practice problem 5
If both the production of goods and services increase and prices rise, then the change in nominal GDP
Definitely overstates the change in production
During the business cycle,
real GDP fluctuates around its trend
The business cycle has two phases,
recession and expansion
Depreciation is
the decrease in the value of capital resulting from its use and obsolescence.
Instead of taking the dirty laundry with you when you go back to visit your parents, you use a Laundromat. Your use of the Laundromat means that
what you paid for use of the Laundromat will be included in GDP.
Gross Domestic Product is defined to be the market value of all the final goods and services produced during a given time period
within the country
Pat gives up a $40,000 per year job to stay at home and take care of the house. By so doing, Pat saves $15,000 in child care and house cleaning services which he now performs himself. The direct effect on GDP from Pat's decision is a decrease of
$55,000
The calculation of GDP excludes the value of
a family member painting the family home
Real GDP measures the value of goods and services produced in a given year valued using
base year prices
Nominal GDP is GDP
computed with current market values.
According to the expenditure approach to measuring GDP, in the United States, the largest component of GDP is
consumption expenditure
Expenditures on U.S. produced steaks, shoes, and doctor visits are most likely classified as
consumption expenditure
If a firm does not sell all of the goods that it produces in a given time period, then the goods
count positively in GDP as inventory investment
Which of the following is included in U.S. GDP? i. the rental value of homes owned by U.S. citizens ii. the production of Suburban SUVs by GM in its plant in Mexico iii. tickets sold by U2 for concerts held in the United States
i and iii
Nominal GDP can change
if either prices or the quantities of goods and services change
Leisure time is ignored when calculating GDP because leisure time
is not bought in a market.
In recent years, which of the following has been negative?
net exports of goods and services
