Question

Answer True or False for each of the following.                          (3 points each)

GDP per capita is GDP divided by the population growth rate.

Disposable personal income is what you have left over after paying basic living expenses.

Net Domestic Product is Gross Domestic Product minus depreciation.

Real GDP is always lower than nominal GDP.

The GDP deflator is a good cost of living index.

In the long run GDP tends to return to the vicinity of a long run growth path.

All government spending is in GDP.

If GDP is adjusted for purchasing power, the US usually improves its relative position.

The sale of primary and intermediate goods are excluded from GDP

Historically, a recession generally meant GDP was falling.

Each part is 10 points

A) nGDP is $5 trillion in Yr 1 and $5.4 trillion one year later. What is the GDP growth rate?

B) If rGDP in Yr 1 was also $5 trillion what can you say about Yr1?

C) If rGDP grew 5% between Yr. 1 and Yr. 2 what did GDP prices do?

(Hint: use part A. If you know GDP growth with both output and prices and now you now output by itself, what must prices have done?).

Determine whether GDP will be underestimated or overestimated in each of the following:    

(5 points each)

The quality of goods is declining.

Production is accompanied by significant spillover costs.

The government produces valuable goods and services at a low cost.

The cost of living is lower in the country than is typical in the world.

Answer 1

True/False

1. False

Reason: GDP per capita is GDP divided by total population.

2. False

Reason: Disposable income is whatever left after accounting for taxes and subsidies. It is the income left for paying basic living expenses.

3. True

Reason: Net domestic product = GDP - depreciation.

4. False

Reason: In case of deflation, Real GDP can be greater than Nominal GDP.

P.S.: As HOMEWORKLIB RULES's policy, if nothing is mentioned then only the first four sub-parts of a question is to be answered.

Thanks!