978-0133460629 Chapter 05 Part 9

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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

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

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

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

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

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

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

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

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

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