MACRO ECON 202 HW 1 (myeconlab)
2011 2012 Nominal GDP $13 comma 495 billion $14 comma 241 billion Real GDP $11 comma 919 billion $12 comma 007 billion In 2011, the value of the GDP deflator is ___. In 2012, the value of the GDP deflator is ___.
113 119
Why is GDP an imperfect measurement of total production in the economy?
GDP does not include household production or production from the underground economy.
U.S. Gross National Product (GNP) differs from U.S. Gross Domestic Product (GDP) in which of the following ways? (Mark all that apply.)
GNP considers production that occurs outside the U.S. GNP is the value of final goods and services produced by residents of the U.S.
An article in the Economist on the Irish economy argues, "Irish progress, both economic and fiscal, is typically measured using GDP .... But for an economy where foreign firms are so dominant, GNP ... is more relevant." Source: "Fitter, Yet Fragile," Economist, January 5, 2013. The author's reasoning is based on the fact that
Gross domestic product (GDP) is the value of final goods and services produced within Ireland whereas gross national product (GNP) is the value of final goods and services produced by residents of Ireland, even if the production takes place outside Ireland.
GDP is an imperfect measure of economic well-being because it fails to measure what types of production?
Household production and the underground economy.
Suppose a house is built and sold in the year 2008. If the house is resold in the year 2019, is the value of the house included in Gross Domestic Product (GDP) for 2019?
No. GDP for 2019 includes only production that occurs during 2019.
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.
Which equation represents the relationship between GDP and the four major expenditure components?
Y= C + I + G + NX
Which of the following equations sums up the components of Gross Domestic Product (GDP)?
Y= C + I + G + NX
An underground economy involves all of the following except
buying and selling of goods and services by obtaining a permit from the government.
The largest component of gross domestic income is
wages
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 you agree or disagree with the following statement: "In years when people buy few shares of stock, investment will be low 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.
Indicate whether the following statement is correct or incorrect. "Corporate profits are much too high: Most corporations make profits equal to 50 percent of the price of the products they sell."
Incorrect: The largest component of gross domestic income is wages, which are about three times as large as profit.
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 categories of income?
Wages, Interest, Rent, and Profit.
How is the GDP deflator calculated?
GDP deflator = (Nominal GDP/Real GDP) x 100
Which of the following statements about the consumption component of GDP is not correct?
Spending on services is smaller than the amount of consumption spending on durable and nondurable goods.
Transfer payments are not included in GDP calculations because
transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.
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.
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.
Suppose that a simple economy produces only the following four goods and services: shoes, hamburgers, shirts, and cotton. Further, assume that all of the cotton is used in the production of shirts. Use the information in the following table to calculate Nominal Gross Domestic Product (Nominal GDP) for 2019. PRODUCTION AND PRICE STATISTICS FOR 2019 Product Quantity Price Shoes 100 $60.00 Hamburgers 100 2.00 Shirts 50 25.00 Cotton 1,800 0.60 The Nominal GDP for the year 2019 is $ ____
$7450
Indicate whether each of the following transactions represents the purchase of a final good: 1. The purchase of tires from Bridgestone tire company by an automobile manufacturer. 2. The purchase of a new fire truck by the local government. 3. The purchase of domestic wine by a French consumer. 4. The purchase of a new machine tool by the Ford Motor Company.
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
The following table gives nominal and real GDP for an economy for two years. Year 1 Year 2 Nominal GDP 1540.0 1960.0 Real GDP 1,400 1680.0 Based on the table, in Year 2, the value of the GDP deflator is ___. The inflation rate between Year 1 and Year 2 is ___%.
116.7 6.1
The following table illustrates the value added approach to calculating GDP. Please complete the table. Firm Value of Product Value Added By: Value Added Equals Cotton farmer Raw Cotton = $3 The cotton farmer 3 Textile mill Cotton woven into cotton fabric = $5 The textile mill 2 Shirt company Fabric made into a shirt = $17 The shirt company 12 L.L.Bean Shirt sold on L.L.Bean's website = $37 L.L.Bean ___ Total Value Added __
20 37
Consider the following simple economy that produces only three goods: 2009 (Base Year) 2017 Product Quantity Price Quantity Price Denim pants 80 $40 100 $50 Wine 90 11 80 10 Textbooks 15 90 20 100 Real GDP in 2017 equals $____
6680
The figure above shows the values of the components of GDP for the year 2014. Based on the data shown, which of the following statements regarding the components of GDP are false?
Consumer spending on services is less than the sum of spending on durable and nondurable goods.
Indicate whether you agree or disagree with the following statements. "If nominal GDP is less than real GDP, then the price level must have fallen during the year."
Disagree. Nominal GDP is less than real GDP if the current price level is less than the base year price level. A fall in the price level during the year is neither necessary nor sufficient to cause nominal GDP to be less than real GDP.
Indicate whether you agree or disagree with the following statements. "Whenever real GDP declines, nominal GDP must also decline."
Disagree. Real GDP falls if output falls. Nominal GDP can increase if output falls and prices rise.
If you were attempting to forecast the level of consumer spending by households, which measure of total production or total income might be most helpful in making your forecast?
Disposable personal income
In the circular flow of expenditure and income, why must the total value of production in an economy equal the total value of income?
Every penny spent on a good or service must end up as someone's income.
Indicate whether each of the following is a final good, an intermediate good, or neither. 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
According to Dan Sichel, an economist at Wellesley College, the amount of time a singer spends working on a record album in a recording studio is "quite analogous to a factory investing in a new machine." Source: David Kestenbaum, "Lady Gaga Writing a New Song Is Like a Factory Investing in a New Machine," www.npr.org, April 25, 2013. Which of the following statements is correct?
Song development time produces songs, similar to investment in a factory produces physical goods.
What is the difference between the value of a firm's final product and the value added by the firm to the final product?
The value of a firm's final product is the sale price; value added is the difference between the sale price and the price of intermediate goods.
Would the services of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2019?
Yes. GDP for 2019 includes the market value of final goods and services. This includes real estate services.
An article in the Wall Street Journal states that a "change in ... inventories subtracted 0.57 percentage point from" what would have been the increase in GDP. Source: Eric Morath And Ben Leubsdorf, "GDP Slows to Crawl in First Quarter, Up 0.1%," Wall Street Journal, April 30, 2014. For this result to occur, the change in inventories would have to have been ...
a decrease because this would reduce investment and GDP.
A recession occurs when an economy experiences a period in which there is
a decrease in total production.
Buyers and sellers in the underground economy prefer to use cash because
cash leaves little in the way of evidence or a paper trail.
Which of the following are likely to increase the measured level of GDP and which are likely to reduce it? a. When the number of people working outside the home decreases, the measured level of GDP ... b. When there is a sharp decrease in the crime rate, the measured level of GDP ... c. If higher tax rates cause more people to hide the income they earn, the measured GDP ...
decreases may increase or decrease decreases
When examining the circular-flow diagram,
households can use some of their income to purchase goods from foreigners as imports.
Indicate whether you agree or disagree with the following statements. "If a recession is so severe that the price level declines, then we know that both real GDP and nominal GDP must decline."
Agree. If both output and prices are falling, then both real GDP and nominal GDP will fall.
Indicate whether you agree or disagree with the following statements. "If real GDP stayed the same while nominal GDP declined between 2008 and 2009, then the GDP deflator must also have declined."
Agree. If nominal GDP declined between 2008 and 2009, then the GDP deflator must also have declined.
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?
All of the above would push GNP above GDP.
Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being?
All of the above.
How does real GDP deal with the problem inflation causes with nominal GDP?
All of the above.
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?
All of the above.
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.
Indicate which component of GDP will be affected by each of the following transactions involving the Ford Motor Company. a. You purchase a new Ford Escape Hybrid from a Ford dealer. b. You purchase a 2013 (preowned) Ford Escape Hybrid from a friend. c. Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana. d. Ford produces 1,000 Escapes in a factory in Missouri and ships them to a car dealer in Shanghai, China. e. Ford purchases new machine tools to use in its Missouri Escape factory. f. The state of Missouri builds a new highway to help improve access to the Ford Escape plant.
a. Consumption Expenditure b. Not included in GDP calculation c. Not included in GDP calculation d. Net Export Expenditure e. Investment Expenditure f. Government Expenditure
To calculate personal income from national income, which of the following must the BEA do?
add government transfer payments
An article in the New York Times describes the much greater use of cash, as opposed to checks and credit cards, in buying and selling in China. The article describes someone bringing several bags of cash containing the equivalent of $130,000 into a car dealership to buy a new BMW. Another article notes: "Many economists believe that the rise in [use of] cash is strongly related to growth in the so-called underground economy." Sources: David Barboza, "Chinese Way of Doing Business: In Cash We Trust," New York Times, April 30, 2013; and Bruce Bartlett, "America's Most Profitable Export Is Cash," New York Times, April 9, 2013. The underground economy is the
buying and selling of goods and services that is concealed from the government.
Inventories are part of investment and therefore included in GDP because
firms produce goods, however sometimes the goods may be unsold at the time GDP is computed.
In the circular-flow diagram, who supplies factors of production in exchange for income?
households
The circular-flow diagram shows that all sources of income are owned by
households
Assuming that inflation has occurred over time, what is the relationship between nominal GDP LOADING... and real GDP in each of the following situations? a. In years after the base year, nominal GDP ___ real GDP. b. In the base year, nominal GDP ___ real GDP. c. In years prior to the base year, nominal GDP ___ real GDP.
is greater than is equal to is less than
One major component of GDP that can be negative is
net exports.
Some countries have larger underground economies than do other countries, because
of government policies that are retarding economic growth.
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 in 2012 has a value of 98.0, then
prices have decreased 2 percent between the base year and 2012.
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.
According to an article in the Economist, "China's GDP grew by 7% in the second quarter, which was higher than had been expected." Source: "World This Week," Economist, July 15, 2015. Is it likely that percentage the article is referring to is the change in
real GDP.
Suppose the amount the federal government collects in personal income taxes decreases, 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 Personal income will Disposable personal income will
remain the same remain the same increase
In the United States, the difference between GNP and GDP is ___ that of many other countries.
smaller than
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
the market value of all final goods and services produced in a country during a period of time.
Which of the following is included in the economist's definition of investment?
the purchase of new machines, factories, or houses
Real GDP is
the value of goods and services evaluated at base year prices.
The business cycle exists because
total production experiences periods of increases and periods of decreases.
The circular-flow diagram shows that ________ should equal ________.
total expenditure; total income
