Question 1

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 lead to a loss of revenue for the government and hinder economic growth.

Question 2

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 3

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

Since Bob has stopped working for Mary, he is no longer producing any goods or services that would contribute to GDP. The fact that he is now caring for his children has no direct impact on GDP, as it is not an activity that is reflected in the market. Therefore, the overall GDP would decrease due to the loss of Bob's contribution.

Question 4

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 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

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

Accepted Answer

The decline in working hours has led to an increase in the well-being of a typical working person in the U.S. as they have more time for leisure, family and other non-work related activities. While it may lead to a decrease in U.S. GDP, it is not necessarily a negative impact as people are able to enjoy a better work-life balance. However, the decline in working hours may also lead to an increase in labor costs for businesses and may require them to hire more workers to maintain productivity, which could potentially decrease U.S. GDP.

Question 7

Increases in real GDP would overstate the increase in the well-being of a country over time if,over that time period,the

Accepted Answer

Increases in real GDP would overstate the increase in the well-being of a country if the average hours worked per week increased. This is because while GDP might rise due to more work being done, the additional working hours could lead to a decrease in leisure time and potentially increase stress, not necessarily reflecting an actual improvement in the overall well-being of the population.

Question 8

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

Accepted Answer

Excluding underground economy production from measured GDP can cause errors in GDP growth estimates in the long run. This is because the underground economy can represent a significant portion of a country's economic activity, and if it is not accounted for, it can lead to an underestimation of the true size and growth of the economy. However, choices A, B, and D are incorrect. The underground economy in developing countries is often estimated to be much larger than 10% of measured GDP, most transactions that occur in the underground economy are not included in the calculation of GDP, and income that is not reported for tax purposes is not included in GDP.

Question 9

A sharp increase in the number of medical errors increases the number of lawyers hired to determine medical malpractice settlements.This will

Accepted Answer

The increase in lawyers hired to determine medical malpractice settlements would increase GDP because it represents an increase in economic activity. However, the well-being in the economy would likely decrease because the increase in medical errors suggests a decline in the quality of healthcare, which negatively impacts societal welfare.

Question 10

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 11

If GDP calculations included measurements of pollution and environmental damage,GDP values would most likely be

Accepted Answer

Including measurements of pollution and environmental damage in GDP calculations would decrease the overall GDP value, as these are negative externalities that represent a decrease in overall welfare and well-being. Therefore, option B is correct as it predicts a decrease in GDP values.

Question 12

Presently,GDP is ________ to compensate for the costs of environmental damage.

Accepted Answer

GDP is not adjusted to compensate for the costs of environmental damage.

Question 13

Legalizing all forms of illegal activities

Accepted Answer

Legalizing all forms of illegal activities would contribute to the formal economy and increase GDP because previously illegal activities would now be regulated and taxed. This would reduce the size of the underground economy, as illegal activities would now be conducted legally.

Question 14

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 15

The table below describes the value added in the production of a gallon of gasoline by each stage of production.(The values are hypothetical.)
Table 12-10
 $\begin{array}{|l|l|l|}
\hline \text { Stage of Production } & \text { Value of Sales } & \text { Value Added } \
\hline \text { Oil drilling } & 0.75 & \
\hline \text { Refining } & 1.25 & \
\hline \text { Shipping } & 1.85 & \
\hline \text { Retail sales } & 3.65 & \
\hline
\end{array}$ 
a)What is the value added by each stage of production?
b)What is the total value added?
For simplicity,you can ignore the cost of the inputs for oil drilling.

Accepted Answer

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

Question 16

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 17

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 the production of goods and services that are not reported to the government for taxation or other purposes. This means that activities such as selling drugs, offering unlicensed services, or working under the table are not included in GDP calculations, leading to an understatement of the total output of an economy. While the other options listed (intermediate goods, inflation, and exports) have an impact on how GDP is measured, they do not necessarily result in an understatement of the overall production of goods and services.

Question 18

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

Accepted Answer

GDP only includes production of goods and services that are sold in the market, but not those produced and consumed at home, such as cooking dinner, cleaning the house, or taking care of children. This is referred to as household production, which is not included in GDP estimation.

Question 19

Increases in real GDP would understate the well-being of a country over time if,over that time period,the

Accepted Answer

The answer of Increases in real GDP would understate the...

Question 20

Table 12-9
 $\begin{array}{|l|r|r|}
\hline \text { Product } & \text { Quantity } & \text { Priceper Unit } \
\hline \text { Steel } & 1,000 & \$ 100 \
\hline \text { iPods } & 5,000 & 200 \
\hline \text { Autos } & 500 & 25,000 \
\hline \text { Legal services } & 100 & 2,000 \
\hline
\end{array}$
-Refer to Table 12-9.Suppose that the above table represents the goods and services produced in a very simple economy in 2018.Assume that steel is used as an input in the production of autos.Using that information,calculate GDP for the year 2018.

Accepted Answer

The answer of Table 12-9
 \(\begin{array}{|l|r|r|}
\hline \text { Product }...

Quiz 12: GDP: Measuring Total Production and Income

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

The size of the underground economy would tend to decrease 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?

Which of the following statements is true?

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

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

Increases in real GDP would overstate the increase in the well-being of a country over time if,over that time period,the

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

A sharp increase in the number of medical errors increases the number of lawyers hired to determine medical malpractice settlements.This will

Which of the following is likely to increase measured GDP?

If GDP calculations included measurements of pollution and environmental damage,GDP values would most likely be

Presently,GDP is ________ to compensate for the costs of environmental damage.

Legalizing all forms of illegal activities

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

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

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

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

Increases in real GDP would understate the well-being of a country over time if,over that time period,the