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Exam 19: GDP: Measuring Total Production and Income

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Question 1

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Personal income is defined as

A) national income less retained earnings plus transfer payments and plus interest on government bonds.
B) national income plus retained earnings less transfer payments and less interest on government bonds.
C) national income less depreciation.
D) national income less personal taxes.

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Question 2

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In a small economy, consumption spending in 2013 is $6,000, government spending is $1,200, gross investment is $1,500, exports are $2,000, and imports are $1,000. What is gross domestic product in 2013?

A) $9,700
B) $9,800
C) $10,800
D) $11,700

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Question 3

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Table 19-10 a) What is the value added by each stage of production? b) What is the total value added? For simplicity, you can ignore the cost of the inputs for oil drilling. -The Philippines and Vietnam have roughly the same size population. Suppose the GDP of the Philippines is $1,000 billion and the GDP of Vietnam is $10,000 billion. You should conclude

The "underground economy" refers to

Caroline is an artist. She purchases canvas, paints, brushes, and accessories for $75. She sells one of her original paintings to an art gallery for $1,500, even though an art lover would pay $4,500 for that painting. How much value does Caroline add?

What is the underground economy and how could it hurt an economy? How does it hurt developing economies?

In the circular flow diagram, the value of all the income in the economy is greater than the value of goods and services produced in the economy.

The circular flow of income shows that GDP can be measured as the sum of wages, interest, rent, and profits received by households or total expenditures on goods and services by households, firms, government, and the rest of the world.

Table 19-24 -Refer to Table 19-24. Suppose that a very simple economy produces three goods: pizzas, haircuts, and backpacks. Suppose the quantities produced and their corresponding prices for 2007 and 2013 are shown in the table above. Use the information to compute real GDP in the year 2007 and 2013. Calculate real GDP in 2013 assuming the base year is 2007. Do the same calculation assuming the base year is 2013. Are the calculations different? Why?

The size of the underground economy would tend to decrease if the government of a country

Scenario 19-1 CANOES-R-US makes canoes. It buys the shell of the canoe from another firm for $300 and uses its labor and intermediate goods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoe to a consumer for $1,200. -Refer to Scenario 19-1. The value added of CANOES-R-US for each canoe equals

To calculate GDP using the value-added method, one would add up

The purchase by a foreign government of an airplane produced in the United States is included in U.S.

The GDP deflator in year 2 is 105, using year 1 as the base year. This means that, on average, the cost of goods and services is

Table 19-26 -Refer to Table 19-26. Given the information above, calculate the GDP deflator for both 2012 and 2013. What does the value of the deflator in the year 2012 tell you about that year with respect to the base year? What happened to prices in 2013 as compared to 2012?

Why do we subtract import spending from total expenditures?

Table 19-26 -Which of the following is included in both the U.S. GDP and U.S. GNP?

The largest component of spending in GDP is

In a small economy, gross investment in 2013 is $1,500, consumption spending is $6,000, net investment is $200, government spending is $1,500, exports are $2,000 and imports are $1,000. What is GDP for this economy in 2013?

Increases in real GDP would understate the well-being of a country over time if, over that time period, the