Question 1

The purchase of rice produced this period is included in GDP if the rice is

Accepted Answer

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Question 2

Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself. Which of the following is correct? The value of changing the oil is

Accepted Answer

GDP includes the value of goods and services produced by businesses, so if Susan pays Speedy Lube to change her oil, it is considered a service and included in GDP. However, if she changes it herself, it is not a transaction between businesses and therefore not included in GDP.

Question 3

Darin grows and sells marijuana to Jennifer. Thomas is an organic farmer who sells broccoli to Jennifer. Marijuana is an illegal good and broccoli is a legal good. Assume that if Jennifer marries either, they give her what they use to sell her. Which of the following statements is consistent with the way GDP is computed?

Accepted Answer

Illegal goods like marijuana are not included in the computation of GDP while legal goods like broccoli are included. Therefore, if Jennifer marries Darin, the transaction for the sale of marijuana is not included in GDP, causing a fall in GDP. However, if Jennifer marries Thomas, the transaction for the sale of broccoli is already included in GDP, so there is no effect on GDP.

Question 4

Which of the following is included in GDP?

Accepted Answer

Only legal, documented economic transactions are included in GDP. Medical marijuana purchased from a government-run pharmacy is a legal transaction and therefore included in GDP, whereas recreational marijuana purchased from a drug dealer or produced and consumed in a private setting are not legal transactions and do not contribute to GDP.

Question 5

Grapes are considered intermediate goods

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Question 6

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move

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Question 7

Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

Accepted Answer

The reliance on market-produced goods and services has increased the demand for these goods and services, which has led to an increase in their production and sale. This, in turn, has resulted in an increase in measured GDP as market transactions are included in GDP calculations.

Question 8

Estimates of the values of which of the following non-market goods or services are included in GDP?

Accepted Answer

Only the estimated rental value of owner-occupied homes is included in GDP. The value of unpaid housework and the value of services provided by major household appliances purchased in a previous period are not included in GDP because they are non-market goods and services.

Question 9

Ralph pays someone to mow his lawn, while Mike mows his own lawn. Regarding these two practices, which of the following statements is correct?

Accepted Answer

Only Ralph's payments for mowing his lawn are included in GDP, as it represents a market transaction involving the production of a final good (lawn mowing services) in the economy. Mike's mowing his own lawn does not represent a market transaction and, therefore, is not included in GDP.

Question 10

Rachel babysits for her sister for no pay. When she babysits for someone else she charges $8 an hour. When is Rachel's babysitting included in GDP?

Accepted Answer

Only paid work is included in GDP, therefore Rachel's babysitting for her sister is not counted. However, when she charges someone else $8 an hour, this is considered a transfer of money for a service and is included in GDP.

Question 11

A farmer sells $50,000 of apples to individuals who take them home to eat and $75,000 of apples to a company that uses them all to produce cider. How much of the farmer's sales will be included as apples in GDP?

Accepted Answer

Only the $50,000 of apples sold to individuals for consumption is included in GDP as final goods. The $75,000 of apples sold to the company for cider production are considered intermediate goods and are not counted separately in GDP.

Question 12

GDP excludes most items that are produced and sold illegally and most items that are produced and consumed at home because

Accepted Answer

GDP is a measure of goods and services that are produced within a country's borders and are sold legally in the marketplace. However, measuring illegal activities such as drug sales, prostitution, and other black market transactions is difficult, if not impossible, to accurately track. Similarly, goods and services that are produced and consumed within households, such as meals cooked at home or child care provided by parents, are not captured by GDP calculations.

Question 13

Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian citizen, commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose value of services preparing meals is included in U.S. GDP?

Accepted Answer

Ellen's services are included in U.S. GDP because she is providing a service within the U.S. economy, whereas Sam's services are not included as they are non-market household activities.

Question 14

Most goods and services produced at home

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Question 15

Which of the following is not included in GDP?

Accepted Answer

Only goods and services produced within the market economy and sold legally in the market are included in GDP. Carrots grown in your garden are not sold in the market, so they are excluded from GDP.

Question 16

If a state made a previously-illegal activity, such as gambling or prostitution, legal, then, other things equal, GDP

Accepted Answer

Legalizing previously-illegal activities leads to an increase in economic activity, hence increasing GDP. The activity is now included in the market, creating jobs, and generating revenue for the government through taxation.

Question 17

Spots, Inc. produces ink and sells it to Write on Target, which makes pens. The ink produced by Spots, Inc. is called

Accepted Answer

The ink produced by Spots, Inc. is used as an input in the production of pens by Write on Target. It does not reach the final consumer in its current form, therefore it is an intermediate good.

Question 18

Ryan lives in an apartment where he pays $7,000 a year in rent. Alexis lives in a house that could be rented for $14,000 a year. How much do these housing services contribute to GDP?

Accepted Answer

GDP includes the market value of all final goods and services produced within a country. Both Ryan's rent and the imputed rent of Alexis's house are considered part of the housing services that contribute to GDP, totaling $21,000.

Question 19

Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has

Accepted Answer

This change in behavior has increased measured GDP by the value added by the restaurant's preparation and serving of the meals. When people eat at restaurants, they are paying for the food, but also for the service provided by the restaurant staff such as cooking, cleaning, and preparing the meals. These services add value to the economy and are included in the GDP calculation.

Question 20

Gasoline is considered a final good if it is sold by a

Accepted Answer

Gasoline becomes a final good when it is sold directly to the end user, in this case, the motorist in Los Angeles. When gasoline is sold to a bus company or to a gasoline station, it is considered an intermediate good as it is not the final product consumed by the end user.

Quiz 10: Measuring a Nations Income