Chapter 5 Measuring Economic Activity: GDP and Unemployment

Size: px
Start display at page:

Download "Chapter 5 Measuring Economic Activity: GDP and Unemployment"

Transcription

1 Chapter 5 Measuring Economic Activity: GDP and Unemployment Overview This chapter looks in detail at how economists measure two major macroeconomic variables: gross domestic product (GDP) and the unemployment rate. The chapter shows how GDP can be measured either through the expenditure approach or the income approach, and discusses the difference between nominal and real GDP. The limitations of GDP are considered, but the chapter also shows how GDP is related to economic well-being. The chapter then shows how unemployment is measured, considers the costs of unemployment, and discusses what is left out of the official unemployment rate. Core Principles The Cost-Benefit Principle: The chapter discusses using the cost-benefit principle as a way to determine the appropriateness of economic policies. Important Concepts Covered Gross Domestic Product (GDP) Final Goods or Services Intermediate Goods or Services Value Added Capital Good Consumption Private-Sector Investment Government Purchases Net Exports Capital Consumption Allowances Real GDP Nominal GDP GDP Deflator Gross National Income Labour Force Unemployment Rate Participation Rate Discouraged Workers Learning Objectives 5.1 Gross Domestic Product: Measuring the Nation s Output Market Value Final Goods and Services Produced Within a Country During a Given Period 5.2 The Expenditure Method for Measuring GDP 5.3 GDP and the Incomes of Capital and Labour Economic Naturalist 5.1: Does GDP measurement ignore the underground economy? Copyright 2009 McGraw-Hill Ryerson Limited 1

2 5.4 Nominal GDP versus Real GDP 5.5 Real GDP is Inappropriate as the Sole Economic Goal The GDP Total and the Benefits of Final Goods and Services Questionable Proposals for Increasing GDP 5.6 But Real GDP Per Capita is Related to Living Standards Availability of Goods and Services Health and Education Why Not Make GDP Per Capita Into a Measure of Well-Being? 5.7 The Unemployment Rate Measuring Unemployment The Costs of Unemployment Supplementary Measures of Unemployment In-Class Activities Unemployment, Inflation, and National Output video from the Introductory Economics series. U.S. Economic Growth video from the Economics U$A series. Michael J. Haupert, Labor Market Experiment, Journal of Economic Education, 27(4), Fall 1996a, pp Economic Naturalist Discussion Questions 1. Why might firms recruit retirees to leave retirement and work for them? (If unemployment rates become sufficiently low, particularly in certain areas, that firms can t find enough qualified workers in the labour force.) 2. Why do female children receive less schooling than male children in some poor countries? (Because the returns are lower and the opportunity costs are higher in societies where women work at home and have fewer options in the labour market.) 3. Why might unemployment rates begin to fall during a severe recession, despite the fact that no new jobs are created? (Discouraged workers leave the labour force.) Answers to Text Questions and Problems Answers to Review Questions 1. Using market values permits economists to add together different goods and services to get a measure of total output. For example, we can t add together apples, bananas, and shoes, but we can add together their market values. Using market values to aggregate gives a higher weight to high-value items. For example, a $20,000 automobile counts for 5000 times as much in GDP as a $4 double cheeseburger. This makes economic sense, as the market price of each item is a measure of the value that its purchasers place on it. 2. Consumption: any consumer good or service (an automobile or a haircut, for example). Investment: purchase of a factory, a machine, a home, or other form of capital. Government purchases: goods or services acquired by the government, such as military hardware or the services of public-school teachers. Net exports: exports less imports, for example, Canadian-grown wheat purchased by India (an export) or Copyright 2009 McGraw-Hill Ryerson Limited 2

3 a German car purchased by a Canadian citizen (an import). Consumption represents the largest share of GDP of the four components. Net exports can be negative, if imports exceed exports. 3. Nominal GDP, the current market value of production, equals 1000 shines $4 per shine, or $4000 last year, and 1200 shines $5 per shine, or $6000 this year. Real GDP is the market value of production measured using the prices of the base year. So real GDP last year is 1000 shines $4 per shine or $4000. (Remember that last year is the base year; real GDP and nominal GDP are the same in the base year). Real GDP this year, equal to this year s output valued at last year s prices, is 1200 shines $4 per shine, or $4800. Notice that Al s contribution to real GDP has grown by 20% since last year ($4800/$4000 = 1.20), which is the same as the increase in the physical volume of his output (1200 shines/1000 shines = 1.20). Real GDP is the better statistic to use when measuring Al s change in productivity, since it eliminates the effects of price changes and measures instead the physical volume of production. 4. Maximization of real GDP is inappropriate as a sole goal for economic policy because it does not consider non-working time, environmental quality and resource depletion, and the quality of daily life and working life. 5. False. The participation rate is the labour force (the sum of employed and unemployed workers) as a share of the adult population. Essentially it measures the fraction of the adult population who are either working or who are looking for work. It is possible for the participation rate to be high, even though many people in the labour force are currently unemployed. Answers to Problems 1a. Government purchase of a service; GDP increases by $1 billion. b. Transfer payment; GDP does not change. c. Government purchase of a good; GDP increases by $1 billion. d. Government interest payment; GDP does not change. e. Government purchase of goods of $1 billion is exactly offset by net exports of $1 billion (the aircraft are imported); GDP does not change. This makes sense, since no additional production occurred within Canada. 2. Value added by each firm is as follows: Intelligence Inc.: 100 chips $200 = $20,000. Macrosoft: 100 software packages $50 = $5000. Bell: 100 computers $800 minus purchased inputs ($20,000 in chips and $5000 in software) = $80,000 $25,000 = $55,000. PC Charlie s: 100 computers $1000 minus purchased inputs ($80,000 in computers at wholesale) = $100,000 $80,000 = $20,000. Sum of value added: $20,000 + $ $55,000 + $20,000 = $100,000. This is the same result we get by summing up the market values of final goods and services (the 100 computers sold by PC Charlie s at $1000 each equals $100,000). 3a. Canadian GDP and consumption both rise by the value of the new car. b. Consumption rises by the value of the car, net exports fall by the value of the car (as imports rise). There is no change in Canadian GDP. c. Canadian GDP and investment both rise by the value of the car (purchase of the car by a business counts as investment). d. Investment rises by the value of the car, net exports fall by the value of the car. There is no change in Canadian GDP. Copyright 2009 McGraw-Hill Ryerson Limited 3

4 4. We find the four components of expenditure: Consumption expenditures are 600. These already include household purchases of durable goods, so those would not be counted again. Investment expenditures equal construction of new homes and apartments (100) plus business fixed investment (100) plus inventory investment (change in stocks over the year, or 25), for a total of 225. Sales of existing homes and apartments are not counted in investment or GDP. Government purchases are 200. Government payments to retirees are transfers and are not counted. Net exports are exports (75) minus imports (50), or 25. GDP is the sum of the four components: = For the year 2004, nominal GDP is (100 $5) + (300 $20) + (100 $20) = $8500, and real GDP (using prices from 2004) is (100 $5) + (300 $20) + (100 $20) = $8500. Notice that nominal GDP and real GDP are the same for the base year. For the year 2009, nominal GDP is (125 $7) + (250 $20) + (110 $25) = $8625, and real GDP (using prices from 2004) is (125 $5) + (250 $20) + (110 $20) = $7825. Real GDP therefore declined between 2004 and Real GDP for the fourth quarter of 1998 would be nominal GDP ($928.3 billion) divided by the GDP deflator (99.1), or $936.7 billion. When the GDP deflator falls, real GDP can exceed nominal GDP. 7. It would not be correct to decide against the policy because it is projected to reduce real GDP. Rather, the costs and benefits of the policy should be compared. The reduction (if any) in real GDP is relevant when measuring the cost of the proposed policy, as it captures the loss in output. However, the benefits of the policy, in terms of cleaner air, are not captured in GDP and must be assessed in some other way (for example, by trying to value the health benefits of cleaner air). Economists would recommend implementing the policy only if its benefits exceed its costs. 8. Of the 65 people, the 10 children under age fifteen, the 10 retired people, the 5 full-time homemakers, the 5 full-time students, and the 2 ill people are not in the labour force. Of the remaining 33 people, 30 people are employed (either part-time or full-time). So three people do not have jobs but would like one. However, one of these three people has not looked for work for three months and so is counted as not in the labour force rather than unemployed; the other two people are unemployed. In summary, of 65 people, 33 are not in the labour force. So the labour force is 32 people. The participation rate is the share of the working age population in the labour force, equal to 32/55 = 58%. Of those in the labour force, 30 are employed, 2 are unemployed. The unemployment rate, the share of the labour force that is unemployed, is 2/32, or 6.25%. 9. As the participation rate is 62.5%, we know that 62.5% of the working-age population is in the labour force and the remaining 37.5% is not in the labour force. Sixty million people are not in the labour force, so the total working-age population must be 160 million (60 million is 37.5% of 160 million). The labour force is 62.5% of 160 million, or 100 million people. The unemployment rate is 5.0%, so 5.0% of the 100 million people in the labour force are unemployed, or 5 million people. To summarize, the labour force is 100 million, the working age population is 160 million, and 5 million workers are unemployed. Sample Homework Assignment 1. Determine whether each of the following would or would not be included in the calculation of the current year s GDP. If it should not be included, explain why. a. The purchase of a 2002 Chrysler Caravan manufactured in Ontario. b. A purchase of a share of Nortel stock. Copyright 2009 McGraw-Hill Ryerson Limited 4

5 c. Coffee beans purchased by Tim Hortons. d. A dry cleaning bill. e. The money you saved by doing your own laundry rather than using a dry cleaning service. f. $25 paid to a neighbourhood kid to mow your lawn. g. $25 if you mow your lawn yourself. h. Money used to purchase marijuana. 2. Suppose that, in the country Beta, the population is 1 million of which 150,000 are under the age of 15, the labour force is 600,000, and the number employed is 570,000. Calculate: a. the unemployment rate. b. the participation rate. 3. Using the following data for the country Beta, calculate Beta s GDP. Explain why each item is or is not included in GDP. a. Consumption expenditures 1000 b. Exports 125 c. Government purchases of goods and services 300 d. Construction of new homes and apartments 125 e. Sales of existing homes and apartments 320 f. Imports 90 g. Beginning-of-year inventory stocks 140 h. End-of-year inventory stocks 160 i. Business fixed investments 250 j. Government payments to retirees 160 k. Household purchases of durable goods 265 Multiple Choice Quiz 1. Gross domestic product is a measure of a. output. b. input. c. prices. d. employment. e. interest rates. 2. Canadian gross domestic product is measured in a. units. b. dollars. c. workers. d. percentages. e. euros. 3. The value of the flour used to make a loaf of bread is not included in GDP because it is not a(n) a. capital good. b. service. c. intermediate good. d. final good. e. market good. 4. A good that is used to produce other goods is known as a(n) Copyright 2009 McGraw-Hill Ryerson Limited 5

6 a. capital good. b. final good. c. intermediate good. d. value added good. e. economic good. 5. Which of the following is not one of the components added together to measure GDP using the expenditure approach? a. Consumption. b. Investment. c. Government purchases. d. Capital. e. Net exports. 6. GDP that has been adjusted for inflation is called a. nominal GDP. b. real GDP. c. money GDP. d. market GDP. e. dollar GDP. 7. Which of the following individuals is classified as part of the labour force? a. A high school teacher enjoying the summer off. b. A 14-year-old with a paper route. c. A retired computer analyst. d. A full-time university student. e. A government employee. 8. The unemployment rate is found by dividing the number of people classified as unemployed by the a. population. b. labour force. c. number of people who are employed. d. number of people out of the labour force. e. participation rate. 9. If an individual would like to have a job, but has given up looking for one, she is classified as a. discouraged. b. unemployed. c. in the labour force. d. disgruntled. e. unproductive. 10. Which of the following is not a type of cost associated with unemployment? a. Economic. b. Social. c. Psychological. d. Shoe leather. e. Opportunity. Copyright 2009 McGraw-Hill Ryerson Limited 6

7 Short Answer/Problems 1. Classify each of the following individuals as employed, unemployed, or not in the labour force. a. A factory worker laid off indefinitely during a recession. b. A computer technician on vacation. c. A 14-year-old apple picker during the apple harvest. d. A banker who quits his job to (unsuccessfully) seek fame and fortune as an actor. e. A stay-at-home dad. f. A full-time university student. g. A recent university graduate looking for her first job. h. An auto mechanic without a job who has given up looking for work. 2. Suppose that, in the country Beta, the number unemployed is 8000, the number employed is 15,000, and the population is 45,000. Calculate: a. the size of the labour force. b. the participation rate. c. the unemployment rate. Answer Key to Extra Questions in Instructor s Manual Sample Homework Assignment 1a. No; it was produced in 2002, not the current year. b. No; stock represents ownership, not production. c. No; they are an intermediate good. d. Yes. e. No; there was no market transaction. f. Yes. g. No; there was no market transaction. h. No; illegal production is not included in GDP calculations. 2a. Unemployment rate = 30,000/1,000,000 = 0.03 or 3%. b. Participation rate = 600,000/850,000 = 0.71 or 71%. 3. GDP = C + I + G + NX. a. Included as part of C. b. Included as part of NX. c. Included as part of G. d. Included as part of I. e. Not included, as it was not produced during the period. f. Included as part of NX. g. Included as part of calculating I. h. Included as part of calculating I. i. Included as part of I. j. Not included, as it was not a payment for a good or service. k. Included as part of C. GDP = ( ) + (250 + [ ] + 125) + (300) + (125 90) = = Copyright 2009 McGraw-Hill Ryerson Limited 7

8 Multiple Choice 1. a 2. b 3. d 4. a 5. d 6. b 7. e 8. b 9. a 10. d Problems/Short Answer 1a. Unemployed: not working, but seeking work. b. Employed: has a job. c. Not in the labour force: must be 16 to be in the labour force. d. Unemployed: not working and actively seeking work. e. Not in the labour force: not seeking work outside the home. f. Not in the labour force: not seeking work outside of school. g. Unemployed: not working and actively seeking work. h. Not in the labour force: discouraged. 2a. Labour force = 15, = 23,000. b. Participation rate = 23,000/45,000 = 0.51 or 51%. c. Unemployment rate = 8000/23,000 = 0.35 or 35%. Copyright 2009 McGraw-Hill Ryerson Limited 8

7. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income

7. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income Name: Date: 1. GDP is all of the following except the total: A) expenditure of everyone in the economy. B) income of everyone in the economy. C) expenditure on the economy's output of goods and services.

More information

Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9. Multiple Choice Questions

Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9. Multiple Choice Questions Macroeconomics Instructor: Jen Dinsmore Hanson Homework Assignment Chapter 9 Multiple Choice Questions 1. Net domestic product is usually preferred to GDP by economists because net national product A.

More information

Name: Date: 3. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income

Name: Date: 3. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income Name: Date: 1. GDP is all of the following except the total: A) expenditure of everyone in the economy. B) income of everyone in the economy. C) expenditure on the economy's output of goods and services.

More information

Measuring a Nation s Income

Measuring a Nation s Income Measuring a Nation s Income I. Review of the Definitions of Microeconomics and Macroeconomics A. Definition of microeconomics: the study of how households and firms make decisions and how they interact

More information

6. Real GDP means the value of goods and services is measured in prices. A) current B) actual C) constant D) average

6. Real GDP means the value of goods and services is measured in prices. A) current B) actual C) constant D) average Name: Date: 1. Assume that total output consists of 4 apples and 6 oranges and that apples cost $1 each and oranges cost $0.50 each. In this case, the value of GDP is: A) 10 pieces of fruit. B) $7. C)

More information

Reference: Gregory Mankiw s Principles of Macroeconomics, 2 nd edition, Chapters 10 and 11. Gross Domestic Product

Reference: Gregory Mankiw s Principles of Macroeconomics, 2 nd edition, Chapters 10 and 11. Gross Domestic Product Macroeconomics Topic 1: Define and calculate GDP. Understand the difference between real and nominal variables (e.g., GDP, wages, interest rates) and know how to construct a price index. Reference: Gregory

More information

Chapter 8. GDP : Measuring Total Production and Income

Chapter 8. GDP : Measuring Total Production and Income Chapter 8. GDP : Measuring Total Production and Income Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics Related Economic Terms Macroeconomics:

More information

CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING

CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING Chapter in a Nutshell Gross domestic product was introduced in the previous chapter as a basic measure of macroeconomic performance. This chapter identifies

More information

GDP: Measuring Total Production and Income

GDP: Measuring Total Production and Income Chapter 7 (19) GDP: Measuring Total Production and Income Chapter Summary While microeconomics is the study of how households and firms make choices, how they interact in markets, and how the government

More information

11.1 Estimating Gross Domestic Product (GDP) Objectives

11.1 Estimating Gross Domestic Product (GDP) Objectives 11.1 Estimating Gross Domestic Product (GDP) Objectives Describe what the gross domestic product measures. Learn two ways to calculate the gross domestic product, and explain why they are equivalent. 11.1

More information

Chapter 24. What will you learn in this chapter? Valuing an economy. Measuring the Wealth of Nations

Chapter 24. What will you learn in this chapter? Valuing an economy. Measuring the Wealth of Nations Chapter 24 Measuring the Wealth of Nations 2014 by McGraw-Hill Education 1 What will you learn in this chapter? How to calculate gross domestic product (GDP). Why each component of GDP is important. What

More information

MEASURING A NATION S INCOME

MEASURING A NATION S INCOME 10 MEASURING A NATION S INCOME WHAT S NEW IN THE FIFTH EDITION: There is more clarification on the GDP deflator. The Case Study on Who Wins at the Olympics? is now an FYI box. LEARNING OBJECTIVES: By the

More information

Gross Domestic Product. Will the Canadian economy weaken through the next year and shrink, or will it remain strong and expand?

Gross Domestic Product. Will the Canadian economy weaken through the next year and shrink, or will it remain strong and expand? Will the Canadian economy weaken through the next year and shrink, or will it remain strong and expand? To assess the state of the economy and to make big decisions about business expansion, firms use

More information

Why expenditure = income. The Circular Flow. Circular flow. Gross Domestic Product

Why expenditure = income. The Circular Flow. Circular flow. Gross Domestic Product Gross Domestic Product Why expenditure = income Two definitions: 1. Total expenditure on final goods and services 2. Total income earned by factors of production In In every transaction, the the buyer

More information

These are some practice questions for CHAPTER 19. Each question should have a single answer. But be careful. There may be errors in the answer key!

These are some practice questions for CHAPTER 19. Each question should have a single answer. But be careful. There may be errors in the answer key! These are some practice questions for CHAPTER 19. Each question should have a single answer. But be careful. There may be errors in the answer key! 1. Real national income is also known as a. nominal national

More information

Households Wages, profit, interest, rent = $750. Factor markets. Wages, profit, interest, rent = $750

Households Wages, profit, interest, rent = $750. Factor markets. Wages, profit, interest, rent = $750 KrugmanMacro_SM_Ch07.qxp 11/9/05 4:47 PM Page 87 Tracking the Macroeconomy 1. Below is a simplified circular-flow diagram for the economy of Micronia. a. What is the value of GDP in Micronia? b. What is

More information

Measuring a Nation s Income THE MEASUREMENT OF GROSS DOMESTIC PRODUCT. In this chapter, look for the answers to these questions:

Measuring a Nation s Income THE MEASUREMENT OF GROSS DOMESTIC PRODUCT. In this chapter, look for the answers to these questions: In this chapter, look for the answers to these questions: What is Gross Domestic Product (GDP)? 5 How is GDP related to a nation s total income and spending? What are the components of GDP? How is GDP

More information

This is the on-line Multiple Choice Quiz for Chapter 4. Please do the following. Go to the special codes section on your score sheet

This is the on-line Multiple Choice Quiz for Chapter 4. Please do the following. Go to the special codes section on your score sheet Instructions: This is the on-line Multiple Choice Quiz for Chapter 4. Please do the following. Step I - Go to the special codes section on your score sheet Write your section number (1, or 4, or 5) under

More information

Exam 1 Review. Page 1

Exam 1 Review. Page 1 Exam 1 Review 1. When a firm sells a product out of inventory, GDP: A) increases. B) decreases. C) is not changed. D) increases or decreases, depending on the year the product was produced. 2. An economy's

More information

The Circular Flow 1/15/2013. Gross Domestic Product: Expenditure and Income

The Circular Flow 1/15/2013. Gross Domestic Product: Expenditure and Income IN THIS CHAPTER, YOU WILL LEARN: ECON 3010 Intermediate Macroeconomics Chapter 2 The Data of Macroeconomics the meaning and measurement of the most important macroeconomic statistics: gross domestic product

More information

Unit 4: Measuring GDP and Prices

Unit 4: Measuring GDP and Prices Unit 4: Measuring GDP and Prices ECO 120 Global Macroeconomics 1 1.1 Reading Reading Module 10 - pages 106-110 Module 11 1.2 Goals Goals Specific Goals: Understand how to measure a country s output. Learn

More information

Macroeconomics Instructor Miller GDP Practice Problems

Macroeconomics Instructor Miller GDP Practice Problems Macroeconomics Instructor Miller GDP Practice Problems 1. Gross domestic product in the economy is measured by the A) total number of goods and services produced in the economy. B) dollar value of all

More information

Chapter 24 Measuring Domestic Output and National Income QUESTIONS. 1. In what ways are national income statistics useful? LO1

Chapter 24 Measuring Domestic Output and National Income QUESTIONS. 1. In what ways are national income statistics useful? LO1 Chapter 24 Measuring Domestic Output and National Income QUESTIONS 1. In what ways are national income statistics useful? LO1 Answer: National income accounting does for the economy as a whole what private

More information

Chapter 12 Gross Domestic Product and Growth

Chapter 12 Gross Domestic Product and Growth Chapter 12 Gross Domestic Product and Growth 1. Gross Domestic Product 2. Business Cycles 3. Economic Growth How do we know if the economy is healthy... Economists measure Gross Domestic and Gross National

More information

Economics 212 Principles of Macroeconomics Study Guide. David L. Kelly

Economics 212 Principles of Macroeconomics Study Guide. David L. Kelly Economics 212 Principles of Macroeconomics Study Guide David L. Kelly Department of Economics University of Miami Box 248126 Coral Gables, FL 33134 dkelly@miami.edu First Version: Spring, 2006 Current

More information

Big Concepts. Measuring U.S. GDP. The Expenditure Approach. Economics 202 Principles Of Macroeconomics

Big Concepts. Measuring U.S. GDP. The Expenditure Approach. Economics 202 Principles Of Macroeconomics Lecture 6 Economics 202 Principles Of Macroeconomics Measuring GDP Professor Yamin Ahmad Real GDP and the Price Level Economic Growth and Welfare Big Concepts Ways to Measure GDP Expenditure Approach Income

More information

ANSWERS TO END-OF-CHAPTER QUESTIONS

ANSWERS TO END-OF-CHAPTER QUESTIONS ANSWERS TO END-OF-CHAPTER QUESTIONS 7-1 In what ways are national income statistics useful? National income accounting does for the economy as a whole what private accounting does for businesses. Firms

More information

Cosumnes River College Principles of Macroeconomics Problem Set 3 Due September 17, 2015

Cosumnes River College Principles of Macroeconomics Problem Set 3 Due September 17, 2015 Cosumnes River College Principles of Macroeconomics Problem Set 3 Due September 17, 2015 Name: Solutions Fall 2015 Prof. Dowell Instructions: Write the answers clearly and concisely on these sheets in

More information

Answers to Text Questions and Problems in Chapter 7

Answers to Text Questions and Problems in Chapter 7 Answers to Text Questions and Problems in Chapter 7 Answers to Review Questions 1. A recession is a period in which the economy is growing at a rate significantly below normal, whereas an expansion is

More information

MEASURING GDP AND ECONOMIC GROWTH*

MEASURING GDP AND ECONOMIC GROWTH* Chapter 5 MEASURING GDP AND ECONOMIC GROWTH* Gross Domestic Product Topic: GDP 1) Gross domestic product is the total produced within a country in a given time period. A) market value of all final and

More information

CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH

CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH Learning Goals for this Chapter: To know what we mean by GDP and to use the circular flow model to explain why GDP equals aggregate expenditure and aggregate

More information

Exam 1 Review. 3. A severe recession is called a(n): A) depression. B) deflation. C) exogenous event. D) market-clearing assumption.

Exam 1 Review. 3. A severe recession is called a(n): A) depression. B) deflation. C) exogenous event. D) market-clearing assumption. Exam 1 Review 1. Macroeconomics does not try to answer the question of: A) why do some countries experience rapid growth. B) what is the rate of return on education. C) why do some countries have high

More information

GDP: Does It Measure Up? May 2013. Classroom Edition. An informative and accessible economic essay with a classroom application.

GDP: Does It Measure Up? May 2013. Classroom Edition. An informative and accessible economic essay with a classroom application. PAGE ONE Economics the back story on front page economics NEWSLETTER GDP: Does It Measure Up? May 2013 Classroom Edition An informative and accessible economic essay with a classroom application. Includes

More information

Chapter 2. The Measurement and Structure of the National Economy Pearson Addison-Wesley. All rights reserved

Chapter 2. The Measurement and Structure of the National Economy Pearson Addison-Wesley. All rights reserved Chapter 2 The Measurement and Structure of the National Economy Chapter Outline National Income Accounting: The Measurement of Production, Income, and Expenditure Gross Domestic Product Saving and Wealth

More information

The Data of Macroeconomics

The Data of Macroeconomics CHAPTER 2 The Data of Macroeconomics Modified for ECON 2204 by Bob Murphy 2016 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN:... the meaning and measurement of the most important

More information

Chapter 11: Activity

Chapter 11: Activity Economics for Managers by Paul Farnham Chapter 11: Measuring Macroeconomic Activity 11.1 Measuring Gross Domestic Product (GDP) GDP: the market value of all currently yproduced final goods and services

More information

VANCOUVER ISLAND UNIVERSITY. ECON212: PRINCIPLES OF MACROECONOMICS, Spring 2013 SAMPLE MIDTERM EXAM. Name (Last, First): ID #: Signature:

VANCOUVER ISLAND UNIVERSITY. ECON212: PRINCIPLES OF MACROECONOMICS, Spring 2013 SAMPLE MIDTERM EXAM. Name (Last, First): ID #: Signature: Important: Please remember it is a sample exam. Number of questions in each section and structure of questions in section b and c would vary as discussed in class VANCOUVER ISLAND UNIVERSITY ECON212: PRINCIPLES

More information

Lecture 1: Gross Domestic Product

Lecture 1: Gross Domestic Product Lecture 1: Gross Domestic Product August 28, 2014 Prof. Wyatt Brooks MEASURING A NATION S INCOME 0 Structure of the Course First Part of the Class: The macroeconomy in the long run Why are countries rich

More information

Chapter Outline. Chapter 2. National Income Accounting. National Income Accounting

Chapter Outline. Chapter 2. National Income Accounting. National Income Accounting Chapter 2 The Measurement and Structure of the National Economy Chapter Outline National Income Accounting: The Measurement of Production, Income, and Expenditure Real GDP, Price Indexes, and Inflation

More information

2 Macroeconomics LESSON 2

2 Macroeconomics LESSON 2 2 Macroeconomics LESSON 2 Macroeconomic Goals and GDP Introduction and Description The goals of U.S. macroeconomic policy makers are captured in two laws: the Employment Act of 1946 and the Full Employment

More information

INTRODUCTION TO MACROECONOMICS MIDTERM- SAMPLE QUESTIONS

INTRODUCTION TO MACROECONOMICS MIDTERM- SAMPLE QUESTIONS INTRODUCTION TO MACROECONOMICS MIDTERM- SAMPLE QUESTIONS MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In May 2009, Ford Motor Company's sales

More information

Macroeconomics: GDP, GDP Deflator, CPI, & Inflation

Macroeconomics: GDP, GDP Deflator, CPI, & Inflation HOSP 2207 (Economics) Learning Centre Macroeconomics: GDP, GDP Deflator, CPI, & Inflation Macroeconomics is the big picture view of an economy. Microeconomics looks at the market for a specific good, like

More information

Chapter 4 Measuring GDP and Economic Growth

Chapter 4 Measuring GDP and Economic Growth Chapter 4 Measuring GDP and Economic Growth 1 Gross Domestic Product 1) Gross domestic product is the total produced within a country in a given time period. A) market value of all final and intermediate

More information

Exam 1 ECON 2105 Dr. Susan Laury. Thurs. Feb. 6, :00 p.m. Form B. There are 40 multiple choice questions, worth 2.

Exam 1 ECON 2105 Dr. Susan Laury. Thurs. Feb. 6, :00 p.m. Form B. There are 40 multiple choice questions, worth 2. Exam 1 ECON 2105 Dr. Susan Laury Thurs. Feb. 6, 2003 1:00 p.m. Form B There are 40 multiple choice questions, worth 2.5 points each Please follow these instructions carefully! Feel free to write on this

More information

31. Gross Domestic Product equals a. Y = C + I G + NX. b. Y = C I + G + NX. c. Y = C + I + G + NX.

31. Gross Domestic Product equals a. Y = C + I G + NX. b. Y = C I + G + NX. c. Y = C + I + G + NX. GDP Review Questions 13. Gross Domestic Product measures the a. quantity of the goods and services produced in a given year, listed item by item, within a country. b. income of the business sector within

More information

Chapter 20. The Measurement of National Income. In this chapter you will learn to. National Output and Value Added

Chapter 20. The Measurement of National Income. In this chapter you will learn to. National Output and Value Added Chapter 20 The Measurement of National Income In this chapter you will learn to 1. Use the concept of value added to solve the problem of double counting when measuring national income. 2. Describe the

More information

At the end of Chapter 10, you will be able to answer the following:

At the end of Chapter 10, you will be able to answer the following: 1 Objectives for Chapter 10 The Circular Flow Model At the end of Chapter 10, you will be able to answer the following: 1. Explain the basic circular flow model. 2. Define "consumption" and "saving" 3.

More information

ECON 1010 Principles of Macroeconomics Exam #2. Section A: Multiple Choice Questions. (30 points; 2 pts each)

ECON 1010 Principles of Macroeconomics Exam #2. Section A: Multiple Choice Questions. (30 points; 2 pts each) ECON 1010 Principles of Macroeconomics Exam #2 Section A: Multiple Choice Questions. (30 points; 2 pts each) #1. If the price level in the economy and the nominal wages both doubled, then real wages would

More information

Chapter 2 The Measurement and Structure of the National Economy

Chapter 2 The Measurement and Structure of the National Economy Chapter 2 The Measurement and Structure of the National Economy Multiple Choice Questions 1. The three approaches to measuring economic activity are the (a) cost, income, and expenditure approaches. (b)

More information

Measuring National Output and National Income

Measuring National Output and National Income Measuring National Output and National Income 6 C H A P T E R O U T L I N E Gross Domestic Product Final Goods and Services Exclusion of Used Goods and Paper Transactions Exclusion of Output Produced Abroad

More information

3. The answer depends on the latest economic statistics.

3. The answer depends on the latest economic statistics. Here are the answers to the problems at the back of Chapters 17-20 and 22. Please be advised that I did not emphasize all of the material in these chapters and that not all of these problems concern material

More information

GDP M A C R O E C O N O M I C S

GDP M A C R O E C O N O M I C S GDP M A C R O E C O N O M I C S Gross Domestic Product GDP The market value of all final goods and services produced within a country during a given period of time. Breaking down the definition: 1. Market

More information

Economic Output. Economic Output. GDP: Definition. GDP: Definition. GDP: Definition. GDP: Definition. Agenda. Gross Domestic Product (GDP)

Economic Output. Economic Output. GDP: Definition. GDP: Definition. GDP: Definition. GDP: Definition. Agenda. Gross Domestic Product (GDP) Economic Output Economic Output Agenda Defining GDP Measuring Real GDP The Expenditure Side The Income Side Economic Output Gross Domestic Product (GDP) The official measure of a country s economic output.

More information

Chapter 5: GDP and Economic Growth

Chapter 5: GDP and Economic Growth Chapter 5: GDP and Economic Growth Be Mean Green! Please consider the environment before printing this Chapter Outline. It ll be available online throughout the semester. For Firms private accounting measures

More information

Chapter 12: Gross Domestic Product and Growth Section 1

Chapter 12: Gross Domestic Product and Growth Section 1 Chapter 12: Gross Domestic Product and Growth Section 1 Key Terms national income accounting: a system economists use to collect and organize macroeconomic statistics on production, income, investment,

More information

Solutions to Week 3 Tutorial Questions (Ch2)

Solutions to Week 3 Tutorial Questions (Ch2) Chapter 2: Q1: Macroeconomics P.51 Review Questions #1 Q2: Macroeconomics P.51 Review Questions #5 Q3: Macroeconomics P.52 Numerical Problems #5 Q4: Macroeconomics P.52 Numerical Problems #6 Q5: Macroeconomics

More information

Tracking the Macroeconomy

Tracking the Macroeconomy chapter 7(23) Tracking the Macroeconomy Chapter Objectives Students will learn in this chapter: How economists use aggregate measures to track the performance of the economy. What gross domestic product,

More information

Measuring the Aggregate Economy

Measuring the Aggregate Economy CHAPTER 25 Measuring the Aggregate Economy The government is very keen on amassing statistics... They collect them, add them, raise them to the n th power, take the cube root and prepare wonderful diagrams.

More information

Name (Please print) Assigned Seat. ECO202: PRINCIPLES OF MACROECONOMICS FIRST MIDTERM EXAM SPRING 2011 Prof. Bill Even FORM 1.

Name (Please print) Assigned Seat. ECO202: PRINCIPLES OF MACROECONOMICS FIRST MIDTERM EXAM SPRING 2011 Prof. Bill Even FORM 1. Name (Please print) Assigned Seat ECO202: PRINCIPLES OF MACROECONOMICS FIRST MIDTERM EXAM SPRING 2011 Prof. Bill Even FORM 1 Directions 1. Fill in your scantron with your unique id and form number. Doing

More information

Chapter 20. The Measurement of National Income

Chapter 20. The Measurement of National Income Chapter 20 The Measurement of National Income National Output and Value Added -many production processes involve multiple stages, only some which are done within the same firm -this raises an important

More information

2 0 0 0 E D I T I O N CLEP O F F I C I A L S T U D Y G U I D E. The College Board. College Level Examination Program

2 0 0 0 E D I T I O N CLEP O F F I C I A L S T U D Y G U I D E. The College Board. College Level Examination Program 2 0 0 0 E D I T I O N CLEP O F F I C I A L S T U D Y G U I D E College Level Examination Program The College Board Principles of Macroeconomics Description of the Examination The Subject Examination in

More information

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 136.2 140.3 144.5 148.2 152.4 156.9 160.5 163.0 166.6 172.2 176.9 What does the figure for the year 2008 tell us about the average price of goods

More information

National Income Accounting

National Income Accounting Chapter 2 The Measurement and Structure of the Canadian Economy Economics 282 University of Alberta National Income Accounting The national income accounts is an accounting framework used in measuring

More information

Measuring Economic Performance. Chapter 2

Measuring Economic Performance. Chapter 2 Measuring Economic Performance Chapter 2 Outline Gross Domestic Product Measuring GDP Through Spending Measuring GDP Through Production Measuring GDP Through Income Saving and Investment Transactions with

More information

Macroeconomics Instructor Miller Aggregate Expenditure Practice Problems

Macroeconomics Instructor Miller Aggregate Expenditure Practice Problems Macroeconomics Instructor Miller Aggregate Expenditure Practice Problems 1. The aggregate expenditure model focuses on the relationship between real spending and. A) short-run; real GDP B) short-run; inflation

More information

Introduction to Macroeconomics. TOPIC 1: Introduction, definition, measures

Introduction to Macroeconomics. TOPIC 1: Introduction, definition, measures TOPIC 1: Introduction, definitions, measures Annaïg Morin CBS - Department of Economics August 2013 What is macroeconomics about? Understanding the behavior of an economy as a whole. studying aggregated

More information

I. Measuring Output: GDP

I. Measuring Output: GDP University of California-Davis Economics 1B-Intro to Macro Handout 3 TA: Jason Lee Email: jawlee@ucdavis.edu I. Measuring Output: GDP As was mentioned earlier, the ability to estimate the amount of production

More information

Measuring GDP and Economic Growth

Measuring GDP and Economic Growth 20 Measuring GDP and Economic Growth After studying this chapter you will be able to Define GDP and explain why GDP equals aggregate expenditure and aggregate income Explain how Statistics Canada measures

More information

A. GDP, Economic Growth, and Business Cycles

A. GDP, Economic Growth, and Business Cycles ECON 3023 Hany Fahmy FAll, 2009 Lecture Note: Introduction and Basic Concepts A. GDP, Economic Growth, and Business Cycles A.1. Gross Domestic Product (GDP) de nition and measurement The Gross Domestic

More information

Lecture 3: National Income Accounting Reference - Chapter 5. 3) The Income Approach

Lecture 3: National Income Accounting Reference - Chapter 5. 3) The Income Approach Lecture 3: National Income Accounting Reference - Chapter 5 3) The Income Approach The income approach defines GDP in terms of the income derived or created from producing final goods and services. Net

More information

Lesson 3 - National Income Accounting

Lesson 3 - National Income Accounting Lesson 3 - National Income Accounting Acknowledgement: Ed Sexton and Kerry Webb were the primary authors of the material contained in this lesson. Section 1 - National Income Accounting History of National

More information

Professor Christina Romer. LECTURE 17 MACROECONOMIC VARIABLES AND ISSUES March 17, 2016

Professor Christina Romer. LECTURE 17 MACROECONOMIC VARIABLES AND ISSUES March 17, 2016 Economics 2 Spring 2016 Professor Christina Romer Professor David Romer LECTURE 17 MACROECONOMIC VARIABLES AND ISSUES March 17, 2016 I. MACROECONOMICS VERSUS MICROECONOMICS II. REAL GDP A. Definition B.

More information

NATIONAL INCOME AND PRODUCT ACCOUNTING MEASURING THE MACROECONOMY

NATIONAL INCOME AND PRODUCT ACCOUNTING MEASURING THE MACROECONOMY NATIONAL INCOME AND PRODUCT ACCOUNTING MEASURING THE MACROECONOMY 1. NIPA: GNP and GDP 2. Saving and Wealth 3. Prices and Inflation 4. Unemployment 5. Problems with Measuring the Macroeconomy There are

More information

ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He. Homework 1 Suggested Answer (Total points: 100)

ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He. Homework 1 Suggested Answer (Total points: 100) ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He Homework 1 Suggested Answer (Total points: 100) Understanding the growth rate and how to measure it Problem no. 1 on page 35. (10 points)

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Suvey of Macroeconomics, MBA 641 Fall 2006, Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Modern macroeconomics emerged from

More information

Introduction to Macroeconomics

Introduction to Macroeconomics Introduction to Macroeconomics Macroeconomics the study of the economy as a whole We measure performance to track the development of the economy Why Measure Performance Helps the government develop tax

More information

Macroeconomia Capitolo 7. Seguire l andamento della macroeconomia. What you will learn in this chapter:

Macroeconomia Capitolo 7. Seguire l andamento della macroeconomia. What you will learn in this chapter: Macroeconomia Capitolo 7 Seguire l andamento della macroeconomia PowerPoint Slides by Can Erbil 2006 Worth Publishers, all rights reserved What you will learn in this chapter: How economists use aggregate

More information

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Sample Final Exam Name Id # Part B Instructions: Please answer in the space provided and circle your answer on the question paper as well.

More information

4. In the G of the GDP formula why do we not count Welfare and Social Security payments?

4. In the G of the GDP formula why do we not count Welfare and Social Security payments? DUE DATE: NAME: ECONOMIC HEALTH INDICATORS: GDP AND CPI WORKSHEET CHAPTER 11 USE THE ATTACHED NOTES OR THE POWERPOINTS TO ANSWER THE FOLLOWING QUESTIONS.!!!KEEP THE ATTACHED NOTES. DO NOT TURN IN THE NOTES!!!!

More information

AK Macroeconomics Chapter 4 CHAPTER FOUR

AK Macroeconomics Chapter 4 CHAPTER FOUR Answers to Self-Test Questions 1. See following table: CHAPTER FOUR 2001 2002 2003 Nominal 443 474 507 Real 374 389 402 Deflator (1997 = 100) Population (in millions) Real per capita 118.4 121.9 126.1

More information

What is included and excluded in GDP? Differentiate between the income and expenditure approach.

What is included and excluded in GDP? Differentiate between the income and expenditure approach. What is included and excluded in GDP? Differentiate between the income and expenditure approach. Gross DOMESTIC Product GDP official measure of output Market Value of the final goods and services produced

More information

EC201 Intermediate Macroeconomics. EC201 Intermediate Macroeconomics Problem Set 1 Solution

EC201 Intermediate Macroeconomics. EC201 Intermediate Macroeconomics Problem Set 1 Solution EC201 Intermediate Macroeconomics EC201 Intermediate Macroeconomics Problem Set 1 Solution 1) Given the difference between Gross Domestic Product and Gross National Product for a given economy: a) Provide

More information

Summer 2014 Week 3 Tutorial Questions (Ch2) Solutions

Summer 2014 Week 3 Tutorial Questions (Ch2) Solutions Chapter 2: Q1: Macroeconomics P.52 Numerical Problems #3 Q2: Macroeconomics P.52 Numerical Problems #6 Q3: Macroeconomics P.53 Numerical Problems #7 Q4: Macroeconomics P.53 Numerical Problems #9 Q5: Macroeconomics

More information

HW 2 Macroeconomics 102 Due on 06/12

HW 2 Macroeconomics 102 Due on 06/12 HW 2 Macroeconomics 102 Due on 06/12 1.What are the three important macroeconomic goals about which most economists, and society at large, agree? a. economic growth, full employment, and low interest rates

More information

CHAPTER 7 Measuring Domestic Output, National Income, and the Price Level

CHAPTER 7 Measuring Domestic Output, National Income, and the Price Level CHAPTER 7 Measuring Domestic Output, National Income, and the Price Level Topic Question numbers 1. GDP concept 1-15 2. C, I, G, and X n components 16-43 3. Investment and the capital stock 44-57 4. GDP

More information

What is gross domestic product? A lesson

What is gross domestic product? A lesson What is gross domestic product? A lesson Lesson by Chris Cannon, AP macroeconomics teacher, Sandy Creek High School, Tyrone, Georgia Lesson Description This lesson introduces students to the basic concepts

More information

Supplement Unit 3. Gross Domestic Product (GDP): What Is It and How Is It Measured?

Supplement Unit 3. Gross Domestic Product (GDP): What Is It and How Is It Measured? 1 Supplement Unit 3. Gross Domestic Product (GDP): What Is It and How Is It Measured? Gross Domestic Product (GDP) is the market value of all final user goods and services produced domestically during

More information

EC2105, Professor Laury EXAM 2, FORM A (3/13/02)

EC2105, Professor Laury EXAM 2, FORM A (3/13/02) EC2105, Professor Laury EXAM 2, FORM A (3/13/02) Print Your Name: ID Number: Multiple Choice (32 questions, 2.5 points each; 80 points total). Clearly indicate (by circling) the ONE BEST response to each

More information

1. A glimpse of the real sector: GDP, inflation rate, macroeconomic identities

1. A glimpse of the real sector: GDP, inflation rate, macroeconomic identities 1. A glimpse of the real sector: GDP, inflation rate, macroeconomic identities 1. Real sector and financial sector Macroeconomics studies the aggregate effects of what people do. Most of what people do

More information

Chapter 5 Macroeconomic Measurement: The Current Approach Macroeconomics In Context (Goodwin, et al.)

Chapter 5 Macroeconomic Measurement: The Current Approach Macroeconomics In Context (Goodwin, et al.) Chapter 5 Macroeconomic Measurement: The Current Approach Macroeconomics In Context (Goodwin, et al.) Chapter Overview In this chapter, you will be introduced to a fairly standard examination of the National

More information

University of Lethbridge Department of Economics ECON 1012 Introduction to Microeconomics Instructor: Michael G. Lanyi. Chapter 20 Measuring GDP

University of Lethbridge Department of Economics ECON 1012 Introduction to Microeconomics Instructor: Michael G. Lanyi. Chapter 20 Measuring GDP University of Lethbridge Department of Economics ECON 1012 Introduction to Microeconomics Instructor: Michael G. Lanyi Chapter 20 Measuring GDP 1) Gross domestic product is A) the market value of all the

More information

Pre-Test Chapter 6 ed17 2

Pre-Test Chapter 6 ed17 2 Pre-Test Chapter 6 ed17 2 Multiple Choice Questions 1. (Last Word) The U.S. government agency responsible for compiling the national income accounts is the: A. Census Bureau. B. Bureau of Labor Statistics

More information

Chapter 32 A Macroeconomic Theory of the Open Economy

Chapter 32 A Macroeconomic Theory of the Open Economy Chapter 32 A Macroeconomic Theory of the Open Economy TRUE/FALSE 1. Over the past two decades, the United States has persistently exported more goods and services than it has imported. ANS: F DIF: 1 REF:

More information

ECON 1010 Principles of Macroeconomics Practice Test 2 Solutions

ECON 1010 Principles of Macroeconomics Practice Test 2 Solutions ECON 1010 Principles of Macroeconomics Practice Test 2 Solutions Section A: Multiple Choice Questions. (40 points; 2 pts each) 1. The unemployment rate is the ratio of all of the people: A) out of work

More information

Practice Problems on NIPA and Key Prices

Practice Problems on NIPA and Key Prices Practice Problems on NIPA and Key Prices 1- What are the three approaches to measuring economic activity? Why do they give the same answer? The three approaches to national income accounting are the product

More information

Macro Chapter 8 study guide questions

Macro Chapter 8 study guide questions Macro Chapter 8 study guide questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Frictional unemployment results from a. not enough jobs in the economy.

More information

Multiple Choice Identify the choice that best completes the statement or answers the question.

Multiple Choice Identify the choice that best completes the statement or answers the question. Unit 2 review Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Which of the following is false about the circular-flow diagram? A. Households are the primary

More information

National Income Accounting. Courtesy : www. carlprosper4nugs.yolasite.com

National Income Accounting. Courtesy : www. carlprosper4nugs.yolasite.com National Income Accounting Courtesy : www. Introduction to Economy of Ghana Measuring the Economy - National Income Accounting Structure of the Economy and Sectoral Outlook Economic History of Ghana: preindependence,

More information

6 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Key Concepts

6 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Key Concepts Chapter 6 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Key Concepts Aggregate Supply The aggregate production function shows that the quantity of real GDP (Y ) supplied depends on the quantity of labor (L ),

More information

GDP and Fiscal Policy Monopoly

GDP and Fiscal Policy Monopoly GDP and Fiscal Policy Monopoly Overview In this lesson, students will gain an understanding of the economic measure of gross domestic product (GDP) and fiscal policy by playing the board game Monopoly

More information