Question 1

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 2

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

Accepted Answer

The underground economy, or the production of goods and services that are not reported to the government for tax purposes, is not included in the calculation of GDP. This can lead to an understatement of the true level of economic activity in a country. Intermediate goods, inflation, and exports are all included in the calculation of GDP.

Question 3

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 4

Table 19-10
  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.
Answer:
  a. The value added is the difference between the price the firm sells a good for and the price it paid other firms for the intermediate good. The firm that does the oil drilling sells the gallon of oil to the refinery for $0.75. Since we are assuming no other input costs for simplicity, the value added by the drilling firm is $0.75. The refinery processes the oil and then sells it to the transport company for $1.25. The refinery's value added is $0.50. The transport company sells the oil to the retail company for $1.85. The transport company's value added is $1.85 - $1.25 = $0.60. Finally, the retail gas station sells the gallon of gas for $3.65. The value added by the retail station is $1.80.
b. The total value added is found by summing the value added by each firm involved the production of the gallon of gas. The retail price is the same at this total of value added.
Diff: 2 Page Ref: 646/262
Topic: Measuring GDP by the Value Added Method
*: Recurring
Learning Outcome: Macro-3: Identify and interpret key macroeconomic measures
AACSB: Analytical thinking
19.2 Does GDP Measure What We Want It to Measure?
-The Philippines and Vietnam have roughly the same size population. Suppose the GDP of the Philippines is $1,000 billion and the GDP of Vietnam is $10,000 billion. You should conclude

Accepted Answer

GDP measures the total value of goods and services produced in a country. It does not provide information about how the income is distributed among the population, the quality of life, or other factors that can affect well-being. Therefore, it is not possible to make a good comparison of the economic well-being of a typical individual in the two countries without additional information.

Question 5

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

Accepted Answer

Excluding underground economy production from measured GDP can cause errors in GDP growth estimates in the long run. This is because the underground economy represents a significant portion of economic activity and excluding it from GDP measurements can distort the picture of the overall economy. However, neither A, B, nor D is true. The underground economy in developing countries is often estimated to be much larger than 10% of measured GDP, many transactions that occur in the underground economy are not included in the calculation of GDP, and income that is not reported for tax purposes is not included in GDP calculations.

Question 6

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 7

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 8

The U.S. work week has declined from 60 hours in 1890 to fewer than 40 hours today. The impact of the decline in working hours

Accepted Answer

The decline in working hours has led to a decrease in U.S. GDP, as fewer hours worked means less productivity and output. However, it has also increased the well-being of a typical working person in the U.S., as they have more time for leisure, family, and personal pursuits. This can lead to better mental and physical health, improved relationships, and overall higher satisfaction with life.

Question 9

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 are not registered with the government and do not pay taxes, which reduces government revenue. This can limit the government's ability to provide necessary public services, such as infrastructure and education, which can hinder economic growth.

Question 10

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 in GDP calculations would result in a reduction in GDP values. This is because the negative externalities of economic activity, such as pollution and damage to the environment, would be taken into account, thus reducing the overall value of the economy.

Question 11

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 12

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

Accepted Answer

Decreasing government regulations on businesses can reduce the incentives for businesses to operate in the underground economy, as it becomes easier and potentially more profitable to operate within the legal framework.

Question 13

Presently, GDP is ________ to compensate for the costs of environmental damage.

Accepted Answer

Currently, GDP is not adjusted to compensate for the costs of environmental damage.

Question 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

GDP only includes goods and services that are produced for sale in the market, but there are many products that households produce for their own consumption that are not included in GDP. Examples include homemade meals, cleaning services, and child care. These are considered household production and their omission from GDP can lead to an understatement of total production.

Question 16

GDP is not a perfect measure of well-being because

Accepted Answer

GDP does not take into account negative externalities such as pollution, which can have adverse effects on well-being. GDP only measures economic output and does not consider environmental factors. The other choices are incorrect because leisure time is not directly included in GDP, changes in crime rates are not typically factored into GDP, and increases in drug addiction are not adjusted for in GDP calculations.

Question 17

A sharp increase in the number of medical errors increases the number of lawyers hired to determine medical malpractice settlements. This will

Accepted Answer

The increase in hiring of lawyers may increase GDP due to the additional spending on legal fees but it decreases the overall well-being of the economy due to the negative consequences of medical errors and malpractice settlements. The costs associated with medical errors and malpractice settlements can lead to higher healthcare costs and decreased trust in healthcare providers, which ultimately impacts well-being.

Question 18

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 19

Legalizing all forms of illegal activities

Accepted Answer

Legalizing all forms of illegal activities would bring them into the mainstream economy, increasing GDP by the amount previously hidden from legal channels. By legalizing these activities, they will no longer be considered part of the underground economy, reducing its size. However, option A is not correct as legalizing illegal activities would not decrease GDP. Option B is not correct as legalizing illegal activities would not increase the size of the underground economy. Option D is not correct as legalizing illegal activities may increase GDP, but it would not increase the size of the underground economy.

Question 20

Table 19-9
 
-Refer to Table 19-9. Suppose that the above table represents the goods and services produced in a very simple economy in 2018. Assume that steel is used as an input in the production of autos. Using that information, calculate GDP for the year 2018.

Accepted Answer

The answer of Table 19-9
 
-Refer to Table 19-9. Suppose...

Quiz 19: Gdp: Measuring Total Production and Income

Increases in real GDP would overstate the increase in the well-being of a country over time if, over that time period, the

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

Which of the following is likely to increase measured GDP?

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

Increases in real GDP would understate the well-being of a country over time if, over that time period, the

Which of the following statements is true?

The U.S. work week has declined from 60 hours in 1890 to fewer than 40 hours today. The impact of the decline in working hours

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

If GDP calculations included measurements of pollution and environmental damage, GDP values would most likely be

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

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

Presently, GDP is ________ to compensate for the costs of environmental damage.

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

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

GDP is not a perfect measure of well-being because

A sharp increase in the number of medical errors increases the number of lawyers hired to determine medical malpractice settlements. This will

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?

Legalizing all forms of illegal activities

Table 19-9 -Refer to Table 19-9. Suppose that the above table represents the goods and services produced in a very simple economy in 2018. Assume that steel is used as an input in the production of autos. Using that information, calculate GDP for the year 2018.