Econ HW 5

What is included in the GDP? A. all industrial goods B. all goods C. all final goods and services D. all services

Correct. GDP measures an economy's total output, which includes millions of different goods and services. Points Earned: 1/1 Correct Answer: C

Calculate the annual growth rate of nominal GDP for the following example: Nominal GDP in 1930 = $97 billion; Nominal GDP in 1931 = $84 billion. A. -13.40% B. 13.40% C. 0% D. -1.340%

Correct. Negative growth occurs during recessions. These actual numbers represent the GDP during the Great Depression. Points Earned: 1/1 Correct Answer: A

What happened to U.S. spending on medical services and recreational activities since 1950? A. They have both increased to more than 10 times their levels in 1950. B. They have both decreased by more than 10 times their levels in 1950. C. They have both decreased by more than 5 times their levels in 1950. D. Spending on medical services and recreational activities has remained the same since 1950.

Correct. Since 1950, the portion of U.S. GDP created by the production of services has doubled from 21 to 42 percent. Much of this increase is attributable to spending on medical services and recreational activities. Points Earned: 1/1 Correct Answer: A

Are the following included in U.S. GDP: a) the price paid by a German tourist when staying at a New York hotel, b) the price paid by an American tourist when staying at a Berlin hotel? A. Both are included in U.S. GDP. B. Neither is included in U.S. GDP. C. Only the price paid by a German tourist when staying at a New York hotel is included in U.S. GDP. Technically, it counts as an "exported service". D. Only the price paid by an American tourist when staying at a Berlin hotel is included U.S. GDP.

Correct. The German tourist is consuming a service that was produced by labor and property located in the U.S. Points Earned: 1/1 Correct Answer: C

What is the national spending identity? A. Quantity Demanded = Quantity Supplied B. Y = Wages + Rent + Interest + Profit C. Y C + I + G + NX D. None of these answers.

Correct. This equation identifies GDP as the sum of spending on the categories of goods and services produces. Points Earned: 1/1 Correct Answer: C

Government savings is equal to the A. negative of the government deficit. B. government deficit. C. government revenue less expenditure by firms. D. what government is able to invest.

Points Earned: 1/1 Correct Answer: A

What is GDP equal to in this simple economy: Consumer purchases: $100 per year, Investment purchases: $50 per year, Government purchases: $20 per year, Total exports: $50 per year and Total imports: $70 per year. A. GDP cannot be calculated since we are not given numbers for Wages, Rent, Interest and Profit. B. $150 C. $290 D. $190

Correct. Even though there are two of ways of splitting the GDP, for this problem only the national spending approach can be used. We do not have data for the factor income approach. Points Earned: 1/1 Correct Answer: B

Calculate the annual growth rate of nominal GDP for the following example: Nominal GDP in 2000 = $9,744 billion; Nominal GDP in 2001 = $10,151 billion. A. 4.18% B. -4.18% C. 41.80% D. -41.80%

Correct. The growth rate is positive here which means that the economy is growing. Points Earned: 1/1 Correct Answer: A

Savings is equal to investment. A. true. B. false, the sum of savings by all agents firms, households, government and foreign is equal to investment. C. false, govt savings is not true savings but dissaving. D. true, forgetting about foreign savings.

B

According to the National Bureau of Economic Research (NBER), which of the following are "normally" part of the definition of a recession: a) a fall in nominal income, b) a fall in employment, c) a fall in real income, d) a fall in the price level? A. a fall in real income and a fall in employment B. a fall in nominal income and a fall in the price level C. a fall in nominal income and a fall in employment D. a fall in the price level

Correct. Although decline in real GDP is the single best indicator of recession, declines will usually also be observed in income, employment, sales and other measures of the health of an economy. Points Earned: 1/1 Correct Answer: A

Calculate the annual growth rate in real GDP and in the price level during the Great Depression. First, calculate the total growth, and then divide it by the number of years to get the more typical measure of "percent per year." (Note: this is four full years, not three or five.) 1929 (peak): Real GDP = $323 billion and Price level = 33 1933 (trough): Real GDP = $206 billion and Price level = 24 A. Real GDP fell by 36% per year and the Price level fell by 27% per year. B. Real GDP fell by 12% per year and the Price level fell by 9% per year. C. Real GDP fell by 7.2% per year and the Price level fell by 5.4% per year. D. Real GDP fell by 9% per year and the Price level fell by 7% per year.

Correct. During the Great Depression the Real GDP plummeted and there was deflation. Points Earned: 1/1 Correct Answer: D

If U.S. government statistics counted education spending as part of investment, what would happen to Consumption, Investment, and Gross Domestic Product? A. Consumption would fall, Investment would rise, and GDP would stay the same. B. Consumption would rise, Investment would rise, and GDP would rise. C. Consumption would rise, Investment would fall, and GDP would stay the same. D. All three, C, I and GDP, would stay the same.

Correct. Education spending would transfer from C to I and there would be no change to national spending. Points Earned: 1/1 Correct Answer: A

Currently 150,000 people in the United States earn on average $3 million per year. If you could take their money and divide it up among the 300 million other Americans, how much money would you give to each person every year? A. You could give everyone $1,500 per year. B. You could give everyone $15,000 per year. C. You could give everyone $15 per year. D. You could give everyone $150 per year.

Correct. GDP per capita is a rough measure of the standard of living in a country. Some people make a lot more than the GDP per capita, as do the 150,000 people in the U.S. that earn on average $3 million per year. Points Earned: 1/1 Correct Answer: A

If U.S. government statistics counted people who are receiving unemployment benefits as people who are "government employees" hired to "search for work," what would happen to Consumption, Investment, and Gross Domestic Product? A. Consumption would fall, Investment would rise, and GDP would stay the same. B. Consumption and Investment would stay the same, and GDP would rise. C. Consumption and Investment would rise, and GDP would stay the same. D. All three, C, I and GDP, would stay the same.

Correct. Government purchases would rise since people receiving unemployment benefits are now "hired" by the government. This would increase the GDP and not change any other variables. Points Earned: 1/1 Correct Answer: B

Robinson Crusoe is stuck on an island. Because Crusoe is a proper Englishman, he wants to keep his accounts. This year, he catches and eats 2,000 fish valued at one British pound (£) each, grows and eats 4,000 coconuts valued at 0.5 British pounds each, and makes 2 huts (housing) valued at 200 pounds each. If government purchases are zero and there is no trade, what are C, I, and Y equal to? A. C= 2000 pounds; I = 200 pounds, and Y= 2,200 pounds B. C= 4,000 pounds; I = 400 pounds, and Y = 4,400 pounds C. C = 2,200 pounds; I = 0, and Y = 2,200 pounds D. C= 6,000 pounds; I = 400 pounds, and Y= 6,400 pounds.

Correct. In the absence of government spending and trade, Y = C + I. Points Earned: 1/1 Correct Answer: B

Robinson Crusoe is stuck on an island. Because Crusoe is a proper Englishman, he wants to keep his accounts. This year, he catches and eats 2,000 fish valued at one British pound (£) each, grows and eats 4,000 coconuts valued at 0.5 British pounds each, and makes 2 huts (housing) valued at 200 pounds each. He learns of a tribe on a nearby island that is willing to trade with him. If he gives them fish, they give him clams. So he trades 500 of the 2,000 fish and receives 10,000 clams valued at 5 clams per British pound. What are C, I, NX, and Y equal to? A. C=5,500 pounds; I = 400 pounds; NX=-1,500 pounds, and Y = 4,400 pounds B. C=5,500 pounds, I= 400 pounds, NX = 0, and Y = 4,400 pounds. C. C= 5,500 pounds; I= 400 pounds; NX = 1,500 pounds, and Y = 7,400 pounds D. C= 5,500 pounds; I= 400 pounds; NX = 1,000 pounds, and Y = 4,900 pounds

Correct. Since the value of the clams imported is larger than the value of the fish exported, the net exports are negative. This reduces GDP. Points Earned: 1/1 Correct Answer: A

Consider the following two claims. The first would be a typical statement at the magazine The Nation: "Europeans have strong labor unions, so their workers get a bigger share of the pie than American workers." The second would be a typical statement at the magazine National Review: "Since European businesses are highly regulated, they have little incentive to make big profits. Therefore, they get a much smaller share of national product than American workers." What is wrong with these two statements? A. You should not compare the American economy to the European economy. The American economy is purely capitalist while the European one is communist. B. Workers get about the same share of the pie in the U.S. and in Europe. C. The national product in the U.S. does not include government purchases while in Europe it is included in the calculation of GDP. D. The American worker typically works fewer hours than the European worker. Consequently, the American worker consumes more leisure.

Correct. Strong unions and high levels of regulation don't change the fact that in modern economies, workers get two-thirds of the pie in the form of wages and salaries. Points Earned: 1/1 Correct Answer: B

The following identity attempts to measure a GDP that adds a rough estimate of the value enjoyed by nonworkers: Leisure-augmented GDP = Regular GDP + Total monetary value of leisure. Given the following information, calculate the Leisure-augmented GDP: i) opportunity cost of free time of nonworkers = $20 per hour, ii) nominal GDP = $14 trillion (close to the actual 2008 level), iii) there are a total of 75 million working-age American that are nonworkers and iv) the average working person works 2,000 hours per year. A. $14 trillion B. $15.5 trillion C. $17 trillion D. None of these answers.

Correct. The leisure-augmented GDP takes into account the value of leisure time consumed by nonworkers. Points Earned: 1/1 Correct Answer: C

In the last 20 years, have recessions been getting more frequent or less frequent than they used to be? A. They have been getting less frequent. B. They have been getting more frequent. C. There is no answer since there is no definition for the term "recession." D. The frequency of recessions has been about the same when we compare the last 20 years to prior decades.

Correct. There have been 11 recessions since 1948. Only 3 of those have occurred in the last 20 years. Points Earned: 1/1 Correct Answer: A

Since World War II, who were the only three recession-free U.S. presidents? A. Carter, Clinton, and Gore B. Bush Sr., Clinton, and Bush Jr. C. Kennedy, Johnson and, Clinton D. F. Roosevelt, Truman, and Eisenhower

Correct. There is debate about when the 2001 recession started. Data revisions have led many people to conclude that the recession actually started in late 2000, when Clinton was in office. Points Earned: 1/1 Correct Answer: C

Are the following included in U.S. GDP: a) used textbooks sold at your college bookstore, b) used books sold at a garage sale? A. Both are included in U.S. GDP. B. Neither is included in U.S. GDP. C. Only used textbooks sold at the college are included in U.S. GDP since this is accounted for. D. Only used textbooks sold at a garage sale are included U.S. GDP since this is accounted for.

Correct. They were counted in GDP when they were first produced. GDP is meant to measure production so sales of used goods are not included in GDP. Points Earned: 1/1 Correct Answer: B

Are the following included in U.S. GDP: a) cars made in the U.S. at a Toyota factory, b) cars made in Germany at a General Motors factory? A. Both are included in U.S. GDP. B. Neither is included in U.S. GDP. C. Only cars made in the U.S. at a Toyota factory are included U.S. GDP. D. Only cars made in Germany at a General Motors factory are included U.S. GDP.

Correct. U.S. GDP measures the output produced by labor and property located in the U.S., regardless of the nationality of the workers or the property owners. Points Earned: 1/1 Correct Answer: C

A SAM is balanced when A. The row and column sums are the same. B. The row sum of savings is equal to the column sum of investment. C. Income and expenditure is the same for households. D. Income and expenditure is the same for firms.

Points Earned: 1/1 Correct Answer: B

GDP is growing a 5 percent and the population is growing a 2.8 percent. GDP per capita is growing at A. 7.8 percent B. 2.2 percent C. Impossible to tell given the data. D. 0.22 percent

Points Earned: 1/1 Correct Answer: B

To balance a SAM we first ___________ and then ______________. A. see that the number of rows is equal to the number of columns; check that firms savings is equal to investment. B. check that the matrix has no zeros where they should not be; balance the SAM by adding up all the entries. C. check that total savings is equal to investment; check that income equals expenditure for all agents. D. check that GDP is correct; adjust value added to GDP.

Points Earned: 1/1 Correct Answer: C

Government (G) in the equation Y = C + I + G + Nx A. includes government spending on wages and salaries of officials. B. does not include transfers or payments on government debt. C. includes spending by all levels of government on final goods and services. D. all answers are correct.

Points Earned: 1/1 Correct Answer: D

Investment consists of A. goods that are sold to firms and then bundled or processed with other goods or services for sale at a later stage. B. the change in the capital stock. C. the sum of all bonds and stocks. D. structures, equipment, residential and change in inventories.

Points Earned: 1/1 Correct Answer: D

Taxes include both direct and indirect. Indirect taxes are A. income taxes. B. property taxes. C. subsidies. D. sales taxes (including tariffs).

Points Earned: 1/1 Correct Answer: D

Value added and GDP are the same. For this to be true value added must include A. wages B. profits, interest and rent. C. corporate taxes and social security payments D. all of the above.

Points Earned: 1/1 Correct Answer: D

When investment exceeds domestic savings (firms, hh and govt) the country A. is running foreign deficit. B. is living beyond its means. C. has positive foreign savings. D. all of the above.

Points Earned: 1/1 Correct Answer: D