ECON ch.16

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________ measures the output of final goods in a country in a given​ year, valued at a particular base​ year's prices.

real GDP

The best measure of a​ country's standard of living discussed in this chapter is _______

real GDP per capita

_____ are income earned by landlords, ____ are income earned by business owners, and _____ are income earned by workers

rents, profits, wages

2019 Production of cupcakes: 10 Production of candy bars: 20 Price of cupcake: $4 Price of candy bar: $3 Nominal GDP:$____ Real GDP Base Year 2019:$____ 2020 Production of cupcakes: 20 Production of candy bars: 40 Price of cupcake: $2 Price of candy bar: $1 Nominal GDP:$____ Real GDP Base Year 2019:$____ Thus, using your​ calculations, it ______ possible for nominal GDP to decrease while real GDP increases.

100, 100, 80, 200, is

Bolivia has an official GDP per capita of ​$5 comma 300​; the​ country's underground economy is estimated to be​ two-thirds the size of its official economy. Cambodia has an official GDP per capita of about ​$2 comma 650​, and its underground economy is about half the size of its official economy. When the transactions of the underground economy are​ included, GDP per capita in Bolivia is ​$_____ When the transactions of the underground economy are​ included, GDP per capita in Cambodia is ​$_____ Because of the underground​ economy, the typical Bolivian is _____ _____ _____ as well off as the typical Cambodian.

8833, 3975, more than twice

The goal of GDP is to measure a​ country's overall production of goods and services. Why do we quote GDP in terms of dollars rather than in terms of physical​ goods? A. It provides a common denominator to add up the value of everything the economy produces into one piece of data. B. If we quoted GDP in terms of physical​ goods, then the intermediate goods would be counted twice. C. All else​ equal, people are likely to work harder and work more when they see GDP expressed in dollar terms. D. If we quoted GDP in terms of physical​ goods, it would overestimate the true value of GDP.

A

______ focus on studying one market at a time, such as the market for television programs A. Microeconomists B. Macroeconomists C. Isolationists D. Political scientists

A

If the quantity of goods and services produced in an economy​ decreases, A. it may be possible for real GDP to increase. B. it may be possible for nominal GDP to increase. C. real GDP will certainly increase. D. nominal GDP will certainly decrease.

B

Suppose that between the years 2524 and​ 2525, U.S. production remains unchanged but prices increase by​ 6%. Then A. Nominal GDP increases and real GDP decreases B. Nominal GDP increases and real GDP is unchanged C. Nominal GDP increases and real GDP increases D. Nominal GDP is unchanged and real GDP increases

B

The economy of Paulonia grows at​ 3.5% per year. How many years will it take for real GDP in Paulonia to​ double? A. 20 B. 35 C. 70 D. 2

B

Which of the following statements best captures the story of the​ world's economic growth? A. The​ world's most developed countries experienced large spurts of growth that catapulted them to wealth. B. Most of the​ world's economic growth has taken place in the past 300 years. C. Most of the​ world's wealthy economies have had slow and sustained growth for the last 200 years. D. People in 1900 lived little different than people in the year 1000.

B

Who declares when the U.S. economy officially enters a​ recession? A. The president of the United States B. The National Bureau of Economic Research C. The Department of Commerce D. The Bureau of Economic Analysis

B

A​ __________ is a downturn of the​ economy, as determined by the NBER. A.Depreciation B. Boom C. Recession D. Bust

C

Building houses, or residential fixed investment, is a type of ______ expenditure A. Consumption B. Government spending C. Investment D. Inventory investment

C

Table 16.2 Year 2015 Production of surfboards: 10 Production of umbrellas: 50 Price of surfboards: $200 Price of umbrellas: $15 Year 2016 Production of surfboards: 16 Production of umbrellas: 75 Price of surfboards: $250 Price of umbrellas: $20 Consider the data above for​ Fredonia, a country that produces only two​ products: surfboards and umbrellas. Refer to Table 16.2. Real GDP for Fredonia for 2016 using 2015 as the base year equals A. ​$2,750. B. ​$3,500. C. ​$4,325. D. $5,500.

C

Which of the following transactions is included in the current calculations of US GDP? A. General Mills buys oats to make Cheerios B. General Motors builds a pickup truck at a manufacturing facility in Brazil C. General Electric purchases a machine that will be used to produce LED light bulbs D. General Colin Powell purchases a​ Victorian-era mansion from former Vice President Al Gore

C

Give an example of a U.S. import that is a consumer durable good. A. Ford pickup truck. B. A box of Swiss chocolates. C. Bottles of Coca minus Cola. D. Toyota Camry.

D

Physical capital makes workers​ ________, so a declining capital stock​ ________. A. more​ productive; helps an economy grow B. less​ productive; helps an economy grow C. less​ productive; hinders economic growth D. more​ productive; hinders economic growth

D

Which of the following has been shown to positively affect​ countries' economic​ growth? A. A more educated workforce B. A large stock of physical capital C. Government that establishes and protects property rights D. All of the above positively affect​ countries' growth

D

How many goods and services will the country's labor force produce?

Macroeconomics

What is the overall level of unemployment in the economy?

Macroeconomics

How many hours should you work this week?

Microeconomics

How many workers should a particular firm hire?

Microeconomics

The study of decisions made by individuals, businesses, and other entities such as governments

Microeconomics

In the United​ States, the typical worker works about 32 hours per​ week; in​ Singapore, the typical worker works about 43 hours per week. In the United​ States, GDP per capita is about​ $52,000; in​ Singapore, it is about​ $60,000. Explain the effect that workweek length might have on the relative​ well-being of people in the United States and Singapore. Americans are likely _________than GDP numbers suggest because they enjoy ______ leisure compared to Singapore.

better off, more

Deviations from the​ long, steady trend of GDP are called ________

business cycles

A person buys a new set of sheets for his bed. That purchase is counted in the ______ component of GDP

consumption

The following are examples of shocks that could originate on the​ buyers' side of the market. Identify the result of the shock and then identify the type of spending that is affected. Income taxes​ increase, which ________ consumers' disposable​ incomes, so ______ falls. Government faces a budget​ deficit, so it _______ spending and ______ _____falls. Interest rates​ increase, which _______ the cost of​ borrowing, so ______ falls.

decreases, consumption, decreases, government spending, increases, investment

True or False The omission of the underground economy can cause GDP to be overstated ___ Household production is not included in GDP _____ If GDP included the value of​ leisure, then measured GDP would decrease _____ GDP fails to account for economic​ "bads" like pollution____ GDP reflects the distribution of income and thus adequately reveals income inequality _____

false, true, false, true, false

The graph shows that women in rich countries tend to have _____ children than women in poor countries. The graph shows that as GDP per capita​ increases, life expectancy ______ The graph shows that as GDP per capita​ increases, the mean number of years in school _______ ​Thus, there is a _____ correlation between real GDP per capita and meaningful life outcomes.

fewer, increases, increases, strong

_____ _____ _____ is the market value of all final goods and services produced in a country in a given year

gross domestic product

The _____ to calculating GDP adds up wages, rents, and profits to determine GDP

income approach

Raw materials or components that will eventually be transformed into a finished product are called _______

intermediate goods

_____ include spending by businesses on factories, tools, and research and development

investment expenditures

The study of the economy as a whole is called ______

macroeconomics

______ is the study of the economy as a whole and ______ is the study of one market at a time

macroeconomics, microeconomics

_____ are the sum of the goods produced in America and sold abroad, minus the goods and services that were produced abroad but purchased in America

net exports

A small island economy produces 10 rafts in 2015 and sells them at a price of ​$30 per raft. In​ 2016, the island produces 14 rafts and sells them at ​$35 per raft. Nominal GDP in 2015 is ​$____ Nominal GDP in 2016 is ​$____ Real GDP in​ 2015, using 2015 as the base​ year, is ​$____ Real GDP in​ 2016, using 2015 as the base​ year, is ​$____

300, 490, 300, 420

All of the following are vital ingredients for experiencing economic growth except​ ____________. A. Closed door trade policy. B. International trade. C. Property rights. D. Political stability.

A

Can the news media affect the​ economy? A. ​Yes, the media can create uncertainty about the economy and cause people to change their spending decisions. B. ​No, other things​ equal, the media is simply reporting the facts about the factors that drive the economy. C. ​No, in​ general, people are​ rational, so the media likely has no effect on their behavior and spending decisions. D. ​Maybe, but many people are skeptical of the​ media, so it likely has no effect on people and their spending habits. The news media is more likely to be responsible for a _______

A

GDP for a given year valued in that​ year's prices is called​ ________________. A. Nominal GDP B. Real GDP C. Adjusted GDP D. Per capita GDP

A

Which of the following are topics macroeconomists study that microeconomists generally do not? A. Price of a specific product. B. Overall level of prices. C. Number of workers employed by a certain firm. D. Unemployment rate. E. GDP.

A, D, E

"The job of the macroeconomist is simple: All he or she must do is summarize what happens in microeconomic markets." Is this statement true or false? Why? A. ​True: Compared to​ microeconomists, who analyze a single market at a​ time, the job of a macroeconomist is simple. B. ​False: They develop models so policymakers know what decisions to make to keep the economy growing. C. ​True: If they are only summarizing what happens in microeconomic​ markets, microeconomists have the hard job. D. ​False: Macroeconomists care more about what happens in a single market than they do about the whole market.

B

Expenditures on physical plants and equipment, which are then used to produce other goods, are referred to as _______ A. Intermediate goods B. Fixed investment C. Inventory investment D. Consumer durables

B

An example of fixed investment spending for a business is A. a purchase of a home by a household. B. ​$15 million of unsold furniture at a furniture store. C. a purchase of a pizza oven by an Italian restaurant. D. a purchase of a corporate bond by Google.

C

Suppose that in the economy of​ Tilden, real GDP per capita grows at​ 10%, doubling every 7 years. In 35​ years, the typical resident of Tilden will be​ ________ times as rich as the typical resident today. A. 5 B. 2 C. 32 D. 10

C

​"Over long time​ horizons, small differences in economic growth between countries lead to correspondingly small differences in standard of​ living." A. ​True: If countries want to increase their​ well-being, they must experience growth at a rapid and aggressive pace. B. ​True: A country would require a growth rate of at least​ 10% in order to experience an increase in living standards. C. ​False: Growth rates are not related to standard of living. D. ​False: Even small growth rateslong dash​say, as little as​ 2% sustained over​ time, can result in large increases in real GDP

D

Pro or Con? GDP provides a summary measure of an​ economy's performance ____ There is a strong correlation between GDP and important life outcomes _____ It measures income but not equality ____ GDP is an objective measure of economic performance ____ GDP measures only legitimate market transactions ____

pro, pro, con, pro, con

Events that fundamentally reduce​ society's ability to produce goods and services are called _______

supply shocks

If an automobile is produced by chevrolet in 2008 but is not sold until 2010, the automobile is included in which year's GDP? A. 2008 B. 2010 C. Both 2008 and 2010 D. 2009 minus the average of the two

A

In discussing the recovery from the Great​ Recession, one economist stated that he was in favor of greater government involvement in the economy because government constitutes one of the components of GDP.​ Yet, the government does not produce many tangible goods. What approach to calculating GDP is the economist referring​ to? A. Expenditures approach B. Accounting approach C. Absorption approach D. Income approach

A

In places where production causes a great deal of​ pollution, ____________. A. Society is poorer than GDP numbers suggest B. Society is richer than GDP numbers suggest C. GDP numbers accurately measure​ society's well-being

A

Is real GDP a better indicator of economic progress than nominal​ GDP? A. ​Yes, it adjusts for rising prices so that a change in real GDP represents a true change in an​ economy's production. B. ​No, since nominal GDP filters out the effects of rising​ prices, it can reveal true changes in an​ economy's production. C. ​Yes, by measuring current production at current​ prices, it can better determine the material​ well-being of a country. D. ​No, nominal GDP measures output at current market​ prices, so it is a better determinant of economic​ well-being.

A

Macroeconomics includes the study of A. economic​ growth, the unemployment​ rate, and inflation. B. product​ demand, product​ supply, and profit maximization. C. industry​ sales, corporate​ growth, and home prices. D. decisions made by​ individuals, businesses, and governments.

A

Do countries that open their borders to international trade tend to grow more rapidly than countries that do​ not? A. ​No, the increased competition from foreign imports forces most of the domestic producers out of the market. B. ​Yes, it opens up opportunities for countries to tap into the global market to sell the goods they are best at producing. C. ​No, it forces countries to specialize in products that they may not like to produce or be forced out of the market. D. ​Maybe, but success is usually limited to a few​ countries, with only minimal differences noted in overall​ well-being.

B

Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico in 2005. This drove up the prices of natural​ gas, gasoline, and heating oil. This is an example of a A. negative externality. B. supply shock. C. depression. D. demand shock.

B

In​ Japan, real GDP per capita is higher than it is in Greece.​ However, people in Japan work much longer hours than people in Greece. This disparity in work hours suggests that​ ____________. A. Greece looks richer relative to Japan than it really is B. Greece looker poorer relative to Japan than it really is C. The real GDP per capita numbers accurately capture the​ well-being of Greece and Japan

B

The money you spend on college tuition is included in the consumption category of expenditures. Can you make an argument that it should be counted elsewhere in​ GDP? Explain. A. Government spending ​(G​): Government spends money to build​ schools, pay​ teachers, and fund education. B. Investment ​(I​): College tuition is an investment in human​ capital, which will increase productivity over a lifetime. C. Net exports ​(NX​): Colleges sell education to domestic and foreign students so it should be counted in net exports. D. All of the above.

B

The size of the underground economy would tend to increase if the government of a country A. lowered the legal drinking age from 21 to 18. B. increased government regulations on businesses. C. legalized prostitution. D. decreased income tax rates.

B

The​ ___________ is what economists call unreported but​ wealth-creating transactions,​ collectively, that are not included in GDP. A. Black market B. Underground economy C. Formal economy D. Illicit transaction

B

______ are interested in issues like the national unemployment rate, the indebtedness of nations, and foreign exchange rates A. Aggregationists B. Macroeconomists C. Sociologists D. Microeconomists

B

​[Related to Application​ 16.2] ​"The NBER uses only GDP to determine whether we are in a​ recession." Is this statement true or​ false? Explain your answer. A. ​True: The NBER only uses GDP because it is​ objective, easy to​ measure, and highly correlated with life outcomes. B. ​False: The NBER uses​ GDP, but it also uses a wide range of economic factors to assess the health of the economy. C. ​False: The NBER​ doesn't use GDP at​ all; it prefers to use other useful economic indicators to assess the economy. D. ​Uncertain: It depends on the current NBER members and their preferred method of determining a recession.

B

​[Related to Application​ 16.3] When the housing bubble popped in​ 2007, it caused home prices to fall by up to​ 40%. Did this shock affect​ consumption, investment, government​ expenditures, or net​ exports? A. Government​ expenditures: As​ people's wealth​ evaporated, government increased its spending on transfer payments. B. ​Consumption: Consumers responded to lower housing wealth by reducing their consumption spending. C. ​Investment: As home values​ fell, consumer demand for cheaper homes​ increased, which increased investment. D. Net​ exports: As the economy​ weakened, fewer Americans purchased products from abroad and net exports fell.

B

Did Wolfers and​ Stevenson's study produce results that were consistent with the previous prevailing​ opinion? A. ​No, with the use of GWP​ data, Wolfers and Stevenson were able to prove that money really can buy you love. B. ​No, they showed that happiness continues to rise with income and does not taper​ off, as previous work suggested. C. ​Yes, their results proved that once income reaches a certain pointlong dashsay ​$15,000, it ceases to add to happiness. D. ​Uncertain, since happiness cannot be compared among​ countries, as their study asserts. Wolfers and​ Stevenson's work suggests that economic policymakers should focus their attention on _____

B, income

Can you think of one reason​ why, in a​ democracy, it might be a good thing to separate the managers of the economy from the body that evaluates how that economy is​ doing? A. ​No, if government evaluates the​ economy, it can better determine which policies to use when the economy is bad. B. ​No, if the group that declares recessions is​ independent, then government will be less accountable for its actions. C. ​Yes, if politicians are interested in​ reelection, they might lie about the true state of the economy to gain votes. D. ​Maybe, if the independent group is not subject to policy​ lags, then it can reduce or possibly even prevent a recession.

C

Give an example of a U.S. export that is a consumer nondurable good A. A box of Swiss chocolates. B. Ford pickup truck. C. Bottles of Coca Cola. D. Toyota Camry.

C

Health experts note that​ ____________. A. As countries get​ richer, infant mortality decreases B. As countries get​ richer, life expectancy increases C. Both A and B are true D. Neither A nor B is true

C

Research conducted by Justin Wolfers and Betsey Stevenson shows that as GDP​ increased, respondents reported all of the following except A. more general enjoyment. B. less physical pain and depression. C. fewer choices over how they spend their time. D. being treated with greater respect.

C

Table 16.1 Type of Spending(Amount of Spending) Consumption expenditures($1,400) Investment expenditures($600) Government expenditures($400) Exports($125) Imports($175) Refer to Table 16.1. Consider the data in the table above​ (in billions of​ dollars) for an economy. Gross domestic product​ (in billions of​ dollars) for this economy equals A. ​$2,700. B. ​$2,525. C.$2,350. D. $2,100.

C

The _____ adds up total spending on final goods and services made by the various types of spending units in order to compute GDP A. Goods and services approach B. Factor approach C. Expenditures approach D. Income approach

C

The link above displays data on each component of GDP. The graphs on the left have long term data and can be used to analyze how each component has changed over time. The graphs on the right are a subset of the same data and can be used to look at the behavior of each component of GDP during recessions. Use the scroll bars on the graphs to the right to view data for different periods of recessions. Looking solely at the graphs on the​ left, which of the components of GDP experienced declines during most​ recessions? A. Net Exports of Goods and Services. B. Government Consumption Expenditures and Gross Investment. C. Gross Private Domestic Investment. D. Personal Consumption Expenditures. E. All of the above. Which component of GDP experienced the most change during the Great​ Recession? Which component experienced the least​ change? Rank the following based on the absolute change in billions of dollars experienced during the Great Recession. ​(Most change to least change. Measure the change from the maximum value to the minimum value during the Great Recession​) 1. Gross Private Domestic Investment. 2. Net Exports of Goods and Services. 3. Personal Consumption Expenditures. 4. Government Consumption Expenditures and Gross Investment.

C

What is the difference between an intermediate good and an investment​ good? ______ are the plant, machinery, or equipment that will be used to produce more goods or services. _____ are goods used as inputs in the production of a different final good. Why​ don't economists include the sale of intermediate goods and services in the calculation of​ GDP? A. It eliminates the possibility of including any goods in the calculation of GDP produced this year and sold next year. B. It would be​ difficult, if not​ impossible, to calculate the value of every single item used to produce the final good. C. The value of the intermediate good is already included in the market price of the final good sold to buyers. D. Whether or not intermediate goods are included in GDP depends on the method being used to calculate GDP.

C

When Josie a US resident buys an imported bottle of wine from France A. U.S. GDP increases but French GDP stays the same B. U.S. GDP decreases and French GDP increases C. U.S. GDP stays the same and French GDP increases D. Both U.S. and French GDP increase

C

Which of the following is not considered part of government​ spending? A. ​teachers' salaries paid by a local government B. a military jet purchased by the federal government C. social security payments to retirees D. a nature preserve purchased by a state government

C

Which of the following transactions represents the purchase of a final good or​ service? A. ​Dunkin' Donuts purchases coffee beans. B. General Motors purchases tires from Goodyear to install on its new Chevy Suburbans. C. Aunt Matilda buys a new convection oven for her condo in Boca Raton. D. ​Tiffany's buys platinum wire to use in the production of its necklaces.

C

​___________ shocks arise spontaneously and​ unpredictably, often as a result of changes in the confidence consumers and businesses have about the economy. A. Energy B. Real C. Demand D. Supply

C

Explain the difference between physical and human capital. ______ _____ is the knowledge and skills that people bring to the workplace. ______ _____ consists of assets like​ machines, buildings,​ computers, and other tangible items. Which of the following statements is​ true? A. A country with more physical capital produces more output than a country with more human capital. B. The more physical and human capital a​ country's labor force​ has, the higher its economic growth is likely to be. C. Economic growth depends more on competition and trade than on the accumulation of physical and human capital. D. There is no correlation between the amount of physical and human capital that a country possesses and its GDP.

Human capital, physical capital, B


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