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Tutorial ONE Question 1 (i)The dollar value of all final goods and services produced within the borders

of a nation is the a. GNP deflator. b. gross national product. c. net national product. d. gross domestic product. (ii) Based on the circular flow model, money flows from businesses to households in a. factor markets. b. product markets. c. neither factor nor product markets. d. both factor and product markets.

(iii) The circular flow model does not include which of the following? a.The quantity of shoes in inventory on January 1. b. The total wages paid per month. c. The percentage of profits paid out as dividends each year. d. The total profits earned per year in the U.S. economy. (iv) The expenditure approach measures GDP by adding all the expenditures for final goods made by a. households. b. businesses. c. government. d. foreigners. e. all of the above.

(v) GDP is a less-than-perfect measure of the nations economic pulse because it a. excludes nonmarket transactions. b. does not measure the quality of goods and services. c. does not report illegal transactions. d. all of the above are true.

(vi) Subtracting an allowance for depreciation of fixed capital from gross domestic product yields a. real GDP. b. nominal GDP. c. personal income. d. national income.

(vii)Adding all incomes earned by households from the sale of resources yields a. intermediate goods. b. indirect business taxes. c. national income. d. personal income. (viii) Personal income equals disposable income plus a. personal savings. b. transfer payments. c. dividend payments. d. personal taxes. (ix) Disposal personal income is the income people spend for personal items such as homes and cars. b. includes transfer payments. c. excludes transfer payments. d. includes personal taxes. (x) Which of the following statements is true? a. National income is total income earned by households, whereas personal income is total income received by households. b. Disposable personal income equals personal income minus personal taxes. c. The expenditures approach and the income approach yield the same GDP figure. d. all of the above are true. (xi) Gross domestic product data that reflect actual prices as they exist in a given year are expressed in terms of a. fixed dollars. b. current dollars. c. constant dollars. d. real dollars. (xii) The GDP chain price index is a. widely reported in the news. b. broadly based. c. adjusted for government spending. d. a measure of changes in consumer prices. (xiii)Which of the following statements is true? a. The inclusion of intermediate goods and services in GDP calculations would underestimate our nations production level. b. The expenditures approach sums the compensation of employees, rents, profits, net interest, and non-income expenses for depreciation and indirect business taxes. c. Real GDP has been adjusted for change in the general level of prices due to inflation or deflation. d. Real GDP equals nominal GDP multiplied by the GDP deflator.

Question 2 (a)The government purchases component of GDP does not include spending on transfer payments such as Social Security payments. Considering the definition of GDP, explain why are transfer earnings excluded? (b) Why are households purchases of new housing included in the investment component? Give reasons why households purchases of new cars should also be included in investment rather than in consumption. (c) What contributes more to GDP- the production of an economy car or the production of a luxury car? Explain why. Question 3 Consider the following data on the U.S GDP Year Nominal GDP(in billions) 2000 9 873 1999 9 269 GDP Deflator (base year 1996) 118 113

a. What was the growth rate of nominal GDP between 1999 and 2000? (Note: the growth rate is the percentage change from one period to the next) b. What was the growth rate of the GDP deflator between 1999 and 2000? c. What was the real GDP in 1999 measures in 1996 prices? d. What was the real GDP in 2000 measures in 1996 prices? e. What was the growth rate of real GDP between 1999 and 2000? f. Was the growth rate of nominal GDP higher or lower than the growth rate of real GDP? Explain. Question 4 The participation of women in the U.S. labour force has risen dramatically since 1970. a. How so you think this rise affected GDP? b. Now imagine a measure of well-being that includes time spent working in the home and taking leisure. How would the change in this measure of well-being compare to the change in GDP? c. Can you think of other aspects of well-being that associated with the rise in womens labour -force participation? Would it be practical to construct a measure of well-being that includes these aspects?

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