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Exam 11: Measuring a Nationʹs Production and Income

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Question 71

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For the purpose of GDP accounting, consumption expenditures include

A) only nondurable goods.
B) only durable goods.
C) both nondurable goods and services.
D) durable goods, nondurable goods, and services.

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Question 72

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GDP measures underestimate the value of output produced by an economy because they include services not transferred through markets.

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Question 73

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If an economy produced 220 pounds of jelly beans at $5 per pound and 90 pounds of gum drops at $2 per pound in 2010, its real gross domestic product GDP) was

If Cassieʹs Coffee House purchases 33 cents worth of ingredients and spends 36 cents on wages per cup of coffee to produce an 89 cent cup of coffee, then Cassieʹs Coffee Houseʹs contribution to GDP is _______ per cup of coffee.

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 understates the value of output produced by an economy because it

In the expanded circular flow diagram, the government supplies

Nominal GDP is measured by calculating real GDP at constant prices.

The GDP deflator measures how prices change over time.

Which of the following is NOT an example of private investment expenditure?

What type of spending is the most important component of the GDP?

When gross domestic product GDP) is adjusted by adding any income earned abroad by U.S. firms or residents which is sent back to the United States and by subtracting any income earned in the United States by non-U.S. corporations or foreign nationals which is sent back to their home countries, it is called

Define GDP.

Which of the following is a category of national income?

If in the third quarter of 2010 total investment spending was $4,768 billion and depreciation was $3,292 billion, then the amount counted in GDP, which is known as gross investment, would be

The manner in which a nationʹs economy reacts when the measured factors are changed affects almost every individual.

The common term for a severe recession is a

Recall the Application about the severity of the recession of 2007-2009 to answer the following question(s) . -According to this Application, as measured by the decline in GDP, the recession which began in _______ might have been more severe than the recession which began in 2007.

From World War II through 2010, the United States experienced _______ recessions.

Gross investment is