Question 1

Gross domestic product is the market value of all final goods and services produced outside of a country in a given year.

Accepted Answer

Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given year.

Question 2

Unemployment compensation and other transfer payments that the government makes to individuals are not included in the calculation of GDP because they do not directly generate current output.

Accepted Answer

Unemployment compensation and other transfer payments are not included in GDP calculations because they do not reflect the production of goods and services in an economy; instead, they are merely transfers of money from one group to another.

Question 3

When derived by the expenditures approach, GDP equals the sum of personal saving, gross investment, government transfer payments, and net exports of goods and services.

Accepted Answer

When derived by the expenditures approach, GDP equals the sum of consumer spending (C), gross investment (I), government spending (G), and net exports (exports minus imports, or X - M), not personal saving or government transfer payments.

Question 4

GDP ignores the underground economy in which unreported barter and cash transactions take place outside recorded market channels.

Accepted Answer

GDP does not account for the underground economy because it consists of unreported transactions that are not captured in official economic statistics.

Question 5

Real GDP is based on the prices existing in the year in which the goods and services were produced. Nominal GDP is real GDP adjusted to eliminate changes in prices.

Accepted Answer

Real GDP is adjusted to eliminate the effects of changes in price, allowing for the comparison of economic output from one year to another in constant prices. Nominal GDP, on the other hand, is measured using current prices, without adjusting for inflation or deflation.

Question 6

The broadest price index to calculate real GDP is the GDP deflator, which equals the ratio of the cost of buying all final goods and services in the current year to the cost of buying the identical goods at base-year prices.

Accepted Answer

The GDP deflator is indeed the broadest measure of the price level, encompassing the prices of all goods and services included in GDP. It is calculated as the ratio of nominal GDP to real GDP, effectively measuring the overall change in prices across the economy between the base year and the current year.

Question 7

Suppose that from 2008 to 2013, nominal GDP increased from $7,000 billion to $9,000 billion. However, the GDP deflator increased from 100 to 115 over this period. We can conclude that real GDP increased over this period.

Accepted Answer

The increase in nominal GDP from $7,000 billion to $9,000 billion, even after accounting for the increase in the GDP deflator from 100 to 115, indicates that the real GDP (which is adjusted for inflation) also increased. This is because the nominal GDP growth outpaces the inflation rate implied by the GDP deflator.

Question 8

Suppose that from 2008 to 2013, nominal GDP increased from $7,000 billion to $8,000 billion. However, the GDP deflator increased from 100 to 115 over this period. We can conclude that real GDP increased over this period.

Accepted Answer

The answer of Suppose that from 2008 to 2013, nominal...

Question 9

Suppose that in the year 2007 real GDP is $9,000 billion and in 2008 real GDP is $9,300 billion. Hence, the rate of growth in real GDP between 2007 and 2008 is 3.3 percent.

Accepted Answer

The rate of growth in real GDP is calculated as [(Real GDP in 2008 - Real GDP in 2007) / Real GDP in 2007] * 100 = [(9300 - 9000) / 9000] * 100 = 3.3 percent.

Question 10

Suppose that in the year 2011 real GDP is $9,000 and in 2012 real GDP is $9,200 billion. Hence, the rate of growth in real GDP between 2007 and 2008 is 3.8 percent.

Accepted Answer

The given data is for the years 2011 and 2012, not 2007 and 2008. Additionally, the growth rate calculation provided does not correspond to the change from $9,000 billion to $9,200 billion.

Question 11

According to the "rule of 70," if real GDP grows at 4 percent a year it would take about 14 years for the real GDP to double.

Accepted Answer

The answer of According to the "rule of 70," if...

Question 12

Among the stimulants to long-run economic growth are the incentives that induce individuals to work and firms to invest in production technology, within the limits imposed by demographics and the rate of technological advance.

Accepted Answer

Incentives that motivate individuals to work harder and firms to invest in production technology can significantly contribute to long-run economic growth. This is because such incentives can lead to increased productivity, innovation, and efficient resource allocation, all of which are key drivers of economic growth. However, the potential for growth is also influenced by demographic factors and the rate of technological advancement, which can either constrain or enhance the effectiveness of these incentives.

Question 13

An increase in the availability of natural resources, physical capital, and human capital fosters growth for an economy.

Accepted Answer

These factors enhance productivity and efficiency, leading to increased output and economic growth. Natural resources provide essential materials, physical capital increases production capacity, and human capital improves labor quality and innovation.

Question 14

The human capital of a nation includes investment in roads, dams, bridges, and communications.

Accepted Answer

Human capital refers to the economic value of a worker's experience and skills, including education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality. Investment in roads, dams, bridges, and communications is considered physical capital, not human capital.

Question 15

Economists widely agree that there is a direct relation between the share of an economy's GDP that is devoted to investment goods and the productivity gains it realizes over time.

Accepted Answer

Economists generally agree that higher investment in capital goods (such as machinery, equipment, and infrastructure) leads to increased productivity over time, as these investments enhance the efficiency and capacity of an economy to produce goods and services.

Question 16

A reduction in the price of energy would likely retard the economy's rate of growth.

Accepted Answer

A reduction in the price of energy generally lowers production costs for businesses, increases disposable income for consumers, and can stimulate economic growth by making goods and services more affordable.

Question 17

A policy of increasing domestic consumption would likely speed up economic growth by boosting productivity.

Accepted Answer

Increasing domestic consumption primarily boosts demand, which can lead to economic growth through increased production to meet this demand, but it does not directly boost productivity. Productivity growth is more directly influenced by factors such as technological advancements, improvements in workforce skills, and enhancements in production processes.

Question 18

Barriers to international trade tend to inhibit the efficient allocation of production across industries and thus allow inefficient industries to continue using labor and capital resources that could be used more productively in other sectors.

Accepted Answer

Barriers to international trade, such as tariffs and quotas, can protect less efficient domestic industries from foreign competition. This protection allows these industries to continue operating, potentially using resources (labor and capital) that could be more productively employed in more competitive sectors, leading to an inefficient allocation of resources.

Question 19

The use of industrial policy is intended to encourage the development of emerging "sunrise" industries, such as high technology, by granting them subsidies.

Accepted Answer

Industrial policy often involves government actions such as subsidies to support emerging industries that are considered strategically important for national development, including high technology sectors, which are referred to as "sunrise" industries because they are new and expected to grow rapidly.

Question 20

Critics cite Japan as a nation that was unsuccessful in achieving rapid growth following World War II as a result of industrial policy.

Accepted Answer

Japan experienced rapid economic growth and industrial development following World War II, becoming one of the world's largest economies, largely attributed to its effective industrial policies and government-led initiatives.

Quiz 10: Gross Domestic Product and Economic Growth