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4) Are sales and purchases of used goods counted as part of GDP? Why or why not?
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Written and oral communication
5) If you sell your textbook to your friend this year, does the sale count in this year's GDP?
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Written and oral communication
6) Explain how the purchases of used goods and of inancial assets afect GDP.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Written and oral communication
81
7) Explain why the purchase and sale of used goods and of inancial assets are not included
in the calculation of GDP even though transactions in these items amount to billions of
dollars daily.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Written and oral communication
8) "When you purchase $1,000 of stock in Microsoft, your purchase is an investment and
hence is part of GDP." Is this assertion correct? Explain your answer.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Written and oral communication
9) What must be done to net domestic product at factor cost in order to transform it to
gross domestic product? Explain why these adjustments are necessary.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Written and oral communication
10) Several adjustments must be made to net domestic product at factor cost in order to
calculate GDP. One of these adjustments is adding depreciation. What is depreciation and
82
why must it be added?
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Written and oral communication
11) Explain how GDP is measured according to the expenditure and income approaches.
Skill: Level 4: Applying models
Section: Checkpoint 5.2
Status: Old
AACSB: Written and oral communication
12) Assume a small nation has the following statistics: its consumption expenditure is $15
million, investment is $2 million, government expenditure on goods and services is $1
million, exports of goods and services to foreigners is $1 million, and imports of goods and
services from foreigners is $1.5 million. Calculate this nation's GDP.
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
83
13) The table above gives the values of diferent expenditures in the United States during
1999. Answer the following questions about the United States.
a. What was the value of net exports of goods and services in 1999?
b. What was (nominal) GDP equal to in 1999?
c. What was the (nominal) value of total production equal to in 1999?
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
14) What is the diference between real and nominal GDP, and why do economists make
this distinction?
Skill: Level 4: Applying models
Section: Checkpoint 5.2
Status: Old
AACSB: Written and oral communication
84
15) Is it possible for nominal GDP to increase while real GDP does not change?
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Written and oral communication
16) Can nominal GDP ever be less than real GDP?
Skill: Level 2: Using deinitions
Section: Checkpoint 5.2
Status: Old
AACSB: Written and oral communication
5.8 Essay: The Use and Limitations of Real GDP
1) Explain how our standard of living depends upon our level of real GDP per person, but
there might not be a one-to-one relationship between the standard of living and real GDP
per person. Give examples of things that can afect one, but not the other.
Skill: Level 4: Applying models
Section: Checkpoint 5.3
Status: Old
AACSB: Written and oral communication
85
2) "If country A has a higher level of real GDP per person than country B, then people in
Country A must enjoy a higher standard of living than people in Country B." Is this
statement true or false and explain your answer.
Skill: Level 4: Applying models
Section: Checkpoint 5.3
Status: Old
AACSB: Written and oral communication
3) What is a business cycle? What are its phases and turning points?
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Written and oral communication
4) When total output, income, employment, and trade decline for 6 to 12 months, the
economy is in what part of the business cycle?
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Written and oral communication
86
5) List and discuss various types of goods and services omitted from measured GDP.
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Written and oral communication
6) What would happen to measured GDP if more people started hiring workers to do
household chores such as cooking and cleaning?
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Written and oral communication
7) What is "underground production"? Is it included in GDP?
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Written and oral communication
87
8) While studying with your friend, your friend states, "Our leisure time increases GDP but
lowers our standard of living because it reduces the amount of goods and services we can
consume." Is your friend's statement correct?
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Written and oral communication
9) You buy new water skis and other new equipment for $2,500 and take a week of of your
job, where you earn $1,000 a week, to go water skiing. The equipment you purchased was
all produced in the United States. You think that the week was worth $4,000. As a result of
your vacation, GDP changes by how much?
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Relective thinking
10) What is the Human Development Index?
Skill: Level 1: Deinition
Section: Checkpoint 5.3
Status: Old
AACSB: Written and oral communication
11) Explain how the United Nations uses the Human Development Index (HDI) to better
measure the standard of living around the globe.
Skill: Level 2: Using deinitions
Section: Checkpoint 5.3
Status: Old
AACSB: Written and oral communication
5.9 Essay: Appendix: Measuring Real GDP
88
1) The table gives data on the production and prices in a small economy. Use 2012 as the
base period.
a. What does nominal GDP equal in 2012?
b. What does real GDP equal in 2012?
c. What does nominal GDP equal in 2013?
d. Using the chained-price method, what does real GDP equal in 2013?
Skill: Level 4: Applying models
Section: Chapter 5 Appendix
Status: Old
AACSB: Analytical thinking
89
2) The table gives data on the production and prices in a small economy. Use 2012 as the
base period. Using the chained-price method, what is the growth rate of real GDP from
2012 to 2013?
Skill: Level 4: Applying models
Section: Chapter 5 Appendix
Status: Old
AACSB: Analytical thinking
90
