Question 1

Gross domestic product understates the total production of final goods and services because of the omission of

Accepted Answer

The underground economy, also known as the shadow economy or black market, refers to economic activity that goes unreported and is therefore not included in official statistics such as GDP. This can include illegal activities such as drug dealing or prostitution, as well as legal activities that are not reported to tax authorities, such as small-scale cash transactions. As a result, GDP understates the total production of final goods and services.

Question 2

Table 12-9
 $$\begin{array} { | l | c | r | } 
\hline \text { Product } & \text { Quantity } & \begin{array} { c } 
\text { Price per } \
\text { Unit }
\end{array} \
\hline \text { Steel } & 1,000 & \$ 100 \
\hline \text { Pods } & 5,000 & 200 \
\hline \text { Autos } & 500 & 25,000 \
\hline \text { Legal services } & 100 & 2,000 \
\hline
\end{array}$$
-Refer to Table 12-9.Suppose that the above table represents the goods and services produced in a very simple economy in 2013.Assume that steel is used as an input in the production of autos.Using that information,calculate GDP for the year 2013.

Accepted Answer

The answer of Table 12-9
 \[\begin{array} { | l |...

Question 3

Which of the following statements is true?

Accepted Answer

GDP accounting rules indeed do not adjust for the environmental impact of production, including pollution. GDP measures the total value of all goods and services produced over a specific time period but does not deduct for negative externalities like pollution.

Question 4

Legalizing all forms of illegal activities

Accepted Answer

Legalizing all forms of illegal activities would bring them into the formal economy, thus increasing GDP. Additionally, it would reduce the size of the underground economy by eliminating the need for illegal transactions.

Question 5

The Philippines and Vietnam have roughly the same size population.Suppose the GDP of the Philippines is $1,000 billion and the GDP of Vietnam is $10,000 billion.You should conclude

Accepted Answer

The answer of The Philippines and Vietnam have roughly the...

Question 6

A sharp increase in the divorce rate increases the number of lawyers hired to determine divorce settlements.This will

Accepted Answer

Although an increase in the number of lawyers hired will increase GDP, the negative impact on the well being of the economy (due to the rise in divorces) will outweigh this economic benefit. Divorce can be emotionally and financially draining, and can lead to negative social consequences such as broken families and increased poverty. Therefore, the increase in the divorce rate and hiring of lawyers will ultimately decrease well being in the economy.

Question 7

Which of the following statements about the underground economy is true?

Accepted Answer

Excluding the underground economy production from measured GDP can cause errors in GDP growth estimates in the long run as it underestimates the true size of the economy. The size of the underground economy varies among countries, but it is generally larger in developing countries where formal institutions are weaker and people may have more incentives to avoid taxes or regulation. However, it is not included in the calculation of GDP as GDP only measures the value of goods and services produced by legal and formal activities that can be measured and accounted for in national accounts. Income earned but not reported for tax purposes is also not included in GDP as it is not a formal transaction that can be recorded in the national accounts.

Question 8

The size of the underground economy would tend to increase if the government of a country

Accepted Answer

Increasing income tax rates can lead to more people working off the books to avoid higher taxes, thus increasing the size of the underground economy.

Question 9

Suppose Bob works for Mary as a proofreader.Mary and Bob fall deeply in love,marry and have eight children.Bob stops working for Mary in order to care for the children.What will be the effect on GDP?

Accepted Answer

GDP measures the market value of goods and services produced within a country's borders. Bob has stopped working outside the home, so his employment is no longer contributing to GDP. The fact that he is now caring for his family does not count as a market transaction nor does it add to the production of goods or services in the economy. Therefore, the overall effect will be a decrease in GDP.

Question 10

The table below describes the value added in the production of a gallon of gasoline by each stage of production.(The values are hypothetical.)

Accepted Answer

The answer of The table below describes the value added...

Question 11

The size of the underground economy would tend to decrease if the government of a country

Accepted Answer

Decreasing government regulations on businesses can reduce the incentives for businesses to operate in the underground economy, as it becomes easier and potentially more profitable to operate within the legal framework.

Question 12

Table 12-8
 $$\begin{array} { | l | c | r | } 
\hline  { \text { Product } } & \text { Quantity } & \text { Price } \
\hline \text { Sweaters } & 50 & \$ 50.00 \
\hline \text { CDs } & 150 & 10.00 \
\hline \text { Sugar } & 600 & 1.00 \
\hline \text { Soft drinks } & 800 & 0.75 \
\hline
\end{array}$$
-Refer to Table 12-8.Suppose that a simple economy produces only four goods and services: sweaters,CDs,sugar,and soft drinks.Assume one half of the sugar is used in making the soft drinks and the other half of the sugar is purchased by households.Calculate nominal GDP for this simple economy.

Accepted Answer

The answer of Table 12-8
 \[\begin{array} { | l |...

Question 13

Gross domestic product understates the total production of final goods and services because of the omission of

Accepted Answer

Gross domestic product (GDP) only includes the production of final goods and services, and omits a number of economic activities such as the production of intermediate goods, household production, and the underground economy. Household production, such as do-it-yourself repairs, child care, and home gardening, is a significant economic activity that is not captured by GDP.

Question 14

Table 12-7
 $$\begin{array} { | l | c | r | } 
\hline  { \text { Product } } & \text { Quantity } & \text { Price } \
\hline \text { Pods } & 20 & \$ 125.00 \
\hline \text { T-shirts } & 100 & 20.00 \
\hline \text { Bottled water } & 2,000 & 1.00 \
\hline \text { Oranges } & 600 & 0.50 \
\hline
\end{array}$$
-Refer to Table 12-7.Suppose that a simple economy produces only four goods and services: iPods,t-shirts,bottled water,and oranges.Calculate nominal GDP for this simple economy.

Accepted Answer

The answer of Table 12-7
 \[\begin{array} { | l |...

Question 15

Which of the following is likely to increase measured GDP?

Accepted Answer

Legalizing an activity such as growing and selling marijuana moves it from the informal or black market into the formal economy, where it is recorded and taxed, thus increasing the measured GDP. Activities like home day care, underreporting income, and doing one's own lawn maintenance either do not add to GDP or move activities out of the measured economy, thereby not increasing or even potentially decreasing measured GDP.

Question 16

Which of the following is not a true statement about the impact of World War II on the U.S.economy?

Accepted Answer

The war time years were not a period of prosperity for U.S. consumers as rationing and scarcity of goods were common due to the shift in production towards military supplies.

Question 17

Statistics on real GDP during World War II may give a misleading indication of whether World War II was a period of prosperity because

Accepted Answer

During World War II, most of the increased production was for military goods, not consumption goods. Therefore, statistics on real GDP during the war may give a misleading indication of whether it was a period of prosperity as the increased production did not directly benefit the average consumer or their standard of living.

Question 18

The U.S.work week has declined from 60 hours in 1890 to 40 hours today.The impact of the decline in working hours

Accepted Answer

The decline in working hours has led to an increase in leisure time and thus, an increase in the well-being of a typical working person in the U.S. Additionally, studies have shown that overworking can lead to burnout and decreased productivity, which could ultimately have a negative impact on the U.S. GDP. Therefore, the decrease in working hours could potentially lead to an increase in productivity and an increase in the well-being of workers, with a potentially positive impact on the U.S. GDP.

Question 19

Recent estimates put the size of the underground economy in the United States at ________ of measured GDP.

Accepted Answer

Recent estimates suggest that the size of the underground economy in the United States is around 8 percent of the measured GDP. This includes unreported income from both legal and illegal activities that contribute to the economy but are not captured in official statistics.

Question 20

The informal sector can be a significant drag on the economies of developing countries because the firms in the informal sector

Accepted Answer

Firms in the informal sector do not pay taxes to the government, which can result in a loss of government revenue and hinder the country's economic growth.

Quiz 12: Gdp: Measuring Total Production and Income

Gross domestic product understates the total production of final goods and services because of the omission of

Which of the following statements is true?

Legalizing all forms of illegal activities

The Philippines and Vietnam have roughly the same size population.Suppose the GDP of the Philippines is $1,000 billion and the GDP of Vietnam is $10,000 billion.You should conclude

A sharp increase in the divorce rate increases the number of lawyers hired to determine divorce settlements.This will

Which of the following statements about the underground economy is true?

The size of the underground economy would tend to increase if the government of a country

Suppose Bob works for Mary as a proofreader.Mary and Bob fall deeply in love,marry and have eight children.Bob stops working for Mary in order to care for the children.What will be the effect on GDP?

The table below describes the value added in the production of a gallon of gasoline by each stage of production.(The values are hypothetical.)

The size of the underground economy would tend to decrease if the government of a country

Gross domestic product understates the total production of final goods and services because of the omission of

Which of the following is likely to increase measured GDP?

Which of the following is not a true statement about the impact of World War II on the U.S.economy?

Statistics on real GDP during World War II may give a misleading indication of whether World War II was a period of prosperity because

The U.S.work week has declined from 60 hours in 1890 to 40 hours today.The impact of the decline in working hours

Recent estimates put the size of the underground economy in the United States at ________ of measured GDP.

The informal sector can be a significant drag on the economies of developing countries because the firms in the informal sector