Ch 19 Homework Quiz Answers

EXAM 2 Review Biology Questions
October 11, 2019
Graeter’s Grows Through Good Management
October 13, 2019

Ch 19 Homework Quiz

Question 1

/ 1 pts

From an economist’s perspective, which of the following would not be considered as investment spending?

building a new factory

purchase of shares in Wal Mart

FEEDBACK: When most people hear the word investment, they think of savings, stocks, or bonds. But in macroeconomics investment refers to private spending on tools, plant and equipment used to produce future output. It also includes the building of a new home. Investment also includes purchases by businesses that add to their own inventories, and also counts products that are produced but not sold in the specific year.

the building of an apartment complex

additions to inventories at steel plant

FEEDBACK: When most people hear the word investment, they think of savings, stocks, or bonds. But in macroeconomics investment refers to private spending on tools, plant and equipment used to produce future output. It also includes the building of a new home. Investment also includes purchases by businesses that add to their own inventories, and also counts products that are produced but not sold in the specific year.

Question 2

/ 1 pts
If you wanted to compare economic well-being over time and across countries, the data you would use is:

per capita GDP

inflation

real per capita GDP
FEEDBACK: Per capita GDP allows us to compare the economic well-being across countries, but only during a particular year. Real GDP measures changes in output, adjusted for changes in prices over time. Countries with higher levels of real GDP from one time period to the next have grown economically. We therefore use real per capita GDP (real GDP divided by population) to see how economic well-being changes across countries over time.

real GDP

FEEDBACK: Per capita GDP allows us to compare the economic well-being across countries, but only during a particular year. Real GDP measures changes in output, adjusted for changes in prices over time. Countries with higher levels of real GDP from one time period to the next have grown economically. We therefore use real per capita GDP (real GDP divided by population) to see how economic well-being changes across countries over time.

Question 3

/ 1 pts
Many goods and services are illegally sold or legally sold but not reported to the government. If we increased efforts to count those goods and services, GDP would _____________.

rise

FEEDBACK: GDP would increase as a result of these efforts, because the value of these unreported goods and services are currently not being calculated in GDP. For example, many babysitters do not report their income from babysitting jobs. If there were a way to include all the earned income from babysitters in the United States, GDP would increase.Also, any work that is unpaid, such as a family member caring for an older relative or a stay-at-home mom cooking meals for her family, is not counted in GDP, even though something of value is being produced. Efforts to count these goods and services would also increase GDP.

fall

stay the same

FEEDBACK: GDP would increase as a result of these efforts, because the value of these unreported goods and services are currently not being calculated in GDP. For example, many babysitters do not report their income from babysitting jobs. If there were a way to include all the earned income from babysitters in the United States, GDP would increase.

Also, any work that is unpaid, such as a family member caring for an older relative or a stay-at-home mom cooking meals for her family, is not counted in GDP, even though something of value is being produced. Efforts to count these goods and services would also increase GDP.

Question 4

/ 1 pts
Suppose nominal GDP in 1967 was $1 trillion and nominal GDP in 1977 was $2 trillion, The 1967 and 1977 price indexes were 100 and 250 respectively. Based on these numbers

real GDP increased over the 10 years.

real GDP decreased over the ten years.

FEEDBACK:

For 1967, we divide $1 trillion by 100, and then multiply by 100. Real GDP for 1967 is $10 billion
For 1977, we divide $2 trillion by 250, and then multiply by 100. Real GDP for 1977 is $8 billion. Comparing the 2 years, we can see that Real GDP has decreased.

real GDP remained constant.

real GDP increased and then decreased.

FEEDBACK:

For 1967, we divide $1 trillion by 100, and then multiply by 100. Real GDP for 1967 is $10 billion
For 1977, we divide $2 trillion by 250, and then multiply by 100. Real GDP for 1977 is $8 billion. Comparing the 2 years, we can see that Real GDP has decreased.

Question 5

/ 1 pts
Suppose you build an engine and sell it to the local body shop for $7,000. The shop puts the engine in a car and sells the car to a dealer for $20,000. The dealer sells the car to a customer for $35,000. Which of the following statements is true based on all of these transactions?

GDP increases by $52,000

The value added is $27,000

GDP increases by $35,000
FEEDBACK: GDP increases by the value of the finished vehicle which is $35,000. When you build the engine and sells it to the body shop. The mechanic has added a value of $7,000. Then ,the body shop installs the engine into the car, and sells it to the dealer. The shop has added a value of $13,0000($20,000-$7,000). When the car is sold to the consumer for $35,000, the value added by the dealer is $15,000. This $15,000 is the $35,000 sticker price minus the $20,000 value originally created by the mechanic and body shop. If we take these amounts and add them together, we get $7,000+$13,000+$15,000=$35,000. This is the same as the amount that GDP increased.

GDP increases by $15,000

FEEDBACK: GDP increases by the value of the finished vehicle which is $35,000. When you build the engine and sells it to the body shop. The mechanic has added a value of $7,000. Then ,the body shop installs the engine into the car, and sells it to the dealer. The shop has added a value of $13,0000($20,000-$7,000). When the car is sold to the consumer for $35,000, the value added by the dealer is $15,000. This $15,000 is the $35,000 sticker price minus the $20,000 value originally created by the mechanic and body shop. If we take these amounts and add them together, we get $7,000+$13,000+$15,000=$35,000. This is the same as the amount that GDP increased.

Question 6

/ 1 pts

The table below shows nominal GDP and the price level in the two years 2005 and 2011.

Year Nominal GDP (billions of dollars) Price Level (GDP deflator)
2005 12,623 100
2011 15,076 113

GDP in 2011, measured in 2005 dollars was

$11,171.

$13,342.
FEEDBACK: We can use Equation 6.3 to determine 2011 GDP in 2005 dollars.

$15,076.

$17,036.

FEEDBACK: We can use Equation 6.3 to determine 2011 GDP in 2005 dollars.

Question 7

/ 1 pts
Which component of GDP includes inventory changes?

consumption

investment

FEEDBACK: Investment also includes all purchases by businesses that add to their inventories. For example, in preparation for the Christmas buying season, an electronics retailer will order more TVs, cameras, and computers. GDP rises when business inventories increase. GDP is calculated this way because we want to measure output in the period it is produced. Investment in inventory is just one more way that firms spend today to increase output in the future.

government spending

inventory changes are not included in GDP

FEEDBACK: Investment also includes all purchases by businesses that add to their inventories. For example, in preparation for the Christmas buying season, an electronics retailer will order more TVs, cameras, and computers. GDP rises when business inventories increase. GDP is calculated this way because we want to measure output in the period it is produced. Investment in inventory is just one more way that firms spend today to increase output in the future.

Question 8

/ 1 pts
Which of the following best describes the relationship between imports and exports? Import spending is _____________ GDP and export spending is _______________ GDP.

added to; added to

subtracted from; subtracted from

added to; subtracted from

subtracted from; added to
FEEDBACK: Since exports are produced in your country they are counted as production.  It doesn’t matter who buys them.  Imports are made elsewhere so you don’t count these as part of your country’s production.

FEEDBACK: Since exports are produced in your country they are counted as production.  It doesn’t matter who buys them.  Imports are made elsewhere so you don’t count these as part of your country’s production.

Question 9

/ 1 pts
Which of the following is true of gross domestic product?

It only measures income.

It only measures output.

It measures price inflation.

It can give us guidance on the living standards of a nation.
FEEDBACK: GDP provides some insight into living standards. If GDP goes up, living standards tend to rise as well.

FEEDBACK: GDP provides some insight into living standards. If GDP goes up, living standards tend to rise as well.

Question 10

/ 1 pts
Which of the following scenarios are not macroeconomic in nature?

Microsoft is considering buying another firm to help it expand its social media presence.
FEEDBACK: When considering macroeconomics you need to look at the big picture.  If a scenario deals with firms, towns, or individuals, then you are dealing with microeconomic subjects.  When you move to the national level, now you’re talking big.  Topics that impact or reflect a nation are macroeconomic. Some of these topics include GDP, unemployment, and the central bank changing interest rates. Microsoft buying another firm to expand social media presence would be considered a microeconomic scenario.

The GDP of France has fallen to an inflation adjusted low.

The U.S. unemployment rate falls to 8.5% in December.

The central bank of the United States increased interest rates by 0.5%.

FEEDBACK: When considering macroeconomics you need to look at the big picture.  If a scenario deals with firms, towns, or individuals, then you are dealing with microeconomic subjects.  When you move to the national level, now you’re talking big.  Topics that impact or reflect a nation are macroeconomic. Some of these topics include GDP, unemployment, and the central bank changing interest rates. Microsoft buying another firm to expand social media presence would be considered a microeconomic scenario.

Question 11

/ 1 pts
Which of the following transactions, if they were included in the calculation of GDP, would not lead to an overstated GDP figure?

Buying a used car.

Purchasing your first home, which was not a new construction.

Hiring a babysitter and paying her under the table.
FEEDBACK: Paying a babysitter under the table, if included would actually boost GDP. Each of these transactions is either a used good—that is, produced in a prior year—or is an intermediate good. Therefore, their inclusion in GDP would overstate current GDP.

The purchase of a special fabric adhesive by a furniture company in North Carolina

FEEDBACK: Paying a babysitter under the table, if included would actually boost GDP. Each of these transactions is either a used good—that is, produced in a prior year—or is an intermediate good. Therefore, their inclusion in GDP would overstate current GDP.

Question 12

/ 1 pts
Which of the following would not be counted in the calculation of GDP?

Buying a brand new car.

Paying for a flight to Las Vegas.

Government spending on social security.
FEEDBACK: Illegal activities, transfer payments, and services that are produced but not sold are not counted in GDP.Not all spending is counted in the calculation of GDP. This is because some types of spending do not represent production.  This is the case with transfer payments like social security and welfare.  Other things don’t get counted because they are difficult to keep track of, especially if they are conducted in the underground economy—like your purchase of a counterfeit designer purse.  Additionally, when you do something for yourself, rather than paying for it, this non-market activity does not count in GDP.

Paying for a maid service to come clean your house.

FEEDBACK: Illegal activities, transfer payments, and services that are produced but not sold are not counted in GDP.

Not all spending is counted in the calculation of GDP. This is because some types of spending do not represent production.  This is the case with transfer payments like social security and welfare.  Other things don’t get counted because they are difficult to keep track of, especially if they are conducted in the underground economy—like your purchase of a counterfeit designer purse.  Additionally, when you do something for yourself, rather than paying for it, this non-market activity does not count in GDP.

Question 13

/ 1 pts

You work for the Committee for Economic Evaluation in the small nation of Kinsdale. Your current job is to determine the country’s gross domestic product in the past year. Being a very small country, the people only produce three things, which are listed in the table below.

Good Quantity produced in the past year Price
Bananas 20,000 $1.50
Hiking Boots 10,000 $20.00
Roses 15,000 $4.00

Based on the data in the table, what is the GDP for your country?

$25.50

$120

$45,000

$200,000

$290,000
FEEDBACK: By multiplying the price and the quantity for each of the goods listed and adding those results together you obtain GDP for Kinsdale.Bananas: 20,000 × $1.50 = $30,000
Hiking Boots: 10,000 × $20.00 = $200,000
Roses: 15,000 × $4.00 = $60,000
GDP = $30,000 + $200,000 + $60,000 = $290,000

FEEDBACK: By multiplying the price and the quantity for each of the goods listed and adding those results together you obtain GDP for Kinsdale.

Bananas: 20,000 × $1.50 = $30,000
Hiking Boots: 10,000 × $20.00 = $200,000
Roses: 15,000 × $4.00 = $60,000
GDP = $30,000 + $200,000 + $60,000 = $290,000

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