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Macroeconomics

Glenn Hubbard, Tony O'Brien

Chapter 8

GDP:Measuring Total Production and lncome - all with Video Answers

Educators

EA
SS

Section 1

Gross Domestic Product Measures Total Production

02:14

Problem 1

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

Yang Su
Yang Su
Numerade Educator
01:27

Problem 2

If the U.S. Bureau of Economic Analysis added up the values of every good and service sold during the year, would the total be larger, smaller, or equal to GDP? Briefly explain.

EA
Erwin Antoni
Numerade Educator
02:40

Problem 3

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

SS
Shivani Sharma
Numerade Educator
01:44

Problem 4

Describe the four major components of expenditures in Gescribe the four major components of expenditures in ship between GDP and the four expenditure components.

EA
Erwin Antoni
Numerade Educator
01:39

Problem 5

What is meant by a firm's "value added"?

Yang Su
Yang Su
Numerade Educator
01:05

Problem 6

A student remarks, "It doesn't make sense that intermediate goods are not counted in GDP. A computer chip is an intermediate good, and without it, a laptop won't work. So, why don't we count the computer chip in GDP?" Provide an answer to the student's question.

EA
Erwin Antoni
Numerade Educator
04:12

Problem 7

Briefly explain whether each of the following transactions represents the purchase of a final good.
a. The purchase of flour by a bakery
b. The purchase of an aircraft carrier by the federal government
c. The purchase of French wine by a U.S. consumer
d. The purchase of a new airliner by American Airlines

Yang Su
Yang Su
Numerade Educator
01:39

Problem 8

An article in the Wall Street Journal states that a "change in $\ldots$ inventories subtracted 0.57 percentage point from" what would have been the increase in GDP. For this result to occur, must there have been an increase or a decrease in inventories? Briefly explain.

EA
Erwin Antoni
Numerade Educator
01:22

Problem 9

(Related to the Chapter Opener on page 249 ) Which component of GDP will be affected by each of the following transactions involving Ford Motor Company? If you believe that none of the components of GDP will be affected by a transaction, briefly explain why.
a. You purchase a new Ford Escape hybrid from a Ford dealer.
b. You purchase a 2011 Ford Escape hybrid from a friend.
c. Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana.
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.

Breanna Ollech
Breanna Ollech
Numerade Educator
00:55

Problem 10

Is the value of a house built in 2006 and resold in 2017 included in the GDP of 2017$?$ Briefly explain. Would the services of the real estate agent who helped sell (or buy) the house in 2017 be counted in GDP for 2017$?$ Briefly explain.

EA
Erwin Antoni
Numerade Educator
03:22

Problem 11

(Related to Solved Problem 8.1 on page 252 ) Suppose that a simple economy produces only four goods: shoes, hamburgers, shirts, and cotton. Assume that all the cotton is used in the production of shirts. Use the information in the following table to calculate nominal GDP for 2017 .
$$\begin{array}{|c|}\hline {}& {\text { Production and Price Statistics for } 2017} \\ \hline {\text { Product }} & {\text { Quantity }} & {\text { Price }}\\ \hline {\text { Shoes }} & {100} & {\text { S60.00 }} \\ \hline {\text { Hamburgers }} & {100} & {2.00} \\ \hline {\text { Shirts }} & {50} & {25.00} \\ \hline {\text { Cotton }} & {80} & {0.60} \\ \hline \end{array}$$

Yang Su
Yang Su
Numerade Educator
01:17

Problem 12

(Related to the Don't Let This Happen to You on page 255 ) Briefly explain whether you agree with the following statement: "In years when people buy many shares of stock, investment will be high and, therefore, so will GDP."

EA
Erwin Antoni
Numerade Educator
02:02

Problem 13

(Related to the Making the Connection on page 256 ) 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 a factory investing in a new machine." Do you agree? Briefly explain.

Yang Su
Yang Su
Numerade Educator
00:49

Problem 14

An artist buys scrap metal from a local steel mill as a raw material for her metal sculptures. Last year, she bought $\$ 5,000$ worth of the scrap metal. During the year, she produced 10 metal sculptures that she sold for $\$ 800$ each to a local art store. The local art store sold all of the sculptures to local art collectors, at an average price of $\$ 1,000$ each. For the 10 metal sculptures, what was the total value added by the artist, and what was the total value added by the local art store?

EA
Erwin Antoni
Numerade Educator