Quiz 4

Flashcard maker : Lily Taylor
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 1890 and the real GDP per capita today understate or overstate the difference in the populations well being?
The increase in real GDP per capita between 1890 and today understates well-being because the value of leisure is not included in GDP.
The HDI measures
the three main dimensions of development: Health, Education, and Living standards. It does so via four proxies, or indicators: Life Expectancy at birth, Mean years of schooling, Expected years of schooling, and Income per capita.
The GDP of the country Sumeria has grown at an average rate of 6% over the last two years, while the rate of inflation has remained more or less stable. Macroeconomists in the country are arguing that this increase in GDP is a clear indication of an overall improvement in the well-being of its people…….Which of the following, if true about the last two years in Sumeria, would strengthen this argument?
An increasing percentage of the population is choosing leisure time over time spent in the work place.
You purchase a new Ford Escape Hybrid from a Ford dealer…
Consumption Expenditure
You purchase a 2012 (preowned) Ford Escape Hybrid from a friend.
Not included in GDP calculation
Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana.
Not included in GDP calculation
Ford produces 1,000 Escapes in a factory in Missouri and ships them to a car dealer in Shanghai, China.
Net Export
Ford purchases new machine tools to use in its Missouri Escape factory.
Investment Expenditure
The state of Missouri builds a new highway to help improve access to the Ford Escape plant.
Government Expenditure
What equation represents the relationship between GDP and the four major expenditure components?
Y=C+I+G+NX
What are the four major components of expenditures in GDP?
Consumption, Investment, Government Purchases, and Net Exports
A recession occurs when an economy experiences a period in which there is
a decrease in total production
The business cycle exists because
total production experiences periods of increases and periods of decreases
This past weekend, Russia declassified the existence of what could very well be the richest diamond field in existence, located in the depths of a 62 mile diameter asteroid crater known as Popigai Astroblem in Siberia. Should full-scale mining operations ever begin, then…
the price of diamonds should fall, and quantity should rise, as rightward shift in supply creates new market equilibrium.
Why in micro econonomics can we measure the production in terms of quantity, but in macroeconomics we measure production in terms of market value?
If, in macro, we measured production using quantities, we would add tons of wheat grown by US farmers to the number of iPods produced by Apple, to gallons of milk, and so on….
When we measure total production, we can’t just add together the quantities of every good and service because the result would be meaningless.
Measuring production using market value in dollar terms allows us to add together many different goods and services.
The Human Development Index
is a weighted average used by the UN to compare economies, and measures more than just real GDP per capita.
“Informal economic activities pose a particular measurement problem, especially in developing much economic activity may go unrecorded…” What does the World Bank mean by “informal economic activities”
In many developing countries, informal economic activities refer to the activities in the underground economy.
Why do these activities make it harder to measure GDP and, as a result, the standard of living?
If a large portion of an economy’s production is done in the underground economy, measured GDP will underestimate production and economic well being.
Why does inflation make nominal GDP 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.
How does real GDP deal with the problem inflation causes with nominal GDP?
Real GDP uses the prices of goods and services and in the base year to calculate the value of goods in all other years.
By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced.
Real GDP separates price changes from quantity changes.
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.
According to the latest Human Development Index, the United States and Mexico rank
4 and 57, respectively. Mexico is considered a “high human development” country.
Gross Domestic Product (GDP) is
the market value of all final goods and services produced in a country during a period of time.
One major component of GDP that can be negative is
net exports
GDP is an imperfect measure of economic well-being because it fails to measure what types of production?
Household production and the underground economy
Even in 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 and other social problems.
If the BEA added up the values of every good and service sold this year, would the total be larger or smaller than measured GDP?
Larger: The value of all goods and services sold would include intermediate goods.
US GNP differs from US GDP in which of the following ways?
GNP considers the production that occurs outside the US
GNP is the value of final goods and services produced by residents of the US
In the US, the difference between GNP and GDP is……. that of many other countries.
smaller than

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