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Economics: Principles, Applications, and Tools

Arthur O'Sullivan, Stephen J. Perez, Steven M. Sheffrin

Chapter 5

Measuring a Nation's Production and Income - all with Video Answers

Educators

Chapter Questions

02:40

Problem 1

The circular flow describes the process by which GDP generates , which is spent on goods and services.

SS
Shivani Sharma
Numerade Educator
03:04

Problem 2

Macroeconomics is the study of the (national/international) economy taken as a whole.

Pavitr Ahuja
Pavitr Ahuja
Numerade Educator
06:21

Problem 3

Which government department produces the National Income and Product Accounts?
a. Department of Education
b. Department of Commerce
c. Congressional Budget Office
d. Council of Economic Advisors

Puneet Prajapati
Puneet Prajapati
Numerade Educator
16:45

Problem 4

In the circular flow diagram, the payments made by (firms/households) to (firms/ households) are wages and salaries, interest on borrowed money, and rent on office and factory buildings.

Md.Daniyal Arshad
Md.Daniyal Arshad
Numerade Educator
16:45

Problem 5

Understanding the Circular Flow Diagram. In the circular flow diagram, why do the arrows corresponding to the flow of dollars and the arrows corresponding to the flow of goods go in opposite directions?

Md.Daniyal Arshad
Md.Daniyal Arshad
Numerade Educator
01:37

Problem 6

Looking at Both Sides. Explain why we can measure the output of an economy by looking at either production or income.

John Coffey
John Coffey
Numerade Educator
04:30

Problem 7

When calculating GDP using the production method, which of the following would you not include?
a. Consumption
b. Investment
c. Value added
d. Government purchases
e. Net exports

Md.Daniyal Arshad
Md.Daniyal Arshad
Numerade Educator
02:28

Problem 8

What part of government spending is excluded from GDP because it does not correspond to goods and services currently being produced?
a. National defense
b. Transfer payments
c. Education
d. Purchases of police cars

Jennifer Stoner
Jennifer Stoner
Numerade Educator
01:50

Problem 9

Nominal GDP is calculated using a constant set of prices from a base year. (True/False)

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
01:50

Problem 10

If a country is experiencing inflation, nominal GDP is always greater than real GDP. (True/False)

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
View

Problem 11

GDP Statistics and Unemployed Workers. In Economy A, the government puts workers on the payroll who cannot find jobs for long periods, but these "employees" do no work. In Economy B, the government does not hire any long-term unemployed workers, but gives them cash grants. Comparing the GDP statistics between the two otherwise identical economies, what can you determine about measured GDP and the actual level of output in each economy?

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
01:26

Problem 12

Health-Care Subsidies. When the federal government provides subsidies for individuals to buy health care, is this included in the federal budget? Is it included in GDP?

Ayush Kumar
Ayush Kumar
Numerade Educator
06:15

Problem 13

Buying a Foreign Car. Explain why buying a foreign car made abroad for $\$ 50,000$ increases consumption by $\$ 50,000$ but does not increase GDP.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
00:43

Problem 14

Depreciation and Your New Car. You just bought a new car for $\$ 23,000$. After a year, you decide that you need a slightly bigger car. But when you think about selling it, you can only get $\$ 19,000$ for it. This is depreciation. Describe several reasons why your car has depreciation in value.

Matt Just
Matt Just
Numerade Educator
01:58

Problem 15

Investment Spending versus Intermediate Goods. A publisher buys paper, ink, and computers to produce textbooks. Which of these purchases is included in investment spending? Which are intermediate goods?

Natalie Britton
Natalie Britton
Numerade Educator
00:55

Problem 16

What do we add to GDP to reach GNP?
a. Net income earned abroad by U.S. households
b. Personal income
c. Depreciation
d. Net exports

Prashant Bana
Prashant Bana
Numerade Educator
01:24

Problem 17

If no foreign companies produce in a country, but many of the country's companies produce abroad, then it is probably true that
a. the country's GNP exceeds its GDP.
b. the country's GDP exceeds its GNP.
c. the country's GNP and GDP are equal.
d. the country's GDP equals its domestic income.

Ivan Kochetkov
Ivan Kochetkov
Numerade Educator
03:14

Problem 18

Personal income and personal disposable income refer to payments ultimately flowing to (households/firms).

Pavitr Ahuja
Pavitr Ahuja
Numerade Educator
01:37

Problem 19

The fact that the Nigerian oil industry is managed by large foreign corporations tends to make Nigeria's (GDP/GNP) exceed its (GDP/GNP).

EA
Erwin Antoni
Numerade Educator
01:00

Problem 20

Measuring Value Added for a Charity. A typical charity does not sell products but does generate value added. Explain one way you could measure its value added.

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
04:14

Problem 21

Australian GNP and GDP. Australia contains many natural resources and foreign firms often come into Australia to extract them. The profits that those foreign firms make are sent back to their home countries. Explain how this affects the relationship between GNP and GDP for Australia. Which one is larger and why?

Yang Su
Yang Su
Numerade Educator
05:36

Problem 22

Personal Income During Recessions. During the most recent recession, personal income fell by $2.8$ percent. This was the only time since 1950 that personal income has fallen during a recession. During a recession, transfer payments increase. Explain why this makes decreases in personal income rare. What does the data suggest about the severity of the most recent recession?

Md.Daniyal Arshad
Md.Daniyal Arshad
Numerade Educator
01:54

Problem 23

Philippine Immigrants Abroad. Every year, the Philippines sends many workers abroad including nurses, health professionals, and oil workers. How do you think GNP and GDP in the Philippines compare?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
01:27

Problem 24

Sales versus Value Added. Explain carefully why value added may be a better measure than total sales in comparing a country to a corporation. Hint: If we measured total sales in a country, would this exceed GDP? (Related to Application 1 on page 123.)

EA
Erwin Antoni
Numerade Educator
01:02

Problem 25

The GDP deflator is calculated for any given year by dividing nominal GDP by

GDP and multiplying by 100 .

EA
Erwin Antoni
Numerade Educator
03:04

Problem 26

Nominal GDP is not an accurate measure of the real level of economic activity in a country because the GDP deflator constantly underestimates the real cost of living. (True/False)

Pavitr Ahuja
Pavitr Ahuja
Numerade Educator
04:10

Problem 27

Measured price changes do not depend on the particular base year chosen when calculating
a. the traditional GDP deflator.
b. the chain-weighted GDP deflator.
c. real GDP.

John Coffey
John Coffey
Numerade Educator
01:50

Problem 28

Real GDP equals nominal GDP when the current year is later than the base year. (True/False)

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
05:25

Problem 29

Calculating Real GDP, Price Indices, and Inflation.
Using data from the following table, answer the following questions:
a. Calculate real GDP using prices from 2011. By what percent did real GDP grow?
b. Calculate the value of the price index for GDP for 2012 using 2011 as the base year. By what percent did prices increase?

Yang Su
Yang Su
Numerade Educator
13:50

Problem 30

Using a New Base Year to Calculate Real GDP and Inflation. Repeat Exercise $4.5$ but use prices from $2012 .$

Heather Duong
Heather Duong
Numerade Educator
06:07

Problem 31

Understanding the Relationship between Real and Nominal GDP in a Figure. In Figure $5.5$ the base year is 2009. Explain why the line for nominal GDP lies below the line for real GDP in the years prior to 2009. If the base year was 2000 , where would the two lines cross?

Yang Su
Yang Su
Numerade Educator
18:34

Problem 32

Using U.S. Economic Data to Measure the Economy. Go to the Web site for the Federal Reserve Bank of St. Louis (www.research.stlouisfed.org/fred 2). Find the data for nominal GDP, real GDP in chained dollars, and the chain price index for GDP.
a. Calculate the percentage growth for nominal GDP since 2000 until the most recent year.
b. Calculate the percentage growth in real GDP since 2000 until the most recent year.
c. Finally, calculate the percentage growth in the chain price index for GDP over this same period and compare it to the difference between your answers to (a) and (b).

Paul A.
Paul A.
California State Polytechnic University, Pomona
00:58

Problem 33

The date that a recession ends is called the

Doris Bennett
Doris Bennett
Numerade Educator
01:42

Problem 34

The traditional definition of a recession is a decline in real GDP lasting for at least two consecutive quarters. (True/False)

Anitha Mary
Anitha Mary
Numerade Educator
00:58

Problem 35

The marks the date that a recession starts and output begins to fall.

Doris Bennett
Doris Bennett
Numerade Educator
View

Problem 36

A is commonly defined as a severe recession.
a. depression
b. trough
c. expansion
d. peak

Rashmi Sinha
Rashmi Sinha
Numerade Educator
01:14

Problem 37

Counting Recessions. Consider the data for the fictitious economy of Euronet: How many recessions occurred in the economy over the time indicated?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
01:06

Problem 38

Measuring the Speed of a Recovery. Some econmists have suggested that the time it takes the economy to recover to the level where it originally was when the recession started is a good measure of the speed of a recovery. Explain why. (Related to Application 2 on $\mathrm{v} .129 .)$

Mike Gaerlan
Mike Gaerlan
Numerade Educator
00:43

Problem 39

Most Severe Recession? Using the data in Table 5.5, identify the two most severe recessions since World War II in terms of the fall from peak to trough. What other information might you want to know about these and other recessionary periods to judge their severity? (Related to Application 2 on page 129.)

Majid Borumand
Majid Borumand
Numerade Educator
05:34

Problem 40

Which of the following are not included in GDP?
a. A mother taking care of children at home
b. Professors teaching at a university
c. Strawberries sold in a grocery store
d. Economics textbooks sold in a bookstore

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
05:12

Problem 41

Men's reported happiness has increased relative to women's reported happiness in the last several decades. $\overline{\text { page 132.) }}$ (True/False) (Related to Application 3 on

Vaidik Stats
Vaidik Stats
Numerade Educator
01:33

Problem 42

In Central and South America, the size of the underground economy is percent of GDP.

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
05:34

Problem 43

Which of the following are included in GDP?
a. Production of illegal drugs
b. Leisure time.
c. Repairs that a homeowner makes
d. Paid childcare

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
05:31

Problem 64

Does Spending Measure Welfare? Suppose a community spends $\$ 1$ million on salaries and equipment for its police department. Because it believes that citizens are now more law-abiding, the community decides to cut back on the number of police it employs. As a result, the community now spends $\$ 800,000$ less on police officers. The crime rate remains the same.
a. What happens to measured GDP?
b. Does GDP accurately reflect welfare in this case? Discuss the underlying issue that this example poses.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
05:05

Problem 65

Disappearing Trees and National Income. Suppose you were worried that national income does not adequately take into account the extraction of trees that provide shade and help stem global warming. How would you advise the Commerce Department to include this factor in its calculations?

Breanna Kloczkowski
Breanna Kloczkowski
Numerade Educator
01:08

Problem 66

A Ban on Fracking. New York recently banned a technique known as "fracking" where fluids are injected into wells in order to produce more natural gas. The reason given for banning fracking was that it caused environmental damage. How would you go about trying to measure whether this ban increased or decreased economic welfare?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
01:29

Problem 67

Europe versus the United States. In Europe, the average resident takes several weeks more of vacation time than in the United States. Per capita income, however, is higher in the United States than the European average. What can you say about relative economic welfare in Europe versus the United States?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
01:57

Problem 68

Does Money Buy Happiness? Although people with high incomes appear to be happier than those with low incomes, people in the United States in general have become less happy over the last 30 years even though real GDP has risen. What are some of the reasons why the increase in real GDP does not always imply greater happiness? (Related to Application 3 on page 132.)

Breanna Ollech
Breanna Ollech
Numerade Educator
01:31

Problem 69

Measuring Happiness across States. Suppose statisticians find from survey data that the residents of California and Louisiana report that they are equally happy. However, incomes in California are higher, on average, than those in Louisiana. Could you make a case that living in Louisiana actually makes you happier than living in California?

Nick Johnson
Nick Johnson
Numerade Educator