Question 1

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

Accepted Answer

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Question 2

If depreciation exceeds gross investment, net investment is negative.

Accepted Answer

Net investment is calculated as gross investment minus depreciation. If depreciation exceeds gross investment, the result is a negative net investment, indicating a decrease in the value of the assets over time.

Question 3

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

Accepted Answer

The circular flow diagram illustrates the economy's exchanges among households, firms, and the government, encompassing both the expenditure approach and the income approach to measuring GDP, not just the aggregate expenditures measure.

Question 4

-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 5

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

Accepted Answer

The circular flow model shows that in an economy, aggregate spending equals aggregate income, even when people save, because saving is considered a form of spending (investment) in the economy.

Question 6

Explain how underground economic activity affects measurement of GDP.

Accepted Answer

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Question 7

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 illustrates that the flow of payments for the factors used to produce goods and services (like wages, rent, interest, and profits) is equal to the flow of payments for final goods and services, maintaining a balance in the economy.

Question 8

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 measures the value of goods and services produced within a country's borders; since IBM's production is outside the U.S., it doesn't count towards U.S. GDP.

Question 9

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.

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Question 10

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

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Question 11

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 12

Net investment equals gross investment minus depreciation.

Accepted Answer

Net investment is calculated by subtracting depreciation (the decrease in value of an asset over time) from gross investment (the total amount spent on new capital).

Question 13

On January 1, 2017, United Delivery had trucks valued at $1.3 million. During 2017, United Delivery purchased new trucks valued at $500,000. If the value of the trucks on December 31, 2017 was $1.5 million, what is the amount of its net investment and its depreciation during 2017?

Accepted Answer

The answer of On January 1, 2017, United Delivery had...

Question 14

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

Accepted Answer

When gross investment exceeds depreciation, it means that the total amount of investment in new capital exceeds the amount of capital that has been consumed or become obsolete. This results in an increase in the nation's capital stock.

Question 15

"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 16

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

Accepted Answer

The expenditure approach to GDP includes consumption, investment, government spending, and net exports, but not firms' spending on wages, which is part of the income approach.

Question 17

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?

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Question 18

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

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Question 19

Why does real GDP have limitations in determining economic welfare?

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Question 20

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?

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Quiz 4: Measuring Gdp and Economic Growth