Question 1

Joyce is an accountant. Sarah, her hair stylist, cuts and perms her hair in exchange for having her taxes done. This is an example of an economic transaction that is not included in the national income and product accounts.

Accepted Answer

This is an example of a barter transaction, which is not recorded in national income and product accounts because it does not involve a monetary exchange.

Question 2

The U.S. median household income in 2013 was about $65,000.

Accepted Answer

The U.S. median household income in 2013 was approximately $52,250, not $65,000.

Question 3

The rental income component in the income approach to calculating GDP includes the incomes of real estate agents and brokers.

Accepted Answer

Real estate agents and brokers are considered part of the service sector and their income is already included in the calculation of GDP through the value added approach. Therefore, their income is not separately included in the rental income component.

Question 4

The informal economy in the United States is approximately 40% of GDP.

Accepted Answer

There is no official estimate of the size of the informal economy in the United States, but some estimates suggest it may be between 8-10% of GDP, which is much lower than 40%.

Question 5

An advantage of using GDP per capita to measure the standard of living in a country is that it declines if economic growth results in deterioration of the environment.

Accepted Answer

GDP per capita only measures the economic output per person in a country and does not take into account environmental factors or quality of life indicators. Therefore, it may not accurately reflect the standard of living in a country.

Question 6

A disadvantage of using per capita GDP to measure the standard of living in a country is that it does not accurately reflect the differences in wealth between rich citizens and poor citizens in the same country.

Accepted Answer

Per capita GDP only provides a measure of the average income per person in the country. It does not take into account the distribution of wealth within the country, so it is possible for the average to be high while a large portion of the population lives in poverty. Therefore, it is not an accurate reflection of the standard of living for all citizens.

Question 7

Because GDP excludes nonmarket transactions, the level of economic activity in a country is understated.

Accepted Answer

GDP only includes market transactions, such as goods and services sold in the market, and excludes nonmarket transactions, such as DIY home repairs, unpaid volunteer work, and household production. Therefore, the actual level of economic activity in a country may be higher than what is reflected in its GDP.

Question 8

The Integrated Environmental and Economic Satellite Accounts are intended to take into account the environmental benefits or harmful effects of economic activity.

Accepted Answer

The Integrated Environmental and Economic Satellite Accounts (IEESA) aim to integrate environmental and economic data in order to accurately measure the sustainability of economic activity. This includes considering the environmental impacts and benefits of economic activity, such as emissions, resource depletion, and ecosystem services.

Question 9

In a country with income concentrated in the hands of a small group of people, median household income would be a better measure of the standard of living of a typical citizen than GDP per capita.

Accepted Answer

Median household income is less affected by extreme values and provides a better representation of the typical citizen's standard of living in cases of income inequality.

Question 10

Sheila charges $100 to proof term papers for other college students. She does not declare this income on her tax return. Sheila is part of the informal economy.

Accepted Answer

The informal economy includes economic activities that are not reported to the government and therefore not taxed or monitored by any form of government. Sheila's undeclared income from proofing term papers falls into this category.

Question 11

In the income approach to calculating GDP, net interest is the interest paid by businesses plus the interest they receive.

Accepted Answer

In the income approach to calculating GDP, net interest is calculated by subtracting the interest paid by businesses from the interest they receive. So, it is not the sum of interest received and paid.

Question 12

When Andrea was a poor college student, she changed the oil in her car herself. Now that she has a real job, she takes her car to her mechanic to have the oil changed. GDP is not affected by this change.

Accepted Answer

When Andrea changes her oil herself, it is not counted in GDP. However, when she pays a mechanic, it is counted as a service, thus affecting GDP.

Question 13

In the national income and product accounts, "disposable personal income" and "personal income" are synonymous.

Accepted Answer

While both terms refer to income received by individuals, disposable personal income is personal income minus personal taxes, while personal income includes all forms of income regardless of taxes.

Question 14

Child care provided by a nanny is not included in the GDP if the parents pay the nanny "under the table."

Accepted Answer

GDP measures the value of all final goods and services produced within a country's borders in a given period, including legal market transactions. Payments made "under the table" are not reported to the government and thus are not included in GDP calculations.

Question 15

The proprietors' income component of the income approach to calculating GDP must be adjusted by an allowance to account for depreciating equipment.

Accepted Answer

The proprietors' income component includes the compensation received by owners of businesses for their labor and the return on their investment in the business, which includes the profits earned and the depreciation of their equipment. The adjustment for depreciation is necessary to ensure that the value of the equipment is not counted multiple times in the calculation of GDP.

Question 16

GDP includes the value of illegal transactions, which means the level of economic activity in a country is overstated.

Accepted Answer

GDP only includes legal transactions within a country's formal economy. Illegal activities such as drug trafficking or undeclared work are not included in GDP calculations. Therefore, the level of economic activity in a country is not overstated by illegal activities.

Question 17

China's GDP per capita would have been higher if not for the deterioration in its environment.

Accepted Answer

The answer of China's GDP per capita would have been...

Question 18

Compensation of employees in the income approach to calculating GDP includes many benefits, such as employers' contributions to unemployment compensation.

Accepted Answer

Compensation of employees in the income approach to calculating GDP includes all forms of pay and benefits, including contributions made by employers to government programs such as unemployment compensation. These contributions are considered part of the total compensation paid to employees and thus included in the calculation of GDP.

Question 19

If a country's GDP per capita is $86,000, then a typical married couple earns $172,000 per year.

Accepted Answer

GDP per capita is an average economic output per person, not a measure of typical earnings for specific households or couples.

Question 20

GDP per capita fully reflects the standard of living of a typical citizen of a country.

Accepted Answer

GDP per capita provides a measure of the average economic output per person in a country, but it does not necessarily reflect other factors that contribute to standard of living such as income inequality, access to healthcare, education, and other social services, environmental factors, and overall quality of life. Therefore, it is not a comprehensive measure of a typical citizen's standard of living.

Quiz 5: Introduction to Macroeconomics