Question

Which of the following best describes the relationship between a stock concept and a flow concept?

	A stock concept has a time period associated with it, whereas a flow concept is an amount of something at a given point in time.
	A stock concept is an amount of something at a given point in time, whereas a flow concept has a time period associated with it. ______________________________________________________________________________ What expenditure category of production is largest for most countries? Investment Consumption Net exports Government spending

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How do wealth accounts differ from national income accounts?

	Both wealth accounts and national income accounts are stock measures.
	Both wealth accounts and national income accounts are flow measures.
	Wealth accounts are flow measures; national income accounts are stock measures.
	Wealth accounts are stock measures; national income accounts are flow measures. ______________________________________________________________________________ If you add up all the transactions in an economy, do you arrive at GDP, GNP, or something else? Something else because intermediate goods are included. GNP because intermediate goods are included. GDP because intermediate goods are excluded. _____________________________________________________ There are three firms in an economy: A, B, and C. Firm A buys $250 worth of goods from firm B and $200 worth of goods from firm C, and produces 200 units of output, which it sells at $5 per unit. Firm B buys $100 worth of goods from firm A and $150 worth of goods from firm C, and produces 300 units of output, which it sells at $7 per unit. Firm C buys $50 worth of goods from firm A and nothing from firm B. It produces output worth $1,000.         Instructions: Enter your responses as whole numbers.               a. Calculate GDP.     $ b. If a value-added tax (a tax on the total value added by each firm) of 10 percent is introduced, how much revenue will the government get?     $ c. How much would government get if it introduced a 10 percent income tax?     $               d. How much would government get if it introduced a 10 percent sales tax on final output?     $

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If the government increases transfer payments, what happens to aggregate output?

	Aggregate output would remain the same.
	Aggregate output would rise.
	Aggregate output would fall. ___________________________________________________________________________________ Economists normally talk about GDP even though they know NDP is a better measure of economic activity. Why? Because GDP has already been offset by depreciation. Because GDP is a flow concept and NDP is a stock concept. Because GDP includes net foreign factor income and NDP does not. Because NDP accounts for depreciation, but measuring depreciation is difficult because asset values fluctuate. __________________________________________________________________________- Which will be larger, gross domestic product or gross national product? GNP GDP Either one could be larger. ____________________________________________________________________________________________-- What income category keeps aggregate output and aggregate income equal? Interest Profit Rent Compensation to employees ______________________________________________________________________________ What makes it difficult to compare GDP over time? How is the problem addressed? Inflation. It is addressed by estimating price changes over time. Net foreign factor income. It is addressed by measuring world output over time. Depreciation. It is addressed by measuring physical capital over time. ______________________________________________________________________ When more and more women entered the labor force in the 1970s and 1980s, the economy’s potential output rose. a. To the extent that real output rose because of their entry into the labor market, what was the effect on measured GDP? GDP increased. GDP stayed the same. GDP decreased. b. What was the impact on welfare? Aggregate welfare is higher than before. It is impossible to say. Aggregate welfare is lower than before. ____________________________________________________________________ The Genuine Progress Indicator is an alternative measure to economic activity. a. Is the Genuine Progress Indicator a subjective measure of the economy? No, because it does not require a valuation of social goals. Yes, because it uses NDP rather than GDP. No, because it is calculated from adjustments to GDP. Yes, because it requires a valuation of social goals. b. Is GDP a subjective measure? Yes, because GDP measures economic welfare. No, because GDP is the single most-used economic measure. Yes, because what is being measured is a matter of judgment. No, because GDP is a measure of pure economic activity. Given the following data about the economy Profit Consumption Investment Government spendin Net exports Rent Depreciation Net foreign factor income Interest Employee compensation 700 500 300 275 25 25 150 1,329 Instructions: Enter your responses as whole numbers a. Calculate aggregate output (GDP) and aggregate income Aggregate output (GDP) 1775 Aggregate income 1772 b. Compare the two calculations in a. Why are they not precisely equal? O GDP must be adjusted for income taxes GDP must be adjusted for net foreign factor income O GDP must be adjusted for transfer payments O GDP must be adjusted for depreciation. C. Calculate GNP GNP d. Calculate NDP NDP