Question 1

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

Accepted Answer

Excluding underground economy production from measured GDP does cause errors in GDP growth estimates in the long run, as it underestimates the true size of the economy. However, none of the other statements are true. The underground economy in developing countries is often estimated to be much larger than 10% of measured GDP, transactions in the underground economy are not included in GDP calculations, unreported income is not part of GDP, and the Canadian underground economy has not been consistently growing relative to measured GDP.

Question 2

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

Accepted Answer

The informal sector does not pay taxes to the government and therefore the government loses out on potential revenue. This lack of revenue can be a significant drag on the economy as it reduces the government's ability to invest in infrastructure, education, healthcare, and other key areas necessary for economic growth. Choices A, B, D, and E are not necessarily true for all firms in the informal sector and do not explain how the informal sector can be a drag on the economy.

Question 3

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

Accepted Answer

Reducing government regulations on businesses can decrease the underground economy by making it easier and less costly for businesses to operate legally, thus reducing the incentive to operate outside the formal economy.

Question 4

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

Accepted Answer

The underground economy, which consists of unreported and illegal economic activities, is not included in the calculation of GDP. This includes activities such as drug trafficking, prostitution, and illegal gambling. Because these activities are not reported to the government, they are not included in official GDP statistics, leading to an understatement of total production.

Question 5

Why do we subtract import spending from total expenditures?

Accepted Answer

The answer of Why do we subtract import spending from...

Question 6

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 4.10  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 7

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

Accepted Answer

Gross Domestic Product (GDP) understates the total production of final goods and services because it does not include household production, such as the services provided by stay-at-home parents or the self-production of goods and services for personal use, which do not enter the marketplace and thus are not counted in GDP.

Question 8

Debbie makes porcelain plates in her home and sells them to the Opus gallery.She spent $400 last month on supplies and made 50 plates.She sold the plates to the gallery at $25 per plate.The gallery sells all the plates for $40 each.For all of the 50 plates, what is Debbie's total value added? For all the 50 plates, what is the gallery's total value added?

Accepted Answer

The answer of Debbie makes porcelain plates in her home...

Question 9

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

Accepted Answer

GDP alone does not account for cost of living, income distribution, or other factors affecting individual well-being.

Question 10

Legalizing all forms of illegal activities

Accepted Answer

Legalizing illegal activities would bring them into the formal economy and increase taxable activity, leading to an increase in GDP. By bringing these activities out of the underground economy, the size of the informal sector would be reduced.

Question 11

Table 4.9 
-Refer to Table 4.9.Suppose that the above table represents the goods and services produced in a very simple economy in 2015.Assume that steel is used as an input in the production of autos.Using this information, calculate GDP for the year 2015.

Accepted Answer

The answer of Table 4.9 
-Refer to Table 4.9.Suppose that...

Question 12

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

Accepted Answer

Recent estimates suggest that the size of the underground economy in Canada is approximately 2.3 percent of the measured GDP. This reflects economic activities that are not reported to the authorities and thus not included in the official GDP calculations.

Question 13

When reporting GDP using the expenditure approach Statistics Canada divides its statistics into four major categories.List the categories of expenditures and define each one.

Accepted Answer

The answer of When reporting GDP using the expenditure approach...

Question 14

Government spending on subsidies is included in government consumption when calculating GDP because it results in the production of new goods and services.

Accepted Answer

Government spending on subsidies is not considered part of government consumption when calculating GDP, as it is not directly used to purchase goods or services. Rather, subsidies are considered a transfer payment, which is not included in GDP calculations.

Question 15

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

When Bob stops working for Mary, his income from proofreading will no longer be counted as a part of GDP. Additionally, his new role as a caretaker for his family is not a part of the market economy and is not included in GDP calculations. Therefore, GDP will decrease.

Question 16

Describe briefly how the final value of an iPhone must be equal to the sum of incomes generated by the production of the iPhone.

Accepted Answer

The answer of Describe briefly how the final value of...

Question 17

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

Accepted Answer

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

Question 18

If Gladys sells her 1998 Jeep Cherokee for $3,500 in 2015, the sale of her car contributes $3,500 to 2015 GDP.

Accepted Answer

The sale of a used car is not included in GDP as it does not represent a newly produced good or service.

Question 19

The circular flow of income shows that GDP can be measured as the sum of wages, interest, rent, and profits received by households or total expenditures on goods and services by households, firms, government, and the rest of the world.

Accepted Answer

The circular flow of income model involves households, firms, government, and international trade. It shows how income flows from firms to households in the form of wages, interest, rent, and profits, and how spending flows from households to firms for goods and services. GDP can be measured either by adding up the income received by households or the total expenditures on goods and services by all sectors.

Question 20

Which of the following statements is true?

Accepted Answer

GDP accounting rules indeed do not adjust for environmental pollution. GDP measures the total value of all goods and services produced over a specific time period but does not deduct for negative externalities such as environmental damage.

Quiz 4: GDP: Measuring Total Production and Income

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

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

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

Why do we subtract import spending from total expenditures?

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

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

Legalizing all forms of illegal activities

Table 4.9 -Refer to Table 4.9.Suppose that the above table represents the goods and services produced in a very simple economy in 2015.Assume that steel is used as an input in the production of autos.Using this information, calculate GDP for the year 2015.

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

When reporting GDP using the expenditure approach Statistics Canada divides its statistics into four major categories.List the categories of expenditures and define each one.

Government spending on subsidies is included in government consumption when calculating GDP because it results in the production of new goods and services.

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?

Describe briefly how the final value of an iPhone must be equal to the sum of incomes generated by the production of the iPhone.

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

If Gladys sells her 1998 Jeep Cherokee for $3,500 in 2015, the sale of her car contributes $3,500 to 2015 GDP.

The circular flow of income shows that GDP can be measured as the sum of wages, interest, rent, and profits received by households or total expenditures on goods and services by households, firms, government, and the rest of the world.

Which of the following statements is true?