Question 1

When IBM, an American firm, produces computer chips in another country, this production is not included in U.S. GDP because the production did not take place in the United States.

Accepted Answer

GDP only includes the value of goods and services produced within a country's borders, regardless of ownership or nationality of the producing firm.

Question 2

While studying with your friend, your friend states, "Our leisure time increases GDP but lowers our economic welfare because it reduces the amount of goods and services we can consume." Is your friend's statement CORRECT?

Accepted Answer

The answer of While studying with your friend, your friend...

Question 3

On January 1, 2015, United Delivery had trucks valued at $1.3 million. During 2015, United Delivery purchased new trucks valued at $500,000. If the value of the trucks on December 31, 2015 was $1.5 million, what is the amount of its net investment and its depreciation during 2015?

Accepted Answer

The answer of On January 1, 2015, United Delivery had...

Question 4

What is "underground production"? Is it included in GDP?

Accepted Answer

The answer of What is "underground production"? Is it included...

Question 5

-The table above gives the values of different expenditures in the United States during 1999. Answer the following questions about the United States.
a)What was the value of net exports of goods and services in 1999?
b)What was (nominal)GDP equal to in 1999?
c)What was the (nominal)value of total production equal to in 1999?

Accepted Answer

The answer of 
-The table above gives the values of...

Question 6

Assume a small nation has the following statistics: its consumption expenditure is $15 million, investment is $2 million, government purchases of goods and services is $1 million, exports of goods and services to foreigners is $1 million, and imports of goods and services from foreigners is $1.5 million. Calculate this nation's GDP.

Accepted Answer

The answer of Assume a small nation has the following...

Question 7

Net investment equals gross investment minus depreciation.

Accepted Answer

This is true. Net investment is the amount of new investment made in a given time period, which is equal to gross investment (total investment) minus depreciation (the decrease in value of existing assets due to wear and tear or obsolescence).

Question 8

If depreciation exceeds gross investment, net investment is negative.

Accepted Answer

When depreciation (the reduction in value of an asset over time) exceeds gross investment (the total amount spent on acquiring new assets), the net investment (the change in a company's stock of capital goods) will be negative. This is because the assets are decreasing in value faster than they are being replaced or acquired, resulting in a decrease in the company's overall capital stock.

Question 9

The circular flow diagram shows only the aggregate expenditures measure of GDP.

Accepted Answer

The circular flow diagram shows both the income and expenditure measures of GDP.

Question 10

What would happen to measured GDP if more people started hiring workers to do house chores such as cooking and cleaning?

Accepted Answer

The answer of What would happen to measured GDP if...

Question 11

If you buy a new water skis and other new equipment for $2,500 and take a week off of your job, where you earn $1,000 a week, to go water skiing. The equipment you purchased was all produced in the United States. You think that the week was worth $4,000. As a result of your vacation, GDP changes by how much?

Accepted Answer

The answer of If you buy a new water skis...

Question 12

Why does real GDP have limitations in determining economic welfare?

Accepted Answer

The answer of Why does real GDP have limitations in...

Question 13

The expenditure approach to measuring GDP includes firms' spending on wages.

Accepted Answer

The expenditure approach to measuring GDP includes consumption, investment, government spending, and net exports, but not firms' spending on wages, as wages are accounted for in the income approach to GDP.

Question 14

"If country A has a higher level of real GDP per person than country B, then people in Country A must enjoy a higher standard of economic welfare than people in Country B." Is this statement true or false and explain your answer.

Accepted Answer

The answer of "If country A has a higher level...

Question 15

The circular flow diagram shows that the flow of payments to the factors used to produce goods and services exceeds the flow of payments for final goods and services.

Accepted Answer

The circular flow diagram shows that the flow of payments for final goods and services exceeds the flow of payments to the factors used to produce them. This is because households and firms both receive income, but households ultimately spend more on final goods and services than firms do on factors of production.

Question 16

Explain how our economic welfare depends upon our level of real GDP per person but there might not be a one-to-one relationship between economic welfare and real GDP per person. Give examples of things that can effect one but not the other.

Accepted Answer

The answer of Explain how our economic welfare depends upon...

Question 17

The circular flow shows that aggregate spending is larger than aggregate income because people save.

Accepted Answer

The circular flow model shows that aggregate spending equals aggregate income. The reason for this is that any money that is saved is eventually used for investment or spending by someone else in the economy. Therefore, savings does not cause aggregate spending to be larger than aggregate income.

Question 18

When gross investment is greater than depreciation, then the nation's capital stock increased.

Accepted Answer

Gross investment refers to the total amount of investment in new capital goods, while depreciation refers to the decrease in the value of existing capital goods. If gross investment exceeds depreciation, it means that there is a net increase in the country's capital stock, which represents the country's capacity to produce goods and services.

Question 19

Explain how underground economic activity affects measurement of GDP.

Accepted Answer

The answer of Explain how underground economic activity affects measurement...

Question 20

List and discuss various types of goods and services omitted from measured GDP.

Accepted Answer

The answer of List and discuss various types of goods...

Quiz 4: Measuring GDP and Economic Growth