merged

Answers for Chapter 5
Fill-in-the-blanks: 1. domestic product 5. Exports
2. intermediate 6. Imports
3. Transfer payments 7. Real
4. Investment 8. economic growth
Multiple Choice: 1. d. 7. a. 13. c.
2. c. 8. d. 14. b.
3. d. 9. b. 15. c.
4. a. 10. c. 16. b.
5. b. 11. c. 17. b.
6. d. 12. a.
Problems:
1. An intermediate good has not yet reached its final user, but rather is an input in the production
of another good or has been purchased for resale. If intermediate goods were included in
GDP, they would overstate GDP by double counting.
2. Nonproduction transactions are transactions that do not directly result in production.
Examples include:
(1) Used goods
(2) Financial transactions
(3) Transfer payments
3. Total Expenditures consists of four types of spending:
(1) Consumption
(2) Investment
(3) Government purchases
(4) Net exports
4. Nominal GDP numbers may change from one year to the next either because production has
changed, or because of a change in the price level. If GDP numbers from different years are
to be fairly compared, an adjustment must be made for changes in the price level. Nominal
GDP must be adjusted to Real GDP.
5. Real GDP (1957) = $475 billion ÷ (16.6 ÷ 16.1) = $475 billion ÷ 1.0311 = $461 billion
6. As a measure of standard of living, GDP contains a number of flaws, including:
(1) GDP does not include nonmarket production.
(2) GDP does not include underground (unreported) production.
(3) GDP does not include differences in leisure time.
(4) GDP does not adjust for economic bads.
FOR REVIEW ONLY - NOT FOR DISTRIBUTION
Measuring Total Output: GDP 5 - 14