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Ch 7 8 9 MyEconLab Study Plan (got 93% on the test)

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Louisiana State University
ECON 2010

Study Plan Ch 7 GDP Measuring Total Production and Income71 Gross Domestic Product Measures Total Production 1Why in microeconomics can we measure production in terms of quantity but in macroeconomics we measure production in terms of market value All of the above If in macroeconomics we measured production using quantities we would add tons of wheat grown by U S farmers to the number of iPods produced by Apple to gallons of milk and so on When we measure total production we cant just add together the quantities of every good and service because the result would be meaningless Measuring production using market value in dollar terms allows us to add together many different goods and services Both A and C 2If the US Bureau of Economic Analysis BEA added up the values of every good and service sold during the year would the total be larger or smaller than measured gross domestic product GDP Larger The value of all goods and services sold would include intermediate goods 3In the circular flow of expenditure and income why must the total value of production in an economy equal the total value of income Every penny spent on a good or service must end up as someones income 4Which equation represents the relationship between GDP and the four major expenditure components YCIGNXWhat are the four major components of expenditures in GDP Consumption investment government purchases and net exports 5What is the difference between the value of a firms final product and the value added by the firm to the final product The value of a firms final product is the sale price value added is the difference between the sale price and the price of intermediate goods 6Is the value of intermediate goods and services produced during the year included in Gross Domestic Product GDP For example is cotton used to produce a new shirt included in GDP Yes The value of the cotton is not directly counted in GDP but the production of cotton is included in the valueadded method of measuring GDP 7Indicate whether each of the following transactions represents the purchase of a final good The purchase of steel from a steel mill by an automobile manufacturer Is no the purchase of a final good The purchase of an aircraft carrier by the federal government Is the purchase of a final goodThe purchase of domestic wine by a French consumer Is the purchase of a final good The purchase of a new machine tool by the Ford Motor Company Is the purchase of a final good 8Indicate whether you agree or disagree with the following statement In years when people buy few shares of stock investment will be low and therefore so will gross domestic product GDP Disagree Investment as a component of GDP refers to the purchase of physical and human capital and inventory not stock purchases 9Indicate which component of GDP will be affected by each of the following transactions involving the Ford Motor Company You purchase a new Ford Escape Hybrid from a Ford dealer Consumption ExpenditureYou purchase a 2008 preowned Ford Escape Hybrid from a friend Not included in GDP calculation Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana Not included in GDP calculation Ford produces 1000 Escapes in a factory in Missouri and ships them to a car dealer in Shanghai China Not Export ExpenditureFord purchases new machine tools to use in its Missouri Escape factory Investment ExpenditureThe state of Missouri builds a new highway to help improve access to the Ford Escape plant Government Expenditure10Suppose a house is built and sold in the year 2000 If the house is resold in the year 2011 is the value of the house included in Gross Domestic Product GDP for 2011 No GDP for 2011 includes only production that occurs during 2011 Would the services of a real estate agent who helped sell or helped buy the house be included in GDP for 2011 Yes GDP for 2011 includes the market value of final goods and services This includes real estate services 11An article in the Wall Street Journal observed Plenty of companies both in the U S and abroad came to depend on US consumers for their growth They may have to peddle their wares elsewhere US and foreign firms will need to depend less on US consumers in the future becauseUS consumers are saving more and spending less 12Suppose that a simple economy produces only the following four goods and services textbooks hamburgers shirts and cotton Further assume that all of the cotton used in the production of shirts Use the information in the following table to calculate Nominal Gross Domestic Product NGDP for 2011Production and Price Statistics for 2011 The NGDP for the year 2011 is 745013For the total value of expenditures on final goods and services to equal the total value of income generated from producing those final goods and services all the money that a business receives form the sale of its product must be paid out as income to the owners of the factors of production How can a business make a profit if it pays out as income all the money it receives Profit is the income that remains after a firm has paid wages rent and interest 14Review the following events 1 A farmer sells 200 worth of wheat to an agricultural products distributor 2 The distributor trims packages and sells the wheat to a stateowned bakery for 300 3 The stateowned bkaery uses all of the wheat to make bread and then sells it for 250 If for simplicity we ignore the value of inputs used to grow the wheatsuch as seeds labor and fertilizer then the farmers value added is 200 Enter your response as an integer and include a minus sign if necessaryThe value added for the distributor is 100
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