Practice Questions 3-

1. Which of the following transactions are included in GDP, and what is the contribution of each to GDP? If it is not part of GDP why?

a) You hire a plumber for $1,500 to install new bathroom fixtures.

b) You spend $700 dollars on the new fixtures for your bathroom but do the installation yourself. A plumber would have charged $800 for the installation.

c) A carpenter purchases $700 worth of wood to be used at some point in the future.  

d) I purchase a used condo from you for $70,000. You then purchase a new house for $150,000.

e) Ozzy purchase a 1965 Fender Stratocaster guitar from his friend for $2,000.

f) Ozzy also purchases a new Yamaha keyboard for $1,500.

g) I. N. Vestor ears $70,000 by buying and selling IBM stock.

h) Hyasynth Roller wins $1,500 at the Ho Chunk casino.

i) You trade in your used car valued at $4,000 and purchase one worth $25,000.

j) You knit a sweater worth $40 and give it away as a gift.

k) A car deal sells a new 2002 model car in 2003 for $25,000.

2. Use the following information to calculate GDP using both the expenditure approach and the factor payments approach.

a) There are three types of businesses; MTR Cars (an automobile manufacturer), Lots o' Food (a super market chain), and many family farms.

b) MTR produces 1,000 cars and 100 trucks. Cars are sold for $6,000 and trucks for $8,000.  The cars are purchased by consumers and the trucks are exported.

c) Lot's o' Food had revenue of $14 million all of which came from sales to consumers.

d) The farmers are all self-employed and sell all the food they grow to Lots o' Food for $7,000,000. 

e) The costs of the different businesses are as follows.

3. (a) Convert the following nominal GDP numbers into real GDP using the CPI that is given.

(b) Plot both real and nominal GDP putting the years on the horizontal axis and GDP on the vertical axis. Comment upon why it is misleading to compare nominal GDP across years.

(c) For a more challenging problem, make the adjustments for inflation such that real GDP is equal to nominal GDP in 1970. This requires converting the CPI with base year1982-1984 into a CPI that uses 1970 as a base year. That is, the new CPI for 1970 should be 100.

(d) Plot both real and nominal GDP putting the years on the horizontal axis and GDP on the vertical axis. Comment upon why it is misleading to compare nominal GDP across years. Why might is be better to use the CPI with 1970 as the base year?

4. Indicate whether the following people are employed, unemployed, or out of the labor force. If they are unemployed indicate whether their unemployment is structural, cyclical, frictional, or seasonal if possible.

a) A full-time student who does not work for money

b) An auto assembly-line  worker who has been laid-off while there is a plant change over, has not been looking for work, but plans to return to the assembly-line soon

c) A stay-at-home mother

d) A retired aero-space engineer that bags groceries part time

e) A 14 year old boy who is looking for work

f) Katie looses her life guarding job at the end of the summer just before returning to school

g) After a tariff on steel is repealed, American steel manufacturers lay-off some workers

h) Due to generally decreasing retail sales many retailers loose their positions

i) John leaves his position at McDonalds to look for a new job

j) Mary is working a part time job while she looks for a permanent position

Multiple Choice Questions:

5. Growth in GDP systematically underestimated the growth in national well being because

a) Ecological costs are netted out of GDP

b) "bads" as well as "goods" are included in GDP.

c) Investment is not included in GDP.

d) As a country gets richer, leisure time increases.

6. Intermediate goods, like milk sold by a farmer to a supermarket, are

a) included in GDP.

b) included in GDP at market value.

c) included if it they are imported.

d) are not included in GDP.

7. If Toyota produces a car in a plant in Tennessee and exports it to Japan, the value of the car is included in which countries GDP?

a) Japan's, because Toyota is a Japanese company.

b) Japan's, because that is where the car is purchased.

c) The United States, because that is where it is produced.

d) Both Japan and the United States.

8. A good produced in 2000 and held in inventory until it is sold in 2001 would be included in which measure of GDP?

a) Half the value in 2000 and half the value in 2001

b) In 2001 GDP

c) In both 2000 and 2001 GDP

d) In 2000 GDP

9. The term frictional unemployment refers to persons who are out of work

a) due to technological change.

b) due to strikes or lockouts.

c) and have given up looking for work.

d) for a short period.

10. Technological change or the effects of automation causes

a) structural unemployment.

b) frictional unemployment.

c) seasonal unemployment.

d) cyclical unemployment.

11. Which of the following scenarios best illustrates the concept of cyclical unemployment?

a) Grace looses her job because of automated machinery.

b) Sean quits his job to look for work that is more fun.

c) Ellen quits looking for work because she doesn't think she can find a suitable job.

d) Marian loses her job because of a recession.