Chapter 19:
1. Answer the following questions about GDP:
a. What is the definition of GDP?
Answer: GDP is the value of all final goods and services produced within a country during
b. Why does GDP measure only the final value of goods and services?
Answer: To count intermediate goods as well as final goods and services would result in
c. Why does GDP measure only the value of goods and services produced within a country?
Answer: GDP is an attempt to measure the domestic output; therefore it must exclude
d. How does GDP treat the sales of used goods?
Answer: The value of used goods was included in their value when those goods were
e. How does GDP treat sales of corporate stock from one stockholder to another?
Answer: Because such sales simply rearrange existing ownership claims, they are not
2. Which of the following are included in GDP calculations?
a. cleaning services performed by Molly Maid Corporation (included)
3. To which category of U.S. GDP expenditure does each of the following correspond?
a. Department of Motor Vehicles services Consumption
4. The expenditures on tires by the Ford Motor Company are not included directly in GDP statistics while
consumer expenditures on replacement tires are included. Why?
Answer: When Ford Motor Company buys tires to put on a vehicle that it manufactures,
5. Using any relevant information below, calculate GDP using the expenditure approach.
Inventory investment $50 billion
Fixed investment $120 billion
Consumer durables $420 billion
Consumer nondurables $275 billion
Interest $140 billion
Indirect business taxes $45 billion
Government wages and salaries $300 billion
Government purchases of goods and services $110 billion
Imports $80 billion
Exports $40 billion
Profits $320 billion
Services $600 billion
Answer:
Consumption:
Consumer durables +$420 billion
6. Fill in the missing data for the following table (in billions):
Consumption of durable goods: $1,200
Consumption of nondurable goods: $1,800
Consumption of services: $2,400
Fixed investment: $800
Inventory investment: $600
Government expenditures on goods and services: $1,600
Government transfer payments: $500
Exports: $500
Imports: $650
7. Answer these questions about durable goods and GDP:
a. Do consumer nondurable or durable goods tend to change more over the course of a business cycle?
b. How are consumer durables like investments?
Answer: Consumer goods are like investments in two primary ways. Both provide a
c. Can either fixed investment or inventory be negative in a given year?
Answer: Fixed investments cannot be negative, because additions to the capital stock
rnment spending part of GDP?
Answer: Government transfer payments are not included in GDP because GDP measures
8. How does GNP compare to GDP when:
a. earnings of foreigners and foreign firms in the United States equal earnings of American citizens and
firms overseas.?
b. earnings of foreigners and foreign firms in the United States exceed earnings of American citizens and
firms overseas?
c. earnings of foreigners and foreign firms in the United States are less than earnings of American
citizens and firms overseas?
9. List, from the largest magnitude to the smallest, the following categories: disposable personal income,
Gross national product, national income, net national product, personal income.
10. Nominal GDP in Nowhereland in 2008 and 2009 is as follows:
NGDP 2008 NGDP 2009
$4 trillion $4.8 trillion
Can you say that the production of goods and services in Nowhereland has increased between 2008 and
2009? Why or why not?
Answer: One cannot say that production has increased in Nowhereland from 2003 to 2004
11. Answer these questions about GDP:
Answer:
b. Could real GDP grow at the same time that real GDP per capita falls?
time that real GDP per capita falls?
Answer: Since only what is produced can be consumed, if we measured all sources of
d. How does changing amount of leisure complicate comparisons of real well-being over time?
Answer:
12. Fill in the missing data for the following table:
Nominal GDP Real GDP
Year GDP Deflator (in billions) (in billions)