PRIN OF MACROECON
PRIN OF MACROECON ECO 2013
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This 6 page Class Notes was uploaded by Elmore Funk on Thursday September 17, 2015. The Class Notes belongs to ECO 2013 at Florida State University taught by Joseph Calhoun in Fall 2015. Since its upload, it has received 98 views. For similar materials see Macroeconomics in Economcs at Florida State University.
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Date Created: 09/17/15
ECO 2013 Principles of Macroeconomics Chapter 7 Taking the Nation s Economic Pulse 4 Learning Goals 1 2 3 4 Def39me gross domestic product GDP is the market value of all nal goods and services produced within a country s borders during a specified time period Chapter heading GDP A Measure of Output Calculate gross domestic product The income approach and the expenditure approach are two different methods to calculate GDP The income approach adds up all the income payments and direct cost items used to produce goods and services The expenditure approach adds up the purchases of consumers investors governments and foreigners The expenditure approach can be simplified with an algebraic expression YCIGX Key point about the connection between production and income an expansion in output is the source of higher income levels Chapter heading GDP as a Measure of Both Output and Income Key terms Private investment Net exports Differentiate between real and nominal GDP Nominal GDP is calculated using current prices and quantities while real GDP is adjusted for in ation The Consumer Price Index CPI and GDP De ator are two price indexes used to convert nominal GDP to real GDP Chapter heading Adjusting for Price Changes and Deriving Real GDP Key terms Nominal Real In ation Know the limitations of using GDP as a measure of output and income The calculation of GDP excludes several important functions within the economy such as nonmarket ie home production the underground economy leisure time product quality changes and harmful side effects Chapter heading Problems with GDP as a Measuring Rod Chapter 7 Study Guide Questions Equot E 5 V39 9 Real GDP refers to nominal GDP a minus gifts to other countries b minus total unemployment compensation c adjusted for price changes d adjusted for unemployment changes Assume that between 1995 and 2000 nominal GDP increased from 1000 to 2500 and the indeX of prices increased from 100 to 200 Which ofthe following expresses GDP for 2000 in terms of 1995 prices a 1000 b 1250 c 2500 d 5000 Which of the following transactions would be counted toward this year s GDP a General Motors purchases 10000000 tires from Firestone b A 300yearold painting is sold for 12 million c A street gang earns 2 million from selling illegal drugs d Your real estate agent earns 5000 commission when you sell your 100yearold house for 100000 The consumer price indeX CPI and the GDP de ator are designed to measure the degree to which a there have been changes in the proportions of national income generated by and thus earned by the rich relative to the poor b the cost of purchasing a bundle of goods has changed over time c consumption patterns have changed with time d consumer prices have risen over and above increases in worker wages Which of the following would not be counted as part of this year s GDP a the increase in the value of an antique automobile that was restored this year the value of a new automobile at its sale price c the value ofa used car at its sale price d a family s replacement of a womout washing machine with a new one 57 Jim a US citizen gets a summer job working in Germany His summer earnings would count as part of US GDP and German GNP would count as part of US GNP and German GDP would count as part of US GDP but would have no effect on Germany s GNP or GDP would be doublecounted raising both US GDP and German GDP 9979 gt1 9 0 Use the table below to answer the following questions Table 7 14 Personal consumption expenditures 900 Personal taxes 180 Government consumption and gross investment 300 Interest income 60 Exports 40 Imports 75 Depreciation 60 Gross investment 200 Refer to Table 714 What is this country s net exports a b 735 c 115 d 7115 Refer to Table 714 What is this country s gross domestic product a 1225 b 1305 c 1365 d 1440 Which of the following is not a problem or shortcoming of GDP a Goods produced in one period that are sold in the following period fail to get counted in any period It tends to understate the growth of economic welfare because it does not fully and accurately account for improvements in the quality of products c GDP is not an accurate measure of welfare because it makes no adjustment for harmful side effects such as pollution or destructive acts of nature d GDP understates output because it fails to include nonmarket production such as that which takes place in the household or in illegal markets 57 If you were required to write a paper for your history class or a report for your job in which you were using dollar valued data across different years you would a use a price index to remove the effects of in ation to have reliable data measuring changes in the real value of things never attempt to correct for in ation because in ation is a key indicator of economic activity c tell your teacher or boss that you never learned how to correct data for in ation d assume that prices did not change during the period you are studying 57 Suppose that nominal GDP increased by 3 percent but the real GDP increased by only 1 percent during that same period Which of the following best explains the phenomenon a Prices increased by approximately 1 percent b Prices increased by approximately 2 percent c Prices increased by approximately 3 percent d Prices increased by approximately 4 percent Which of the following would increase US GDP a The city government of New York buys le cabinets directly from a Mexican company b A Mexican citizen buys stock in a US company c A Japanese automobile company produces cars within the US d A US automobile company produces cars in a foreign country You buy one hundred shares of IBM stock at 100 per share and pay 250 commission How much will this transaction add to GDP a Zero b 250 c 10000 d 10250 If a usedcar dealer purchases a used car for 1000 restores it and resells it for 1500 the dealer contributes a value added equal to 500 but nothing is added to GDP b value added equal to 500 and consequently 500 is added to GDP c nothing to production because only existing goods are involved d value added equal to 1500 but only 500 is added to GDP Gross domestic product is the sum of a the purchase price of all goods and services exchanged during the period b the purchase price of all nal goods and services produced domestically during the period c the purchase price of all goods and services produced during the period minus depreciation of productive assets during the period d the purchase price of all nal goods and services produced by a country s citizens during the period If the base year for the GDP de ator is 1996 the value of the GDP de ator for 1996 a is 10 b is 100 c is 150 d cannot be determined from the data given If the base year for the GDP de ator is 1996 and the value of the GDP de ator in 2000 was 107 this indicates that the general level of prices a declined between 1996 and 2000 b was approximately 7 percent lower in 2000 than in 1996 c was approximately 7 percent higher in 2000 than in 1996 d was approximately 107 percent higher in 2000 than in 1996 Your grandfather tells you he earned 065 per hour at his job when he was a boy in 1929 Given that the CPI was 171 in 1929 and 1771 in 2001 how much would you have had to make in 2001 to have the same real hourly wage as your grandfather a b 380 c 673 d 1112 2 O 2 22 23 Assume that between 1990 and 2000 the money GDP of an economy increased from 3 trillion to 8 trillion and that the appropriate indeX of prices increased from 100 to 200 Which of the following expresses GDP for 1990 in terms of 2000 prices a 1 trillion b 3 trillion c 4 trillion d 6 trillion Suppose that Mike earned 15000 in 2000 and 15600 in 2001 Ifthe consumer price indeX was 100 in 2000 and 103 in 2001 by approximately what percent did Mike s real salary increase a 1 percent b 3 percent c 4 percent d 5 percent In a country where many families make their own clothes GDP will be understated because the clothes making represents a economic bads b leisure c the underground economy d nonmarket production The primary value of GDP lies in its ability to a re ect the welfare of a society relative to a preVious period b compare the quality of a nation s products between two periods widely separated in time c indicate shortterm changes in the output rate of a nation d indicate how much leisure time the people of a nation have If the Consumer Price IndeX in 2006 was 150 and the CPI in 2007 was 165 the rate of in ation between 2006 and 2007 would be a 909 percent b 10 percent c 15 percent d 110 percent Chapter 7 Study Guide Answers CBDBCBBCAABCBBBBCCDADCB L23456TS90L23456LS90L23 11111111112222
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