Econ Chapter 12
Why is real GDP not a perfect measure of well-being?
GDP does not include crime rates or income distribution. The costs of pollution are not included. The value of leisure is not included.
Why is GDP an imperfect measurement of total production in thee economy?
GDP does not include household production or production from the underground economy.
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 formula
GDP minus depreciation.
What is not a shortcoming of GDP as a measure of well-being?
GDP only counts final goods and services and not intermediate goods.
When a significant fraction of domestic production takes place in foreign-owned facilities, a country's difference between GDP and GNP is as follows:
GDP will be much larger than GNP (Gross National Product)
If Americans still worked 60-hour weeks, as they did in 1890, then how would that reflect in GDP and Well-Being
GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher.
The Bureau of Economic Analysis' does not include what when estimating GDP?
Household production and the underground economy
Is it a serious shortcoming of GDP that it does not count household production or production in the underground economy?
NO: these types of production do not affect the most important use of the GDP measure (changes in total production over short periods of time)
Purchases of new machines, factories, or houses are considered as
investment
Personal income is
national income - retained corporate earnings + government transfer payments and interest on government bonds.
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 equal to
personal income minus personal tax payments.
Disposable personal income is
personal income minus personal taxes.
If the GDP deflator (a measure of the price level, calculated by dividing NGDP by RGDP and multiplying by 100:) in 2012 has a value of 98.0, then
prices have decreased 2 percent between the base year and 2012.
In the circular-flow diagram, who supplies factors of production in exchange for income?
households
Over time, prices may change relative to each other. To take this change into account, the Bureau of Economic Analysis calculates
real GDP using chain weights (using previous-year prices to adjust current-year production)
In calculating GDP, which levels of government spending are included in government purchases?
spending by federal, state, and local governments
Gross domestic product (GDP) 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.
Real GDP is
the value of goods and services evaluated at base year prices.
The difference between the price the firm sells a good for and the price the firm paid other firms for intermediate goods is called
value added.
The largest component of gross domestic income is
wages
An important conclusion to draw from the circular-flow diagram is that
we can measure GDP by calculating the total value of expenditures on final goods and services, or we can measure GDP by calculating the value of total income.
What are the four major categories of expenditure?
Consumption, investment, government purchases, and net exports.
What are the four categories of income?
Wages, Interest, Rent, and Profit.
Which of the following is true about the consumption component of U.S. GDP?
Consumer spending on services is greater than the sum of spending on durable and nondurable goods.
Subtract what from GDP to obtain national income?
depreciation
Which of the following is true about the government purchases component of U.S. GDP?
Purchases by state and local governments are greater than purchases by the federal government.
If prices are rising what would be true of the relationship between nominal GDP and real GDP
RGDP < NGDP because prices are rising.
Real GDP Formula
Sum of Q2 * P1
To calculate personal income from national income, which of the following must the BEA do?
add government transfer payments