Mindtap Macroecon Ch 5

True or False: Comparing GDP between nations may not be a good measure of which nation is better off because GDP calculations include illegal transactions and transfer payments.

False

Suppose U.S. nominal GDP increases from one year to the next year. True or False: We can conclude that U.S. production of goods and services increased.

False, because we do not know whether prices have changed from one year to the next.

Hubert in Sweden orders a bottle of Vermont maple syrup from the producer's website.

exports (X)

Shen (living in New York City) paints a landscape and sells it to an art collector in Japan

exports (X)

The state of Pennsylvania repaves highway PA 320, which goes through the center of Swarthmore. The Federal Aviation Administration expands the runways at Philadelphia International Airport, which is just a few miles from Manuel and Poornima's house.

government consumption expenditures and gross investment (G)

Clancy's employer upgrades all of its computer systems using U.S.-made parts.

gross private domestic investment (I)

The Whites build an addition on their house.

gross private domestic investment (I). Gross private domestic investment consists of spending on capital goods, household purchases of new housing, and (net) additions to inventories. Because a house is a capital good, an improvement to a house is considered an investment.

Eileen (live in Swarthmore, PA) gets a new video camera made in the United States. Poornima gets a haircut.

personal consumption expenditures (C)

Clancy (live in Swarthmore, PA) buys a bottle of Italian wine. Poornima buys a new BMW, which was assembled in Germany

personal consumption expenditures (C), imports (M)

National income is a better measure of economic performance than GDP because it _____ the loss in capital value measured by depreciation.

subtracts

The government makes interest payments to persons holding government bonds.

Not Included in GDP, because it is a transfer payment, which is not made in exchange for goods or services currently produced.

Gambling is legalized in all states.

Not Included in GDP, it is a policy change and not a market transaction

Flashy Car Company sold a used car.

Not Included in GDP. It is a secondhand transaction

You chop down a cherry tree on your property in California and make a dining room table in 2017. A similar table sells for $800 in a local furniture store.

Excluded in 2017 GDP

Consumption + Investment + Government Spending + Net Exports

Expenditure Approach

Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following activities are either not accounted for or are measured inaccurately in calculations of GDP for the United States? Check all that apply. A. The costs of overfishing and other overly intensive uses of resources B. The value of babysitting services, when the babysitter is paid in cash and the transaction isn't reported to the government C. Federal government paychecks to soldiers D. The leisure time enjoyed by Americans E. The components of an cell phone that are produced in China

A B D. GDP does not include off-the-books activities, such as babysitting, which add value to the economy but are not reported to the government. It also doesn't consider the amount of enjoyment households obtain from leisure time enjoyed by Americans. Finally, GDP doesn't take into account the costs of overfishing and other overly intensive uses of resources. All of these activities, though important in measuring the true quality of life within a country, would be far too difficult to measure accurately. Federal government paychecks to soldiers are accounted for in GDP as injections from the government into the economy, and the values of the foreign components of U.S.-made goods are accounted for in GDP as part of imports.

Dmitri earns $425 per week working for Dinah's Diner

Factor Markets

Calculo, a U.S. electronics company, produces a calculator at a plant in Indonesia on March 4, 2017. Calculo imports the calculator into the United States on May 28, 2017.

Excluded in 2017 GDP

Rotato, a U.S. tire company, produces a set of tires at a plant in Michigan on September 19, 2017. It sells the set of tires to Speedmaster for use in the production of a two-door coupe that will be made in the United States in 2017. (Note: Focus exclusively on whether production of the set of tires increases GDP directly, and ignore the effect of production of the two-door coupe on GDP.)

Excluded in 2017 GDP

Awake Cafe, a U.S. coffee company, produces a latte at its location in Minneapolis on January 18, 2017. It sells the latte to a customer immediately.

Included in 2017 GDP

Fastlane, a Japanese automobile company, produces a sedan at a plant in Indiana on December 12, 2017. A family buys the sedan on December 24.

Included in 2017 GDP

IBM paid interest on its bonds.

Included in GDP. Counted as income payment for productive activities

Compensation of Employees + Rents + Profits + Net Interest + Indirect Taxes + Depreciation

Income Approach

Dmitri spends $275 to purchase legal service from Rowan and Martin Associates.

Product Markets

Frances spends $9 to have breakfast

Product Markets

Which of the elements of this scenario represent a flow from a household to a business? This could be a flow of dollars, inputs, or outputs. Check all that apply. The $425 per week Dmitri earns working for Dinah's Diner The $275 Dmitri spends to purchase legal service from Rowan and Martin Associates The breakfast Frances receives

The $275 Dmitri spends to purchase legal service from Rowan and Martin Associates

Which of the following most accurately explains why the government spending (G) component of GDP falls short of actual government expenditures? The government spending component excludes fixed investment. The government spending component excludes transfer payments because they do not represent newly produced goods and services. The government spending component excludes spending on research and development. The government spending component excludes transfer payments because they are counted in net exports.

The government spending component excludes transfer payments because they do not represent newly produced goods and services.