Question 1

The underground economy- the informal sector -can be a significant drag on the economies of developing countries.Why are firms in the informal sector often less efficient than firms in the formal sector?

Accepted Answer

The answer of The underground economy- the informal sector -can...

Question 2

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 3

If income is unequally distributed in an economy,increases in GDP may not raise well-being in an economy.

Accepted Answer

Unequal distribution of income means that only a small portion of the population benefits from increases in GDP, while the majority still struggles to make ends meet. This can lead to social and political unrest, which in turn affects overall well-being in the economy. Therefore, increases in GDP alone may not necessarily translate into higher well-being for everyone.

Question 4

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 5

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 would decrease GDP values because the negative externalities associated with economic activity would be accounted for. This is because GDP only measures the economic output within a country, and does not take into account the negative impacts on the environment and society.

Question 6

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. Rationing was implemented, limiting the availability of consumer goods, and prices increased due to government control of the economy.

Question 7

Developing countries with large informal sectors tend to have firms that invest less in capital equipment.

Accepted Answer

In developing countries with large informal sectors, firms often have limited access to financing and tend to operate on a smaller scale, which leads to lower levels of investment in capital equipment. This is because firms in the informal sector typically do not have formal contracts or legal protection, making it difficult for them to secure loans from banks or other financial institutions.

Question 8

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

Accepted Answer

An increase in the number of lawyers hired to determine divorce settlements will increase GDP, as it increases economic activity in the legal sector. However, it will decrease well-being in the economy as divorce is generally a negative event for those involved, and the cost of hiring lawyers and going through the legal process can be financially and emotionally draining. Therefore, while GDP may increase, overall economic and social well-being may actually decrease.

Question 9

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

The increased production during World War II was primarily focused on military goods, which do not necessarily indicate an increase in prosperity for the civilian population. Additionally, inflation may have been higher than estimated, but there is no evidence to suggest that government agents purposely inflated production numbers or that data collection was particularly poor during this time.

Question 10

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

Accepted Answer

Excluding underground economy production from measured GDP can lead to inaccuracies in GDP growth estimates over time, as it fails to account for all economic activities.

Question 11

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 12

Real GDP per capita is calculated by dividing the value of real GDP for a country by the country's adult population.

Accepted Answer

Real GDP per capita is calculated by dividing the value of real GDP for a country by the total population, not just the adult population.

Question 13

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 14

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 15

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 16

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. This is known as the "environmental externality" and is one of the criticisms of using GDP as a measure of economic welfare.

Question 17

Legalizing all forms of illegal activities

Accepted Answer

Legalizing illegal activities such as drugs, prostitution, and gambling can increase the GDP by generating tax revenue and reducing costs associated with law enforcement and incarceration. By bringing these activities into the legal economy, they can be regulated and monitored, further reducing negative impacts on society. This can also reduce the size of the underground economy as these activities shift from being conducted in the shadows to being openly conducted in the legal system.

Question 18

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 reduce government revenue and resources for public goods and services. This can overall negatively impact the economy of developing countries.

Question 19

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 decrease in working hours has led to greater worker productivity and efficiency, leading to an increase in overall economic output. However, it has also contributed to an increase in leisure time and work-life balance, leading to an increase in the well-being of a typical working person in the U.S. Therefore, while the decrease in working hours may have decreased GDP if productivity did not increase, the evidence suggests that it has had the opposite effect.

Question 20

Even though it is generally true that the more goods and services people have,the better off they are,GDP provides only a rough measure of well-being.Assuming language is not an issue,what other factors besides GDP might you consider when deciding where to live and work?

Accepted Answer

The answer of Even though it is generally true that...

Quiz 12: GDP: Measuring Total Production and Income