CH.19 REVIEW
Which of the following is true about the consumption component of U.S. GDP in 2016?
Consumer spending on services was greater than the sum of spending on durable and nondurable 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
If Americans still worked 60-hour weeks, as they did in 1890,
GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher.
According to most economists, is it a serious shortcoming of GDP that it does not count household production or production in the underground economy?
Most economists would answer "no" because these types of production do not affect the most important use of the GDP measure, which is to measure changes in total production over short periods of time.
In the circular-flow diagram, who supplies factors of production in exchange for income?
households
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.
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.
In calculating GDP, which levels of government spending are included in government purchases?
spending by federal, state, and local governments
Gross domestic product 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.
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 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.
Which of the following is not a shortcoming of GDP as a measure of well-being?
GDP only counts final goods and services and not intermediate goods.
Ireland is one of the few countries where GDP and GNP differ dramatically. Using GDP per person, Ireland has the third highest income per person in Europe. An article on the Financial Times website states that: "With GDP being about 20 percent larger than GNP, Irish people appear (when using GDP per person) to be richer than what they feel they are." Source: Valentina Romei, "Ireland Is the Wealthiest Economy in Europe...or Not," ft.com, May 13, 2015. Briefly explain the author's reasoning.
A significant portion of production in Ireland is by foreign-owned firms, which makes the Irish people appear to be richer than they feel they are.
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.
Which of the following is true about the government purchases component of U.S. GDP in 2016?
Purchases by state and local governments were greater than purchases by the federal government.
To calculate personal income from national income, which of the following must the BEA do?
add government transfer payments
Household production and the underground economy
are not accounted for in the Bureau of Economic Analysis' estimates of GDP.
Which of the following do we subtract from GDP to obtain national income?
depreciation
