Question 1

Marianne and Laura are both homemakers with children.Then Laura takes a volunteer (unpaid)job at a hospital and hires Marianne to care for her preschool-age child.What happens to GDP?

Accepted Answer

GDP increases because now there is a monetary exchange for Marianne's services in caring for Laura's child, which was previously not included in the calculation of GDP. Laura's unpaid work at the hospital does not directly impact GDP as it is not a monetary transaction.

Question 2

Which of the following is an injection into the circular flow?

Accepted Answer

Investment is an injection into the circular flow because it represents an increase in spending that is not part of the initial income flow. The circular flow model shows the interaction of households, businesses, and government in the economy, and injections such as investment contribute to economic growth and expansion. Savings, taxes, government borrowing, and imports are leakages from the circular flow because they reduce spending or remove money from circulation.

Question 3

Which of the following is an injection into the circular flow?

Accepted Answer

The answer of Which of the following is an injection...

Question 4

Which of the following is an injection into the spending stream?

Accepted Answer

Planned investment refers to the spending by businesses on capital goods such as machinery and buildings. It is an injection into the spending stream because it represents additional spending in the economy, which can contribute to economic growth and expansion.

Question 5

GDP reflects many things; however,it does not reflect the depletion of natural resources,leisure,or many things we as individuals do for ourselves.

Accepted Answer

GDP only measures the economic output in terms of goods and services produced and exchanged in the market, it does not take into account factors like environmental degradation or personal activities like DIY projects or spending time with family.

Question 6

Which of the following transactions is not included in GDP?

Accepted Answer

The sale of illegal drugs is not a legal or legitimate economic activity and is therefore not included in GDP.

Question 7

Louis always knits ten sweaters a year to give as birthday gifts to his nephews.One year,instead of giving the sweaters as gifts,he sells them to a local store for $50 each; his nephews receive no gifts.What is the effect on GDP?

Accepted Answer

When Louis sells the sweaters, they become part of the market economy, contributing to GDP. Gifts do not count towards GDP, but sales do.

Question 8

Which of the following is an injection into the circular flow?

Accepted Answer

Exports are considered an injection into the circular flow of income because they add income to the domestic economy from foreign sources, increasing economic activity and overall output. Consumption, taxes, saving, and government borrowing are considered leakages from the circular flow as they remove income from the economy.

Question 9

Which of the following increases GDP?

Accepted Answer

Purchasing lawn care services increases GDP because it involves a market transaction that is counted in GDP, whereas maintaining lawns oneself does not.

Question 10

An increase in household production will show up in GDP.

Accepted Answer

Household production is not included in GDP calculations because it involves non-market activities that do not have a monetary transaction.

Question 11

Recent estimates of the size of the underground economy are that it is equivalent of 7.5 percent of GDP.

Accepted Answer

Recent estimates do suggest that the underground economy is equivalent to 7.5 percent of GDP.

Question 12

Which of the following is a leakage from the circular flow?

Accepted Answer

Taxes are a leakage from the circular flow because they represent money that is taken out of the economy and not spent by consumers or businesses. The other choices listed are either injections into the economy (government purchases, investment, and exports) or consumption expenditures which represents spending within the circular flow.

Question 13

Which of the following is an injection into the circular flow?

Accepted Answer

Exports are an injection into the circular flow because they represent income earned by domestic producers from foreign buyers. This income is not being circulated within the domestic economy but rather is coming from outside.

Question 14

Which of the following is not a problem associated with GDP as a measure of social welfare?

Accepted Answer

Excluding intermediate goods as a separate entry is not a problem associated with GDP as a measure of social welfare.

Question 15

GDP reflects many things; however,it does not reflect the value of production that takes place in a nonmarket setting.

Accepted Answer

GDP only measures the value of economic activity in market transactions, such as the buying and selling of goods and services. It does not take into account value created in nonmarket settings, such as unpaid care work in a household or volunteer work in a community.

Question 16

If currently illegal drugs are made legal,GDP will increase.

Accepted Answer

Legalizing currently illegal drugs would create a new market and increase economic activity, which would contribute to GDP growth. Additionally, it could potentially reduce government spending on drug enforcement and incarceration, and generate tax revenue from the sale and regulation of these drugs.

Question 17

Which of the following is not an injection into the circular flow?

Accepted Answer

Saving is a leakage from the circular flow, not an injection. It is money that is not spent on goods and services in the economy, but instead is saved or invested.

Question 18

Which of the following is an injection into the circular flow?

Accepted Answer

An injection into the circular flow refers to any addition to the flow of income that does not originate within the system itself. Government spending is an injection because it represents additional spending on goods and services that is financed by tax revenues or borrowing from outside the circular flow. The other options are all withdrawals from the circular flow: imports represent spending on foreign-produced goods and services, disposable income represents the portion of income that is not spent on goods and services (i.e. saved), taxes represent revenue that is taken out of the system by the government, and saving represents income that is not spent on current consumption.

Question 19

GDP understates total economic activity because it ignores household production of goods and services.

Accepted Answer

GDP measures the market value of goods and services produced within a country's borders, but it does not take into account the value of goods and services that are produced by individuals for their own consumption, such as cooking at home or doing laundry. This is known as household production and is not included in the calculation of GDP.

Question 20

If drug enforcement policies result in price increases for illegal drugs and the quantity sold decreases,GDP will decrease.

Accepted Answer

A decrease in the quantity sold of illegal drugs due to drug enforcement policies would result in a decrease in the size of the underground economy, which is not accounted for in GDP calculations. Therefore, the impact on GDP would be negligible. Additionally, illegal drug sales do not contribute to the official GDP figure.

Quiz 6: Tracking the Useconomy

Marianne and Laura are both homemakers with children.Then Laura takes a volunteer (unpaid) job at a hospital and hires Marianne to care for her preschool-age child.What happens to GDP?

Which of the following is an injection into the circular flow?

Which of the following is an injection into the circular flow?

Which of the following is an injection into the spending stream?

GDP reflects many things; however,it does not reflect the depletion of natural resources,leisure,or many things we as individuals do for ourselves.

Which of the following transactions is not included in GDP?

Louis always knits ten sweaters a year to give as birthday gifts to his nephews.One year,instead of giving the sweaters as gifts,he sells them to a local store for $50 each; his nephews receive no gifts.What is the effect on GDP?

Which of the following is an injection into the circular flow?

Which of the following increases GDP?

An increase in household production will show up in GDP.

Recent estimates of the size of the underground economy are that it is equivalent of 7.5 percent of GDP.

Which of the following is a leakage from the circular flow?

Which of the following is an injection into the circular flow?

Which of the following is not a problem associated with GDP as a measure of social welfare?

GDP reflects many things; however,it does not reflect the value of production that takes place in a nonmarket setting.

If currently illegal drugs are made legal,GDP will increase.

Which of the following is not an injection into the circular flow?

Which of the following is an injection into the circular flow?

GDP understates total economic activity because it ignores household production of goods and services.

If drug enforcement policies result in price increases for illegal drugs and the quantity sold decreases,GDP will decrease.