ECO 202 HW 1
How does real GDP deal with the problem inflation causes with nominal GDP?
By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced. Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years. Real GDP separates price changes from quantity changes.
Using purchasing power parity exchange rates, which country has the largest GDP and which country has the second largest GDP? ________ has the largest GDP and ________ has the second largest GDP.
China; the United States
What are the four major components of expenditures in GDP?
Consumption, Investment, Government Purchases, and Net Exports
An article in the Wall Street Journal referred to "gross domestic product—the value of all goods and services produced in the U.S." Source: Harriet Tory, "U.S. Economy Grew at 3.2% Rate in First," Wall Street Journal, April 26, 2019. Briefly explain whether you agree with this definition of GDP.
Disagree, because GDP measures the value of all final goods and services produced in an economy, not all the goods and services produced.
In the circular flow of expenditure and income, why must the total value of production in an economy equal the total value of income?
Every penny spent on a good or service must end up as someone's income.
What is the difference between gross domestic product (GDP) and gross domestic income (GDI)?
GDP focuses on measuring the economy's output from the production side, mainly relying on spending data, whereas GDI measures output from the income side.
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.
Of the eight largest economies, which country has the most equal distribution of income and which country has the most unequal distribution of income? ________ has the most equal distribution of income and ________ has the most unequal distribution of income.
Germany; Brazil
What index measures the degree of inequality in the distribution of family income in a country?
Gini Index
GDP is an imperfect measure of economic well-being because it fails to measure what types of production?
Household production and the underground economy.
Assuming that inflation has occurred over time, what is the relationship between nominal GDP and real GDP in each of the following situations?
In years after the base year, nominal GDP is greater than real GDP. In the base year, nominal GDP is equal to real GDP. In years prior to the base year, nominal GDP is less than real GDP.
As of 2021, 19 countries in Europe had adopted the euro as their common currency. These countries are called the euro zone. According to an article in the Wall Street Journal, "The eurozone's gross domestic product contracted by 0.7% in the three months through December from the previous quarter, resulting in an annual decline of 6.8% for the bloc in 2020, the EU's [European Union's] statistics agency said on Tuesday." Source: Tom Fairless, "Europe's Economy Falls Further Behind U.S. and China. 'It's Getting Desperate.'," Wall Street Journal, February 2, 2021. Is it likely that the article is referring to the change in nominal GDP or the change in real GDP?
Real GDP, because it shows how the economy's overall production of goods and services changes over time.
Domestic Gross Product (GDP) is
The market value of all final goods and services produced in a country during a period of time.
Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being?
The value of leisure is not included in GDP. GDP is not adjusted for pollution and it does not account for unequal income distribution. GDP is not adjusted for crime or other social problems.
Of the eight largest economies in terms of GDP using purchasing power parity exchange rates, which country has the highest GDP per capita and which country has the lowest. ________ has the highest GDP per capita and ________ has the lowest GDP per capita.
United States; India
What are the four categories of income?
Wages, Interest, Rent, and Profit.
Why does inflation make nominal GDP LOADING... 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.
Which equation represents the relationship between GDP and the four major expenditure components?
Y = C + I + G + NX
In calculating GDP, which levels of government spending are included in government purchases?
spending by federal, state, and local governments
Which of the following is included in the economist's definition of investment?
the purchase of new machines, factories, or houses
