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Exam 11: Measuring a Nationʹs Production and Income

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Question 21

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Use the following information to answer the next several questions: Scenario 1: Imagine that an economy produces two goods, flashlights and fishing lures. In 2009, the economy produced 70 flashlights and 40 fishing lures, and the prices of flashlights and fishing lures were $5 and $12, respectively. In 2010, the economy produced 85 flashlights and 50 fishing lures, and the prices of flashlights and fishing lures were $7 and $15, respectively. -Based on the information in Scenario 1, real GDP in 2010 in 2009 dollars) in this economy was

A) $830.
B) $1,025.
C) $1,090.
D) $1,345.

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Question 22

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ʺRecessionʺ refers to a period when the economy

A) declines for at least six months.
B) suffers due to political instability.
C) grows rapidly.
D) experiences a rise in living standards.

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Question 23

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Net exports are total imports minus total exports.

A rancher raises sheep. Once a year he shears them and sells the raw wool to a processor who cleans it and spins it into yarn. The yarn is then sold to a knitting mill, which produces and sells sweaters. In calculating GDP we would count

List and describe the four components of GDP.

Which of the following is NOT a component of gross domestic product?

For the purposes of GDP accounting, government purchases include

Suppose that nominal GDP in year 1 is 200 and nominal GDP in year 2 is 242. Assume that inflation is ten percent per year. How fast did the economy grow between these two years?

Bananas, chocolate bars, chewing gum, orange juice and yogurt are considered to be _______ goods.

Personal income and personal disposable income refer to payments ultimately flowing to

Exports _______ GDP and imports _______ GDP.

Why is GDP only an imperfect valid measure of the value of output produced by an economy?

How does real gross domestic product GDP) differ from nominal GDP?

A nationʹs net exports consist of

As depicted in the circular flow diagram, firms

Summary of the article: Grossly distorted picture It’s high time that economists looked at more than just GDP Economist.com From The Economist print edition February 9, 2006 Although GDP per capita is the most commonly used measure of a country’s success, many economists believe it does not give an accurate measure of a nation’s economic well-being. In its 2006 report Going for Growth, the Organisation for Economic Co-operation and Development (OECD) discusses some alternative measures to GDP. Focusing on the growing gap between GDP per capita figures in the United States and Europe, the OECD suggested different ways to measure the well-being of a nation, taking into consideration factors ignored in GDP calculations. These factors include leisure time, income inequality and the quality of the environment. Leisure time can play an important role in determining an individual’s well-being. Although the United States is one of the world’s wealthiest nations, its workers have longer work hours and less vacation time than most other nations’ workers. Adjusting GDP for leisure time significantly narrows the per capita gap between the United States and most European nations. In considering income inequality, the OECD has attempted to adjust GDP based on income distribution. The adjustments depend on how much a nation’s citizens care about inequality. The OECD found that in nations where people are concerned about income inequality, the gap between the United States and most other wealthy nations is significantly reduced since the distribution of income is more widely varied in the United States. In countries where income inequality is not as important to people, the gap is much smaller. Environmental quality is also ignored in GDP calculations. Many economists believe that GDP should be adjusted downward to account for pollution and the use of non-renewable resources, but no measurement standard currently exists to adjust GDP for these environmental issues. The OECD concluded that GDP is not the best measure of well-being, and although it may be the best available on a timely basis, other factors including those mentioned above need to be considered in addition to GDP to give a more accurate picture of economic well-being and the disparity of well-being between nations. -According to the Application, GDP calculations exclude all of the following indicators of well-being EXCEPT

The amount of income that households keep after paying taxes is

The majority of spending in the government purchases category comes from the federal government.

In the study of macroeconomics, production leads to income, and income leads to production in a continuing cycle.

The ʺexpansionʺ of an economy occurs after