ECO 202 Chapter 8

Gross domestic product understates the total production of final goods and services because of the omission of a. inflation b. household production c. intermediate goods d. exports

B

(in billions) 2011 2012 Nom GDP 13,195 13,841 Real GDP 11,319 11,567 In 2011, the value of the GDP deflator is ( ) In 2012, the value of the GDP deflator is ( )

GDP deflator = nominal GDP/ Real GDP *100 in 2011=13,195/11,319*100= 117 in 2012= 13,841/11,567 *100=120

If 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 (larger than/ smaller than) GNP

larger than

National income is a. Nominal GDP minus GNP b. GDP minus depreciation c. Nominal GDP minus personal taxes d. real GDP minus personal taxes

B

What are the four categories of income? a. consumption, investment, government purchases , and net exports b. Wages, interest, rent, and profit c. Labor, capital, natural resources, and entrepreneurship d. wages, salaries, interest, and dividends

B

Which component of gross domestic income is the largest? a. profits b. interest c. wages d. rent

C

what are the four major categories of expenditure? a. labor, capital, natural resources, and entrepreneurship b. wages, interest, rent, and profit c. consumption, investment, government purchases, and net exports d. final goods, intermediate goods, production, and income

C

Disposable personal income is a. personal income minus indirect business taxes b. national income minus personal taxes c. personal income minus personal taxes d. national income minus depreciation

C.

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 worse off they are b. when GDP is high, production from the underground economy, and therefore the crime rate, is high c. generally, the more goods and services people have, the better off they are d. there is an inverse relationship between GDP and quality of life

C.

Personal income is a. national income minus income taxes b. national income plus government transfer payments c. equal to the value of all final goods and services produced within a country's borders during one year d. national income minus retained corporate earnings plus government transfer payments and interest on government bonds

D

One major component of GDP that can be negative is a. government expenditures b. investment c. consumption d. Net exports

D.

GDP is best defined as a. the market value of all final goods and services produced in a country during a period of time, typically one year b. the total quantity of goods and services produced in a country during a period of time c. the amount of all incomes earned by all citizens of a country, including those living overseas d. the total value of all goods that can be found in a country

A.

What happens if we measure GDP by adding up the value of every good and service produced in the economy? a. GDP is overestimated because of double counting b. this is the correct measure of real GDP but not nominal GDP c. This is the correct measure of nominal GDP but not real GDP d. GDP is underestimated because of double counting

A.

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 increase in real GDP per capita between 1890 and today understates well being because the value of leisure is not includede in GDP c. The decrease in real GDP per capita between 1890 and today overstates 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

B

Which of the following is not a shortcoming of GDP as a measure of well-being? a. GDP is not adjusted for the effects of pollution caused by the production of goods and services b. GDP only counts final goods and services and not intermediate goods c. GDP is not adjusted for crime and other social problems d. GDP does not include the value of leisure

B

Which of the following would be included in the gross national product (GNP) of the united states? a. production from a canadian firm that operates in Montana b. Production from a U.S. firm that operates in Mexico c. Production from a Hungarian citizen who works in Denver, CO d. All of the above are included in the GNP of the U.S.

B

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? a. Net exports will increase GDP by $8 billion b. Net exports will increase GDP by $16 billion c. Net exports will decrease GDP by $8 billion d. The increase in exports is offset by the decrease in imports, so there is no change in net exports and no effect on GDP

B Net exports= value of exports- value of imports value of exports= increase in 8 billion= 8 billion value of imports= decrease in 8 billion=-8 billion net exports= 8 billion -(-8 billion) =$16 billion

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 "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. b. 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. c. 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. d. Most economists would answer​ "yes" because these types of production are likely to change significantly from one year to the next.

C

If Americans still worked 60 hour work weeks, as they did in 1890 a. both GDP and the well being of the typical person would be lower than they are b. GDP would be lower than it is, but well being of the typical person would be higher c. GDP would be much higher than it is, but the well being of the typical person would no necessarily be higher. d. both GDP and the well being of the typical person would be much higher than they are

C

If the GDP deflator in 2012 has a value of 98.0, then a. the inflation rate in 2012 is 2% b. prices have increase by 9.8% between the base year and 2012 c. prices have decreased 2% between the base year and 2012 d. the inflation rate in 2012 is -2%

C

Indicate whether you agree or disagree with the statement "in years when people buy few shares of stock, investment will be low and, therefore, so will GDP a. agree: GDP= C+I+G+NX. therefore, as "I" (investment) decreases, GDP decreases b. Disagree: while GDP will be low in this​ case, it is the result of a decrease in consumer expenditure on​ stocks, not investment spending. c. ​Disagree: Investment as a component of GDP refers to the purchase of physical and human capital and​ inventory, not stock purchases. d. Agree: When investment is low​, people must have less money to spend. ​ Therefore, GDP decreases.

C.

National income is a. GNP plus depreciation b. GDP minus sales taxes c. GDP minus depreciation d. NNP minus income taxes

C.

The GNP of the USA is equal to a. The value of the total income received by all households in the United States, after taxes are paid b. The value of final goods and services produced within the United states c. The value of final goods and services produced by U.S. factors of production d. the value of total income received by all of the residents of the united states

C.

The largest component of gross domestic income is a. interest b. rent c. wages. d. profits

C.

Which of the following accurately describes an effect of hurricane katrina on GDP? a. GDP would decrease reflecting the cost of cleanup b. GDP would increase well-being c. GDP would increase reflecting the costs of cleanup d. GDP would increase reflecting the decrease in production that occurred during the storm and the productive capacity lost in the storm

C.

which equation represents the relationship between GDP and the four major expenditure components? a. y=(C+I)/(G+NX) b. Y=C(I+G+NX) c. Y=C+I+G+NX d. Y=(C+I)-(G+NX)

C.

How does real GDP deal with the problem inflation causes with nominal GDP? a. Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years b. real GDP separates price changes from quantity changes c. by keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced d. all of the above e. A and C only

D

GDP is a. the amount of income generated from wages, rents, and profits in a country during a period of time b. the quantity of all final goods and services produced in a country during a period of time c. the value of all expenditures made by households and firms in a country during a period of time d. the market value of all final goods and services produced in a country during a period of time

D.

In the U.S. GDP and GNP are close in value. Under what circumstances would GNP be much larger than GDP? a. Many U.S. citizens work in foreign countries while few foreign citizens currently work in the U.S. b. few foreign citizens currently work in the U.S. and few foreign firms maintain facilities in the U.S. c. Few foreign firms maintain facilities in the U.S. while many U.S. firms are currently operating abroad. d. All of the above would push GNP above GDP

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 value of leisure is not included c. the costs of pollution are not included d. all of the above

D.

Which of the following is considered to be a problem in using GDP as a measure of national well being? a. items included in GDP are sold in markets b. GDP does not include the value of illegal goods, such as drugs c. GDP does not include products that you produce for yourself d. GDP is not adjusted to account for depletion of natural resources

D.

all of the following are correct except a. gross domestic income includes sales tax, depreciation, and other items b. gross domestic income is GDP calculated as the sum of income payments to households c. Gross domestic income=Wages+interest+profits+rent d. Gross domestic income does not include health insurance benefits received by the employees

D

Suppose 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 (increase/decrease/ remain the same) Personal income will (increase/decrease/remain the same) Disposable personal income will (increase/decrease/remain the same)

Remain the same Remain the same Decrease National Income:GDP - Consumptions GDP remains constant so National income remains the same Personal income:national income + income National income remains the same so does Personal income Disposable income: personal income - personal taxes personal income remains the same but taxes are increased. This decreases disposable personal income

2009 (base year): Product Quantity price Denim pants 80 $40 Wine 90 $11 Textbooks 15 90 2017: product quantity price denim pants 100 $50 wine 80 $10 textbooks 20 $100 Real GDP in 2017 is ( )

$6,680 Real GDP: value of final goods based off of base year's prices Real GDP=Quantity * base year price Real GDP (100*$40)+(80*$11)+(20*$90)=$6680

Year 1 (Base year): Product Quantity $ per unit Pumpkin Pies 130 $3.00 Software 850 $50.00 Year 2: Product Quantity $ per unit Pumpkin pies 162.50 $4.50 Software 1,275.00 $100.00 In year 2, Nominal GDP is equal to ( ), and real GDP is ( ).

$128,231.25 $64,237.50 Nominal GDP: value of final goods at current year Nominal GDP=Quantity* $ per unit in current year Nominal GDP=(162.50*$4.50)+(1275*$100)=$128,231.25 Real GDP: value of final goods at base year prices Real GDP=Quantity* $ per unit in base year Real GDP=(162.50*$3.00)+(1275*$50)= $64,237.50

A farmer produces corn​, which is valued at ​$0.75. The corn is then sold to a​ miller, who turns it into cornmeal​, which is valued at ​$1.50. The miller then sells the cornmeal to a​ bakery, which uses it to make muffins​, valued at ​$3.00. ​ Finally, the bakery sells the muffins to a grocery​ store, where it is sold to a consumer for ​$6.00. Firm value added ($) Farmer ( ) Miller ( ) Baker ( ) Grocery Store ( ) Total value added to GDP ( )

0.75 0.75 1.50 3 6

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 ( is the purchase of a final good/ is not the purchase of a final good) 2. The purchase of two new elementary school buildings by the state government. (is the purchase of a final good/ is not the purchase of a final good) 3. The purchase of domestic wine by a french consumer. (is the purchase of a final good/ is not the purchase of a final good) 4. The purchse of a new machine tool by the ford motor company. (Is the purchase of a final good/ is not the purchase of a final good)

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

Household production and the underground economy a. are not accounted for in the Bureau of Economic Analysis' estimates of GDP b. are fully accounted for in the Bureau of Economic Analysis' estimates of GDP c. are an increasingly large fraction of economic activity in the United States d. are not considered important and, therefore, are not included when calculating GDP

A

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 GDP? a. larger: the value of all goods and services sold would include intermediate goods b. Larger: measured GDP includes quantities of goods and services, not the values of goods and services c. Equal: measured GDP is calculated by adding the values of every good and service sold during the year Smaller: measured GDP includes the value of every good and service sold and the market value of all final goods

A

Scott is a woodworker and charges​ $125 an hour for his time manufacturing custom-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? a. GDP is not affected by Scott's production of the jewelry box b. GDP rises by $1,875 c. GDP rises by 125 d. GDP falls by $1,875

A

Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next? a. When nominal GDP increases from year to​ year, the increase is due partly to changes in prices and partly to changes in quantities. b. GDP is a measure of production in quantity terms. c. Nominal GDP separates increases in GDP as a result of price changes from increases in GDP as a result of quantity changes. d. all of the above e. a and b only

A

What are the four major components of expenditures in GDP a. Consumption, intermediate goods and services, and net exports b. Consumption, investments, government purchases, and net exports c. Consumption, intermediate goods, government purchases, and new expenditures d. consumption, investment, government purchases, and non-durable expenditures

B.

Year 1 (base year): Product Quantity $ per unit Corn bread 105 3 software 850 30 Year 2: Product Quantity $ per unit Corn bread 131.25 4.50 Software 1,275 60 In year 2, nominal GDP is ( ) and the real GDP is ( )

Nominal GDP= Quantity of current year * price of current year =(131.25*4.5)+(1275*60)=$77090.63 Real GDP=Quantity of current year* price of base year =(131.25*3)+(1,275*30)= $38643.75

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