Question 1

A weakness in the concept of GDP is that it ignores income distribution.

Accepted Answer

GDP only measures the total production and income of a country, without considering how that income is distributed among its citizens. Therefore, GDP cannot accurately reflect the level of economic inequality within a country.

Question 2

Related to the Economics in Practice on p. 437: Actions that impact the state of the environment, like pollution, are considered ________ activities in terms of the national income and product accounts.
A) market
B) nonmarket
C) underground economy
D) depreciable

Accepted Answer

Nonmarket activities refer to those that do not involve a monetary transaction, such as unpaid work like caregiving or volunteering. Pollution and other environmental impacts are not typically bought or sold in a market, therefore they are considered nonmarket activities when measuring national income and product accounts.

Question 3

The costs of pollution are subtracted from the value of final sales before calculating GDP.

Accepted Answer

The costs of pollution are not subtracted from the value of final sales when calculating GDP; GDP measures the total value of all goods and services produced over a specific time period without deductions for environmental degradation.

Question 4

GDP generally reflects the production of social ills such as pollution.

Accepted Answer

GDP measures the total value of goods and services produced in a country, but it does not account for negative externalities like pollution.

Question 5

All economic activities in the economy are included in the GDP.

Accepted Answer

GDP measures the value of goods and services produced within a country's borders; it does not include all economic activities, such as the informal economy or black market transactions.

Question 6

Studies estimate the size of the informal economy in the United States at about ________ percent of GDP.
A) 2
B) 10
C) 20
D) 33

Accepted Answer

Studies estimate the size of the informal economy in the United States to be about 10 percent of GDP. This includes unreported income from the underground economy, such as cash jobs and off-the-books work.

Question 7

Fixed weight indexes can not account for new goods.

Accepted Answer

Fixed weight indexes use a fixed basket of goods to measure inflation, and do not account for new goods that may be introduced to the market. As a result, they may not accurately reflect changes in consumer buying habits and preferences.

Question 8

The informal economies of developing nations are generally larger than that of the United States.

Accepted Answer

This is due to a variety of factors such as limited access to formal jobs, inadequate government regulation, and cultural traditions of self-employment and entrepreneurship. In many developing countries, the informal economy can account for up to 50% or more of total economic activity.

Question 9

Gross national income (GNI) is GDP converted into dollars using an average of currency exchange rates over several years adjusted for rates of inflation.

Accepted Answer

Gross national income (GNI) is indeed GDP converted into dollars using an average of currency exchange rates over several years adjusted for rates of inflation.

Question 10

Production in the illegal or underground economy is not reflected in GDP.

Accepted Answer

GDP only includes legal economic activities that are measured and reported to the government. The illegal or underground economy, such as black market transactions, is not accounted for in GDP.

Question 11

A decrease in crime would be reflected in a country's GDP.

Accepted Answer

GDP measures the total value of goods and services produced in a country and does not directly account for increases or decreases in crime rates.

Question 12

GNI per capita is gross national income divided by the population.

Accepted Answer

GNI per capita is calculated by dividing the gross national income by the population.

Quiz 21: Measuring National Output and National Income