Chapter 8

What are the four major categories of expenditure?

What are the four categories of income?

Indicate whether each of the following is a final good, an intermediate good, or neither. a. Coffee beans purchased by a coffee shop. b. One share of Google stock. c. A new pick-up truck purchased by a consumer. d. A new home purchased by a family.

Which of the following equations sums up the components of GDP?

Why is GDP an imperfect measurement of total production in the economy?

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?

The Phillipines and Vietnam have roughly the same size population. Suppose the GDP of the Philippines is $1,000 billion and the GDP of Vietnam is $10,000 billion. You should conclude

Which of the following is a true statement about the impact of World War II on the U.S. economy?

If a country passes a law limiting the number of hours of work per week, GDP would ___ and leisure would ___.

Suppose the base year is 2001. Looking at GDP data from the United States from 2001 to the present, what would be true of the relationship between nominal GDP and real GDP?

Disposable personal income is

Which of the following would be included in the gross national product (GNP) of the United States?

The largest component of gross domestic income is

National income is

Personal income is

U.S. Gross National Product (GNP) differs from U.S. Gross Domestic Product (GDP) in which of the following ways?

In the United States, the difference between GNP and GDP is __ that of many other countries.

8.4-02: National income (NI) equals $__billion.

All of the following are correct except

Which component of gross domestic income is the largest?

In the U.S., gross domestic product (GDP) and gross national product (GNP) are close in value. Under what circumstances would GNP be much larger than GDP?

Suppose the amount 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 ___. Personal income will ___. Disposable personal income will ___.

If you were attempting to forecast the level of consumer spending by households, which measure of total production or total income might be most helpful in making your forecast?

Indicate whether the following statement is correct or incorrect. "Corporate profits are much too high: Most corporations make profits equal to 50 percent of the products the sell."

When a significant fraction of domestic production takes place in foreign-owned facilities, a country's difference between GDP and GNP is as follows:

Which of the following do we subtract from GDP to obtain national income?

To calculate personal income from national income, which of the following must the BEA do?

Disposable personal income is equal to

In 2012, the largest component of gross domestic income was

Nominal GDP

Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next?

Real GDP

How does real GDP deal with the problem inflation causes with nominal GDP?

How is the GDP deflator calculated?

Assuming that inflation has occured over time, what is the relationship between nominal GDP and real GDP in each of the following situations? a. In years after the base year, nominal GDP __ real GDP. b. In the base year, nominal GDP __ real GDP. c. In years prior to the base year, nominal GDP __ real GDP.

8.3-04a If the base year is the year 2009, then real GDP for 2014 equals $__ and the real GDP for 2015 equals $__.

8.3-04b The (annual) growth rate of real GDP in 2015 is __%.

Indicate whether you agree or disagree with the following statements. "If nominal GDP is less than real GDP, then the price level must have fallen during the year."

"Whenever real GDP declines, nominal GDP must also decline."

"If a recession is so severe that the price level declines, then we know that both real GDP and nominal GDP must decline."

"If real GDP stayed the same while nominal GDP declined between 2008 and 2009, then the GDP deflator must also have declined.

The movie Avatar overtook the Titanic to become the highest-grossing movie of all time. An article on Forbes.com notes that "the average ticket price in 2008 (Avatar was released in 2009) was $7.18, up 56% from prices in 1997 when Titanic was in theaters." The article states that "A look at domestic grosses (box-office receipts) adjusted for inflation shows a more realistic view of Avatar's performance." Adjusting for inflation shows a more realistic view of Avatar's performance at the box office since

A more accurate measure of how well a movie has performed at the box office would be

Newspapers do not report the number of tickets sold

The comparison of the total number of tickets sold by all movies in 1939 with the total number of tickets sold by all movies in 2011

According to an article in the Economist, the Russian economy "may not have been booming by 7% a year, as in the mid-2000s, but GDP grew by 3.6% in 2012." These two percentages are referring to changes in

Real GDP is

Over time, prices may change relative to each other. To take this change into account, the Bureau of Economic Analysis calculates

In an economy with rising prices, compared to the base year,

If the GDP deflator in 2012 has a value of 98.0, then

How does the size of a country's GDP affect the quality of life of the country's people?

An underground economy involves all of the following except

Some countries have larger underground economies than do other countries, because

GDP is an imperfect measure of economic well-being because it fails to measure what types of production?

Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being?

Which of the following are likely to increase the measured level of GDP and which are likely to reduce it? a. When the number of people working outside the home decreases, the measured level of GDP b. When there is a sharp increase in the crime rate, the measured level of GDP c. If lower tax rates cause fewer people to hide the income they earn, the measured GDP

Michael Burda of Humboldt University in Germany and Daniel Hamermesh of the University of Texas examined how workers in the United States who lost their jobs between 2003 and 2006 spent their time. They discovered that during the period when they were unemployed, the reduction in the number of hours of paid work was almost completely replaced by an increase in the number of hours spend on household production. Based on these findings, what can we predict about total production - whether or not that production is included in the calculation of GDP - in the economy when these workers became unemployed?

real GDP per capita

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 1890and the real GDP per capita today understate or overstate the difference in the population's economic well-being?

Economic historians Roger Ransom and Richard Sutch have estimated that African-American farmers in the U.S. South after the Civil War worked about 30 percent fewer hours per year than they had as slaves before the Civil War. If after the Civil War, African-American farmers had continued to work these additional hours, their production and income would have been higher and so would have been U.S. GDP. The farmers well-being

After the Civil War, U.S. GDP

An article in the New York Times describes the much greater use of cash, as opposed to checks and credit cards, in buying and selling in China. The article describes someone bringing several bags of cash containing the equivalent of $130,000 into a car dealership to buy a new BMW. Another article notes: "Many economists believe that the rise in [use of] cash is strongly related to growth in the so-called underground economy." The underground economy is the

Buyers and sellers in the underground economy prefer to use cash because

Think about the increase in spending for the Department of Homeland Security and the wars in Afghanistan and Iraq. These all represent government expenditures that have increased GDP yet the typical person might now necessarily be better off as a result. Why?

Household production and the underground economy

According to most economists, is it a serious shortcoming of GDP that it does not count household production or production in the underground economy?

Which of the following is not a shortcoming of GDP as a measure of well-being?

If Americans still worked 60-hour weeks as they did in 1890,

Why in microeconomics can we measure production in terms of quantity, but in macroeconomics we measure production in terms of market value?

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 gross domestic product (GDP)?

In the circular flow of expenditure and income, why must the total value of production in an economy equal the total value of income?

Which equation represents the relationship between GDP and the four major expenditure components?

What are the four major components of expenditures in GDP?

What is the difference between the value of a firm's final product and the value added by the firm to the final product?

Is the value of intermediate goods and services produced during the year included in Gross Domestic Product (GDP)? For example, is aluminum used to produce a new mountain bike included in GDP? (Note that this question does not ask whether aluminum is directly counted in GDP but rather whether the production is included in GDP.)

Indicate whether each of the following transations represents the purchase of a final good. 1. The purchase of cotton fabric from a textile mill by a clothing company. 2. The purchase of two new elementary school buildings by the state government. 3. The purchase of French wine by a U.S. consumer. 4. The purchase of a new machine tool by the Ford Motor Company.

Indicate which component of GDP will be affected by each of the following transactions involving the Ford Motor Company. a. You purchase a new Ford Escape Hybrid from a Ford dealer. b. You purchase a 2011 (preowned) Ford Escape Hybrid from a friend. c. Ford purchases door handles for the Escape from an auto parts manufacturer in India. d. Ford produces 1,000 Escapes in a factory in Missouri and ships them to a car dealer in Shanghai, China. e. Ford purchases new machine tools to use in its Missouri Escape factory. f. The state of Missouri builds a new highway to help improve access to the Ford Escape plant.

Suppose a house is built and sold in the year 2006. If the house is resold in the year 2015, is the value of the house included in Gross Domestic Product (GDP) for 2015?

Would the services of a real estate agent who helped self (or helped buy) the house be included in GDP for 2015?

Indicate whether you agree or disagree with the following statement: "In years when people buy few shares of stock, investment will be low and, therefore, so will GDP."

According to Dan Sichel, an economist at Wellesley College, the amount of time a singer spends working on a record album in a recording studio is "quite analogous to a factory investing in a new machine." Which of the following statements is correct?

Total value added is

An artist buys scrap metal from a local steel mill as a raw material for her sculptures. Last year, she purchased $6000 worth of scrap metal. With the steel she produced 10 authentic sculptures that she sold for $900 each to a local art dealer. The art dealer then sold all of the sculptures to art collectors for an average of $1100 each.

Gross domestic product is best defined as

What happens if we measure GDP by adding up the value of every good and service produced in the economy?

An important conclusion to draw from the circular-flow diagram is that

In the circular-flow diagram, who supplies factors of production in exchange for income?

Which of the following is included in the economist's definition of investment?

In calculating GDP, which levels of government spending are included in government purchases?

Which of the following is true about the consumption component of U.S. GDP in 2012?

Which of the following is true about the government purchases component of U.S. GDP in 2012?

The difference between the price a firm sells a good for and the price the firm paid other firms for intermediate goods is called