuition is included in the consumption category of expenditures. Can you make an argument that it should be counted elsewhere in GDP? Explain. A. Government spending (G): Government spends money to build schools, pay teachers, and fund education. B. Investment (I): College tuition is an investment in human capital, which will increase productivity over a lifetime. C. Net exports (NX): Colleges sell education to domestic and foreign students so it should be counted in net exports. D. All of the above.
B
The size of the underground economy would tend to increase if the government of a country A. lowered the legal drinking age from 21 to 18. B. increased government regulations on businesses. C. legalized prostitution. D. decreased income tax rates.
B
The ___________ is what economists call unreported but wealth-creating transactions, collectively, that are not included in GDP. A. Black market B. Underground economy C. Formal economy D. Illicit transaction
B
______ are interested in issues like the national unemployment rate, the indebtedness of nations, and foreign exchange rates A. Aggregationists B. Macroeconomists C. Sociologists D. Microeconomists
B
[Related to Application 16.2] "The NBER uses only GDP to determine whether we are in a recession." Is this statement true or false? Explain your answer. A. True: The NBER only uses GDP because it is objective, easy to measure, and highly correlated with life outcomes. B. False: The NBER uses GDP, but it also uses a wide range of economic factors to assess the health of the economy. C. False: The NBER doesn't use GDP at all; it prefers to use other useful economic indicators to assess the economy. D. Uncertain: It depends on the current NBER members and their preferred method of determining a recession.
B
[Related to Application 16.3] When the housing bubble popped in 2007, it caused home prices to fall by up to 40%. Did this shock affect consumption, investment, government expenditures, or net exports? A. Government expenditures: As people's wealth evaporated, government increased its spending on transfer payments. B. Consumption: Consumers responded to lower housing wealth by reducing their consumption spending. C. Investment: As home values fell, consumer demand for cheaper homes increased, which increased investment. D. Net exports: As the economy weakened, fewer Americans purchased products from abroad and net exports fell.
B
Did Wolfers and Stevenson's study produce results that were consistent with the previous prevailing opinion? A. No, with the use of GWP data, Wolfers and Stevenson were able to prove that money really can buy you love. B. No, they showed that happiness continues to rise with income and does not taper off, as previous work suggested. C. Yes, their results proved that once income reaches a certain pointlong dashsay $15,000, it ceases to add to happiness. D. Uncertain, since happiness cannot be compared among countries, as their study asserts. Wolfers and Stevenson's work suggests that economic policymakers should focus their attention on _____
B, income
Can you think of one reason why, in a democracy, it might be a good thing to separate the managers of the economy from the body that evaluates how that economy is doing? A. No, if government evaluates the economy, it can better determine which policies to use when the economy is bad. B. No, if the group that declares recessions is independent, then government will be less accountable for its actions. C. Yes, if politicians are interested in reelection, they might lie about the true state of the economy to gain votes. D. Maybe, if the independent group is not subject to policy lags, then it can reduce or possibly even prevent a recession.
C
Give an example of a U.S. export that is a consumer nondurable good A. A box of Swiss chocolates. B. Ford pickup truck. C. Bottles of Coca Cola. D. Toyota Camry.
C
Health experts note that ____________. A. As countries get richer, infant mortality decreases B. As countries get richer, life expectancy increases C. Both A and B are true D. Neither A nor B is true
C
Research conducted by Justin Wolfers and Betsey Stevenson shows that as GDP increased, respondents reported all of the following except A. more general enjoyment. B. less physical pain and depression. C. fewer choices over how they spend their time. D. being treated with greater respect.
C
Table 16.1 Type of Spending(Amount of Spending) Consumption expenditures($1,400) Investment expenditures($600) Government expenditures($400) Exports($125) Imports($175) Refer to Table 16.1. Consider the data in the table above (in billions of dollars) for an economy. Gross domestic product (in billions of dollars) for this economy equals A. $2,700. B. $2,525. C.$2,350. D. $2,100.
C
The _____ adds up total spending on final goods and services made by the various types of spending units in order to compute GDP A. Goods and services approach B. Factor approach C. Expenditures approach D. Income approach
C
The link above displays data on each component of GDP. The graphs on the left have long term data and can be used to analyze how each component has changed over time. The graphs on the right are a subset of the same data and can be used to look at the behavior of each component of GDP during recessions. Use the scroll bars on the graphs to the right to view data for different periods of recessions. Looking solely at the graphs on the left, which of the components of GDP experienced declines during most recessions? A. Net Exports of Goods and Services. B. Government Consumption Expenditures and Gross Investment. C. Gross Private Domestic Investment. D. Personal Consumption Expenditures. E. All of the above. Which component of GDP experienced the most change during the Great Recession? Which component experienced the least change? Rank the following based on the absolute change in billions of dollars experienced during the Great Recession. (Most change to least change. Measure the change from the maximum value to the minimum value during the Great Recession) 1. Gross Private Domestic Investment. 2. Net Exports of Goods and Services. 3. Personal Consumption Expenditures. 4. Government Consumption Expenditures and Gross Investment.
C
What is the difference between an intermediate good and an investment good? ______ are the plant, machinery, or equipment that will be used to produce more goods or services. _____ are goods used as inputs in the production of a different final good. Why don't economists include the sale of intermediate goods and services in the calculation of GDP? A. It eliminates the possibility of including any goods in the calculation of GDP produced this year and sold next year. B. It would be difficult, if not impossible, to calculate the value of every single item used to produce the final good. C. The value of the intermediate good is already included in the market price of the final good sold to buyers. D. Whether or not intermediate goods are included in GDP depends on the method being used to calculate GDP.
C
When Josie a US resident buys an imported bottle of wine from France A. U.S. GDP increases but French GDP stays the same B. U.S. GDP decreases and French GDP increases C. U.S. GDP stays the same and French GDP increases D. Both U.S. and French GDP increase
C
Which of the following is not considered part of government spending? A. teachers' salaries paid by a local government B. a military jet purchased by the federal government C. social security payments to retirees D. a nature preserve purchased by a state government
C
Which of the following transactions represents the purchase of a final good or service? A. Dunkin' Donuts purchases coffee beans. B. General Motors purchases tires from Goodyear to install on its new Chevy Suburbans. C. Aunt Matilda buys a new convection oven for her condo in Boca Raton. D. Tiffany's buys platinum wire to use in the production of its necklaces.
C
___________ shocks arise spontaneously and unpredictably, often as a result of changes in the confidence consumers and businesses have about the economy. A. Energy B. Real C. Demand D. Supply
C
Explain the difference between physical and human capital. ______ _____ is the knowledge and skills that people bring to the workplace. ______ _____ consists of assets like machines, buildings, computers, and other tangible items. Which of the following statements is true? A. A country with more physical capital produces more output than a country with more human capital. B. The more physical and human capital a country's labor force has, the higher its economic growth is likely to be. C. Economic growth depends more on competition and trade than on the accumulation of physical and human capital. D. There is no correlation between the amount of physical and human capital that a country possesses and its GDP.
Human capital, physical capital, B
