ECO 202 (E1) – Questions And Answers (Guaranteed
Pass!)
In the circular flow of expenditure and income, why must the total value of
production in an economy equal the total value of income? Right Ans -
B.Every penny spent on a good or service must end up as someone's income
Which equation represents the relationship between GDP and the four major
expenditure components? Right Ans - Y=C+I+G+NX
What are the four major components of expenditures in GDP? Right Ans -
Consumption, Investment, Government Purchases, and Net Exports
Indicate whether you agree or disagree with the following statement:
"In years when people buy many shares of stock, investment will be high and,
therefore, so will gross domestic product (GDP)." Right Ans - Disagree:
Investment as a component of GDP refers to the purchase of physical and
human capital and inventory, not stock purchases
Gross Domestic Product (GDP) is Right Ans - the market value of all final
goods and services produced in a country during a period of time
Inventories are part of investment and therefore included in GDP because
Right Ans - firms produce goods, however sometimes the goods may be
unsold at the time GDP is computed
GDP is an imperfect measure of economic well-being because it fails to
measure what types of production? Right Ans - Household production and
the underground economy
Even if GDP included these types of production, why would it still be an
imperfect measure of economic well-being? Right Ans - GDP is not adjusted
for crime or other social problems,The value of leisure is not included in GDP
and GDP is not adjusted for pollution and it does not account for unequal
income distribution
, We often use real GDP per capita as a measure of a country's well-being.
Review the definition of real GDP per capita before answering the following
question.
Today, the typical American works fewer than 40 hours per week. In 1890, the
typical American worked 60 hours per week. Would the difference between
the real GDP per capita in 1890 and the real GDP per capita today understate
or overstate the difference in the population's economic well-being? Right
Ans - The increase in real GDP per capita between 1890 and today understates
well-being because the value of leisure is not included in GDP
Why does inflation make nominal GDP a poor measure of the increase in total
production from one year to the next? Right Ans - When nominal GDP
increases from year to year, the increase is due partly to changes in prices and
partly to changes in quantities
An article in the Economist states that "the appeal of GDP is that it offers, or
seems to, a summary statistic of how well an economy is doing."
Source: "The Euro-Area Economy: Speeding Up," Economist, May 6, 2017.
In what sense does GDP offer a summary statistic of how well an economy is
doing?
Why qualify the statement about GDP as a summary statistic by including the
phrase "or seems to"? Right Ans - Since GDP measures how much an
economy produces during a period of time, it may also indicate well-being
As a summary statistic, GDP overlooks some areas of production that take
place in an economy
Nominal GDP is GDP in a given year Right Ans - valued in the prices of that
year
How does real GDP deal with the problem inflation causes with nominal GDP?
Right Ans - Real GDP separates price changes from quantity changes,By
keeping prices constant, we know that changes in real GDP represent changes
Pass!)
In the circular flow of expenditure and income, why must the total value of
production in an economy equal the total value of income? Right Ans -
B.Every penny spent on a good or service must end up as someone's income
Which equation represents the relationship between GDP and the four major
expenditure components? Right Ans - Y=C+I+G+NX
What are the four major components of expenditures in GDP? Right Ans -
Consumption, Investment, Government Purchases, and Net Exports
Indicate whether you agree or disagree with the following statement:
"In years when people buy many shares of stock, investment will be high and,
therefore, so will gross domestic product (GDP)." Right Ans - Disagree:
Investment as a component of GDP refers to the purchase of physical and
human capital and inventory, not stock purchases
Gross Domestic Product (GDP) is Right Ans - the market value of all final
goods and services produced in a country during a period of time
Inventories are part of investment and therefore included in GDP because
Right Ans - firms produce goods, however sometimes the goods may be
unsold at the time GDP is computed
GDP is an imperfect measure of economic well-being because it fails to
measure what types of production? Right Ans - Household production and
the underground economy
Even if GDP included these types of production, why would it still be an
imperfect measure of economic well-being? Right Ans - GDP is not adjusted
for crime or other social problems,The value of leisure is not included in GDP
and GDP is not adjusted for pollution and it does not account for unequal
income distribution
, We often use real GDP per capita as a measure of a country's well-being.
Review the definition of real GDP per capita before answering the following
question.
Today, the typical American works fewer than 40 hours per week. In 1890, the
typical American worked 60 hours per week. Would the difference between
the real GDP per capita in 1890 and the real GDP per capita today understate
or overstate the difference in the population's economic well-being? Right
Ans - The increase in real GDP per capita between 1890 and today understates
well-being because the value of leisure is not included in GDP
Why does inflation make nominal GDP a poor measure of the increase in total
production from one year to the next? Right Ans - When nominal GDP
increases from year to year, the increase is due partly to changes in prices and
partly to changes in quantities
An article in the Economist states that "the appeal of GDP is that it offers, or
seems to, a summary statistic of how well an economy is doing."
Source: "The Euro-Area Economy: Speeding Up," Economist, May 6, 2017.
In what sense does GDP offer a summary statistic of how well an economy is
doing?
Why qualify the statement about GDP as a summary statistic by including the
phrase "or seems to"? Right Ans - Since GDP measures how much an
economy produces during a period of time, it may also indicate well-being
As a summary statistic, GDP overlooks some areas of production that take
place in an economy
Nominal GDP is GDP in a given year Right Ans - valued in the prices of that
year
How does real GDP deal with the problem inflation causes with nominal GDP?
Right Ans - Real GDP separates price changes from quantity changes,By
keeping prices constant, we know that changes in real GDP represent changes
