Question 1

Explain which expenditure category of GDP changes and the direction of the change that results for each of the following transactions:
a.A domestic business purchases a domestically produced computer to use in a business office.
b.A domestic business produces a computer that is sold to a foreign company.
c.The federal government purchases a domestically produced computer to use in a court house.
d.A domestic household purchases a domestically produced computer to use in a home.
e.A domestic household purchases a computer produced in a foreign country to use in a home.

Accepted Answer

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Question 2

A farmer grows wheat and sells it to a miller for $1; the miller turns the wheat into flour and sells it to a baker for $3; the baker uses the flour to make bread and sells the bread for $6.The value added by the miller is:
A) $1.
B) $2.
C) $3.
D) $6.

Accepted Answer

The value added by the miller is the difference between the sale price of the flour ($3) and the cost of the wheat ($1), which is $2.

Question 3

One opposition MP in Ottawa has criticized the government for making an inadequate effort to stimulate the economy based on data from the labour force survey that shows the unemployment rate has risen.A government MP counters that the number of employed workers in the economy has increased over the same period,based on the same survey.Explain how both MPs can be correct.

Accepted Answer

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Question 4

Assume two countries have the same nominal GDP (measured in the same currency using the same accounting rules).Explain at least three reasons why you cannot assume that citizens in each country enjoy approximately the same level of economic well-being.

Accepted Answer

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Question 5

A fixed-weight price index like the CPI ______ the change in the cost of living because it ______ take into account that people can substitute less expensive goods for ones that have become more expensive.
A) underestimates; does not
B) overestimates; does
C) accurately estimates; does
D) overestimates; does not

Accepted Answer

A fixed-weight price index like the CPI overestimates the change in the cost of living because it does not take into account that people can substitute less expensive goods for ones that have become more expensive. This lack of substitution bias means that the CPI may not accurately reflect how consumers adjust their spending in response to price changes.

Question 6

There are a number of measures of aggregate economic activity,such as GDP,GNP,national income,personal income,and disposable personal income.Each of these measures can be a good indicator depending on the issue under consideration.For each of the following issues,give your reasons for selecting one of the measures just mentioned as the best indicator to use in studying the issue:
a.The proportion of income households save
b.The relative share of earnings going to labour versus capital
c.The total output of new final goods and services.

Accepted Answer

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Question 7

A woman marries her butler.Before they were married,she paid him $20,000 per year.He continues to wait on her as before (but as a husband rather than as a wage earner).She earns $1,000,000 per year both before and after her marriage.If GDP were changed so that it truly measured the sum of all final economic activity,the marriage would:
A) decrease GDP.
B) increase GDP.
C) leave GDP unchanged.
D) first decrease and then increase GDP.

Accepted Answer

The marriage would not affect GDP as it does not involve any final economic activity. The woman's earnings and the butler's previous wage were already included in GDP before the marriage. The marriage does not result in any additional goods or services being produced or exchanged in the economy, thus leaving GDP unchanged.

Question 8

Explain why the value of GDP in 2014 would or would not change as a result of each of the following transactions:
a.In 2014,the Smith family purchases a new house that was built in 2014.b.In 2014,the Jones family purchases a house that was built in 2001.c.In 2014,a construction company purchases windows to put in the Smith family home that was built in 2014.d.In 2014,Mr.Jones paints all of the rooms of the Jones family house purchased in 2014.e.In 2014,Mr.Smith uses an online brokerage service to purchase shares of stock in a construction company.

Accepted Answer

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Question 9

A woman marries her butler.Before they were married,she paid him $20,000 per year.He continues to wait on her as before (but as a husband rather than as a wage earner).She earns $1,000,000 per year both before and after her marriage.The marriage:
A) does not change GDP.
B) decreases GDP by $20,000.
C) increases GDP by $20,000.
D) increases GDP by more than $20,000.

Accepted Answer

The butler's wages were part of GDP as they were a paid service. After marriage, his services are no longer paid, thus reducing GDP by $20,000.

Question 10

Real GDP per capita is an imperfect measure of economic well-being because it does not value home production or production in the underground economy,among other factors.Give at least two examples that show why the omission of these types of items will make a difference in evaluating economic well-being.One example should explain how the omission distorts comparisons of economic well-being across countries,and the other example should explain how the omission distorts comparisons of economic well-being in the same country over time.

Accepted Answer

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Question 11

Economic statistics are not perfect.Explain at least one way in which each of the following statistics as currently calculated in Canada fails to completely or accurately measure the corresponding economic concept (in parentheses):
a.real GDP per person (economic well-being)
b.CPI (cost of living)
c.unemployment rate (involuntary unemployment)

Accepted Answer

The answer of Economic statistics are not perfect.Explain at least...

Question 12

Into which of the three categories-employed,unemployed,not in the labour force-would an interviewer for the Labour Force Survey place each of the following people? Explain.
a.Jennifer Temple is working as a second-grade schoolteacher.
b.Frank Peabody is attending college full time to earn a degree in elementary education.
c.Martin Hampton is working as a high school social science teacher,but is at home sick with the flu.
d.Kyle Brown does not currently have a job.He wants to be an elementary schoolteacher.He has the appropriate degree.He has not looked for a position in the last month because he doesn't believe schools are currently hiring.
e.Brenda Dewey does not currently have a job.She has sent her resume to several school districts in the past week in the hope of finding a teaching position.

Accepted Answer

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Question 13

Okun's Law is the _______ relationship between real GDP and the _________.
A) negative; unemployment rate
B) negative; inflation rate
C) positive; unemployment rate
D) positive; inflation rate

Accepted Answer

Okun's Law is a negative relationship between real GDP and the unemployment rate. As the unemployment rate decreases, real GDP increases.

Question 14

According to Okun's law,if real GDP rises by about 2 percent in one year's time,the unemployment rate will rise by about______ percent.
A) 5
B) 4
C) 2
D) 1

Accepted Answer

Okun's law suggests that for every 1% increase in real GDP above the trend growth rate, the unemployment rate tends to decrease by about 0.5%. Therefore, a 2% increase in GDP would typically lead to a 1% decrease in the unemployment rate, not an increase.

Question 15

There are a number of statistics computed to measure the price level,such as the GDP deflator and the CPI.The choice of which of these measures to use depends in many cases on the specific question in which you are interested.For each of the following situations,state whether the CPI or GDP deflator is a more appropriate measure to use and explain why the statistic is preferred.
a.You are interested in looking at the impact of higher prices of imported oil in the overall cost of living.
b.The government is interested in whether increases in defense spending are affecting the price level.
c.An economic consulting firm is investigating the impact on the aggregate price level of more computers and electronic technology used in production.

Accepted Answer

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Question 16

The version of Okun's law studied in Chapter 2 assumes that with no change in unemployment,real GDP normally grows by about 4 percent over a year.If the unemployment rate rose by 1 percent over a time period too brief for normal growth to occur,Okun's law would predict the corresponding change in real GDP to be a:
A) rise of about 0.5 percent.
B) rise of about 2 percent.
C) fall of about 2 percent.
D) fall of about 0.5 percent.

Accepted Answer

According to Okun's law, a 1 percent increase in the unemployment rate would correspond to a 2 percent decrease in real GDP, assuming no change in productivity. Since this time period is too brief for normal growth to occur, there would not be enough time for productivity to offset the negative effects of the increased unemployment rate. Therefore, the corresponding change in real GDP would be a fall of about 2 percent.

Quiz 2: The Data of Macroeconomics

A farmer grows wheat and sells it to a miller for $1; the miller turns the wheat into flour and sells it to a baker for $3; the baker uses the flour to make bread and sells the bread for $6.The value added by the miller is:

Assume two countries have the same nominal GDP (measured in the same currency using the same accounting rules).Explain at least three reasons why you cannot assume that citizens in each country enjoy approximately the same level of economic well-being.

A fixed-weight price index like the CPI the change in the cost of living because it take into account that people can substitute less expensive goods for ones that have become more expensive.

A woman marries her butler.Before they were married,she paid him $20,000 per year.He continues to wait on her as before (but as a husband rather than as a wage earner) .She earns $1,000,000 per year both before and after her marriage.The marriage:

Okun's Law is the _ relationship between real GDP and the ___.

According to Okun's law,if real GDP rises by about 2 percent in one year's time,the unemployment rate will rise by about______ percent.