Chapter 12, Assignment 2

B

According to most economists, is it a serious shortcoming of GDP that it does not count household production or production in the underground economy? A) Most economists would answer "no" because the purpose of measuring GDP is to see how the economy performs over fairly long periods of a decade or more. B) 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. C) Most economists would answer "yes" because these types of production are likely to change significantly from one year to the next. D) Most economists would answer "yes" because these types of production are likely to be a large component of the economy (or a large percentage of measured GDP), especially in countries like the United States.

A

An article in the Wall Street Journal noted that many economists believe that GDP data for India are reliable because "most enterprises are tiny and unregistered, and most workers are employed off the books. The government's infrequent surveys represent only a best guess of the value being added in back-alley workshops, outdoor markets and other cash-based corners of the economy." Working "off the books" refers to A) earning income that is not reported for tax purposes. B) working in exchange for goods and services. C) reporting false income paid for workers. D) volunteering.

D

An underground economy involves all of the following except A) dealing in illegal goods and services, such as drugs or prostitution. B) trying to avoid government regulations. C) avoiding tax payment on the earned income. D) buying and selling of goods and services by obtaining a permit from the government.

D

Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being? A) GDP is not adjusted for pollution and it does not account for unequal income distribution. B) The value of leisure is not included in GDP. C) GDP is not adjusted for crime or other social problems. D) All of the above. E) A and C only.

C

GDP is an imperfect measure of economic well-being because it fails to measure what types of production? A) Household production and foreign production. B) Foreign production and the government sector. C) Household production and the underground economy. D) Business investment and foreign production.

C

Household production and the underground economy A) are fully accounted for in the Bureau of Economic Analysis' estimates of GDP. B) are an increasingly large fraction of economic activity Olin the United States. C) are not accounted for in the Bureau of Economic Analysis' estimates of GDP. D) are not considered important and, therefore, are not included when calculating GDP.

A

How does the size of a country's GDP affect the quality of life of the country's people? A) Generally, the more goods and services people have, the better off they are. B) When GDP is high, production from the underground economy, and therefore the crime rate, is high. C) There is an inverse relationship between GDP and the quality of life. D) Generally, the more goods and services people have, the worse off they are.

D

If government cannot accurately measure GDP, A) they will be unable to make a case for foreign aid. B) there will be little impact if the size of the overall economy is large, rather than small. C) there will be little impact in the short run, and even less in the long run, so long as the inaccuracies are consistent. D) businesses will not be able to correctly gauge the market, and the government will be unable to design efficient tax policies.

Increases

If lower tax rates cause fewer people to hide the income they earn, the measured GDP ______________.

A

Michael Burda of Humboldt University in Germany and Daniel Hamermesh of the University of Texas examined how workers in the United States who lost their jobs between 2003 and 2006 spent their time. They discovered that during the period when they were unemployed, the reduction in the number of hours of paid work was almost completely replaced by an increase in the number of hours spent on household production. Based on these findings, what can we predict about total production - whether or not that production is included in the calculation of GDP - in the economy when these workers became unemployed? A) If the workers had been paying other people to perform the household activities prior to unemployment, then total production will fall. B) When workers lose their jobs, total production falls since workers are no longer earning wages. C) If the workers had been paying other people to perform the household activities prior to unemployment, then total production will rise. D) Since household production is not calculated in GDP, there is a decrease in total production that comes due to unemployment.

D

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? A) GDP does not include crime rates or income distribution. B) The costs of pollution are not included. C) The value of leisure is not included. D) All of the above.

D

Some countries have larger underground economies than do other countries, because A) of government policies that are accelerating economic growth. B) of low tax rates and lax regulations that prevail in these nations. C) the informal sector can produce much more than the formal sector. D) of government policies that are retarding economic growth.

C

The problems of small firms working off the books and far from major cities would make it difficult for the Indian government to accurately measure GDP because the A) measures of value added will be distorted. B) firms do not employ enough people to report accurately to government. C) measures of GDP will be understated if these practices are common. D) measures of GDP will be overstated if these practices are common.

C

We often use real GDP per capita as a measure of a country's well-being. Review the definition of real GDP per capita before answering the following question. Today, the typical American works fewer than 40 hours per week. In 1890, the typical American worked 60 hours per week. Would the difference between the real GDP per capita in 1890 and the real GDP per capita today understate or overstate the difference in the population's economic well-being? A) The decrease in real GDP per capita between 1890 and today understates well-being because the value of leisure is not included in GDP. B) The decrease in real GDP per capita between 1890 and today overstates well-being because the value of leisure is not included in GDP. C) The increase in real GDP per capita between 1890 and today understates well-being because the value of leisure is not included in GDP. D) The increase in real GDP per capita between 1890 and today overstates well-being because the value of leisure is not included in GDP.

Increases

When the number of people working outside the home increases, the measured level of GDP ____________.

May increase or decrease

When there is a sharp decrease in the crime rate, the measured level of GDP __________________.

A

Why is GDP an imperfect measurement of total production in the economy? A) GDP does not include household production or production from the underground economy. B) GDP measures total income paid to the factors of production, not production. C) The official measure of GDP does not include intermediate goods and services. D) The BEA does not include the value of new houses in GDP.