Chapter 8

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?

-The costs of pollution are not included. -The value of leisure is not included. -GDP does not include crime rates or income distribution

Indicate whether you agree or disagree with the following​ statement: ​"In years when people buy many shares of​ stock, investment will be high 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.

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?

-Many U.S. citizens currently work in foreign countries while few foreign citizens currently work in the U.S. -Few foreign firms maintain facilities in the U.S. while many U.S. firms are currently operating abroad. -Few foreign citizens currently work in the U.S. and few foreign firms maintain facilities in the U.S.

How does real GDP deal with the problem inflation causes with nominal​ GDP?

-Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years. -By keeping prices​ constant, we know that changes in real GDP represent changes in the quantity of output produced. -Real GDP separates price changes from quantity changes.

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?

The increase in real GDP per capita between 1890 and today understates​ well-being because the value of leisure is not included in GDP.

Which of the following is considered to be a problem in using GDP as a measure of national ​well-being​?

GDP is not adjusted for changes in crime and other social problems.

Scott is a woodworker and charges​ $125 an hour for his time manufacturing customminus made wood products. For his​ wife's birthday, he designs and creates an intricate birdseye maple jewelry box that takes him 15 hours to complete. By how much and in what direction does GDP change as a result of his​ efforts?

GDP is not affected by​ Scott's production of the jewelry box.

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 is

GDP minus depreciation.

National income is

GDP minus depreciation.

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.

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.

Which of the following accurately describes an effect of hurricane Katrina on​ GDP?

GDP would increase reflecting the costs of cleanup.

How does the size of a​ country's GDP affect the quality of life of the​ country's people?

Generally, the more goods and services people​ have, the better off they are.

All of the following are correct except

Gross domestic income does not include health insurance benefits received by the employees.

The largest component of gross domestic income is

Wages

What are the four categories of​ income?

Wages, Interest,​ Rent, and Profit.

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

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.

Between 2015 and​ 2016, if an​ economy's exports rise by​ $8 billion and its imports fall by​ $8 billion, by how much will GDP change between the two​ years, all else​ equal?

Net exports will increase GDP by​ $16 billion.

One major component of GDP that can be negative is

Net exports.

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.

Suppose the amount the federal government collects in personal income taxes increases, 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 _____________________________.

Remain the same.

Suppose the amount the federal government collects in personal income taxes increases, while the level of GDP remains the same. What will happen to the values of national​ income, personal​ income, and disposable personal​ income? Personal income will________________________.

Remain the same.

Which equation represents the relationship between GDP and the four major expenditure​ components?

Y=C+I+G+NX

Suppose the amount the federal government collects in personal income taxes increases, while the level of GDP remains the same. What will happen to the values of national​ income, personal​ income, and disposable personal​ income? Disposable personal income will____________________.

decrease

Gross domestic product understates the total production of final goods and services because of the omission of

household production.

Indicate whether each of the following transactions represents the purchase of a final good The purchase of tires from the Bridgestone tire company by an automobile manufacturer

is not a purchase of a final good

Indicate whether each of the following transactions represents the purchase of a final good The purchase of French wine by a U.S. consumer

is the purchase of a final good

Indicate whether each of the following transactions represents the purchase of a final good The purchase of a new machine tool by the Ford Motor Company.

is the purchase of a final good

Indicate whether each of the following transactions represents the purchase of a final good The purchase of a new fleet of police cars by the local government

is the purchase of a final good

Personal income is

national income minus retained corporate earnings plus government transfer payments and interest on government bonds.

Indicate whether each of the following is a final​ good, an intermediate​ good, or neither. One share of Google stock.

neither

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.

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.

Gross Domestic Product​ (GDP) is

the market value of all final goods and services produced in a country during a period of time.

The Gross National Product​ (GNP) of the United States is equal to

the value of final goods and services produced by U.S. factors of production.

Which component of gross domestic income is the​ largest?

wages

f a large amount of production within a country takes place at foreign owned​ facilities, then it is likely that the​ country's GDP will be ________________ GNP.

Larger than

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 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 each of the following is a final​ good, an intermediate​ good, or neither. Coffee beans purchased by a coffee shop

Intermediate good

Household production and the underground economy

are not accounted for in the Bureau of Economic​ Analysis' estimates of GDP.

Indicate whether each of the following is a final​ good, an intermediate​ good, or neither. A new​ pick-up truck purchased by a consumer

final good

Indicate whether each of the following is a final​ good, an intermediate​ good, or neither. A new home purchased by a family.

final good