Seminar 1: Question

By Le Thanh Ha
Type I: True/False question (give a brief explanation)
1. GDP can measure either the total income of everyone in the economy or the total
expenditure on the economy’s output of goods and services, but GDP cannot
measure both at the same time.
False, as for an economy as a whole, income must equal expenditure.
2. GDP includes only the value of final goods because the value of intermediate goods
is already included in the prices of the final goods.
True, if we included the value of intermediate goods, it can be included twice in
the GDP
3. While GDP includes tangible goods such as books and bug spray, it excludes
intangible services such as the services provided by teachers and exterminators.
False, GDP includes both tangible goods (food, clothing, cars) and intangible
services (haircuts, housecleaning, doctor visits)
4. Most goods whose purchases are included in the investment component of GDP are
used to produce other goods.
True, Investment is the purchase of goods (called capital goods) that will be
used in the future to produce more goods and services.
5. New home construction is included in the consumption component of GDP.
False, as new home construction is counted as investment.
6. Changes in inventory are included in the investment component of GDP.
True, Investment is the sum of purchases of business capital, residential
capital, and inventories.
7. The government purchases component of GDP includes salaries paid to soldiers but
not Social Security benefits paid to the elderly.
True, when the government pays a Social Secu-
rity benefit to a person who is elderly, hese are called transfer payments
because they are not made in exchange for a currently produced good or
service. Transfer payments alter household income, but they do not reflect the
economy’s production. (From a macroeconomic standpoint, transfer payments
are like negative taxes.)
8. If someone in the Vietnam buys a surfboard produced in China, then that purchase
is included in both the consumption component of VN. GDP and the net exports
component of VN. GDP.
When a domestic household, firm, or government buys a good
or service from abroad, the purchase reduces net exports, but because it also
raises consumption, investment, or government purchases, it does not affect
GDP. For example, suppose that a household buys a $40,000 car from
Volvo, the Swedish carmaker. This transaction increases consumption by
$40,000 because car purchases are part of consumer spending. It also reduces
net exports by $40,000 because the car is an import.
 9. Real GDP evaluates current production using prices that are fixed at the base year
and therefore shows how the economy’s overall production of goods and services
changes over time.

True, Nominal GDP uses current prices to place a value on the economy’s
production of goods and services. Real GDP uses constant base-year prices to
place a value on the economy’s production of goods and services.

10. Real GDP is a better gauge of economic well-being than is nominal GDP.
True, Because real GDP is not affected by changes in prices, changes in real
GDP reflect only changes in the amounts being produced. Thus, real GDP is a
measure of the economy’s production of goods and services

Type II: Discussion questions

1. Explain why it is the case that the value of intermediate goods produced and sold
during the year is not included directly as part of GDP, but the value of intermediate
goods produced and not sold is included directly as part of GDP.
GDP includes only the value of final goods. This is done because the value of
intermediate goods is already included in the prices of the final goods. Adding
the market value of the paper to the market value of the card would be double
counting. That is, it would (incorrectly) count the paper twice.
An important exception to this principle arises when an intermediate good is
produced and, rather than being used, is added to a firm’s inventory of goods
for
use or sale at a later date. In this case, the intermediate good is taken to be
“final”
for the moment, and its value as inventory investment is included as part of
GDP.
Thus, additions to inventory add to GDP, and when the goods in inventory are
later used or sold, the reductions in inventory subtract from GDP.
2. What components of GDP (if any) would each of the following transactions affect?
Explain.
a. Ha buys a new refrigerator from a domestic manufacturer.
b. Linh buys a old house from a friend.
c. You pay a hairdresser for a haircut.
e. Ford sells a Mustang from its inventory to the Le’s family.
f. Vinfast manufactures a Vinfast Fadil and sells it to Avis, the car rental company.
h. The government sends your grandmother a Social Security check.
i. Your parents buy a bottle of French wine.
j. Honda expands its factory in Ohio.
3. .Since it is counted as investment, why doesn't the purchase of production equipment
from China by a Vietnam. corporation increase V.N. GDP?

4. Identify the immediate effect of each of the following events on V.N. GDP and its
components.
a. Ha receives a Social Security check.
b. Ha buys an Italian sports car.
c. Ha buys domestically produced tools for his construction company.

6. Below are some data from the land of milk and honey.

a. Compute nominal GDP, real GDP, and the GDP deflator for each year, using 2016 as the
base year.
b. Compute the percentage change in nominal GDP, real GDP, and the GDP deflator in
2017 and 2018 from the preceding year. For each year, identify the variable that does not
change. Explain why your answer makes sense.

Type III: Multiple Choice

1. Which of the following newspaper headlines is more closely related to what
microeconomists study than to what macroeconomists study?
a. Unemployment rate rises from 5 percent to 5.5 percent.
b. Real GDP grows by 3.1 percent in the third quarter.
c. Retail sales at stores show large gains.
d. The price of oranges rises after an early frost.
2. Which of the following topics are more likely to be studied by a macroeconomist than by
a microeconomist?
a. the effect of taxes on the prices of airline tickets, the profitability of automobile-
manufacturing firms, and employment trends in the food-service industry
b. the price of beef, wage differences between genders, and antitrust laws
c. how consumers maximize utility, and how prices are established in markets for
agricultural products
d. the percentage of the labor force that is out of work, and differences in average
income from country to country
3. Gross domestic product measures two things at once:
a. the total spending of everyone in the economy and the total saving of everyone in
the economy.
b. the total income of everyone in the economy and the total expenditure on the
economy's output of goods and services.
c. the value of the economy's output of goods and services for domestic citizens and
the value of the economy's output of goods and services for the rest of the world.
d. the total income of households in the economy and the total profit of firms in the
economy.
4. For an economy as a whole,
a. wages must equal profit.
b. consumption must equal saving.
c. income must equal expenditure.
d. the number of buyers must equal the number of sellers.
5. GDP is defined as
a. the market value of all goods and services produced within a country in a given
period of time.
b. the market value of all goods and services produced by the citizens of a country,
regardless of where they are living, in a given period of time.
c. the market value of all final goods and services produced within a country in a
given period of time.
d. the market value of all final goods and services produced by the citizens of a
country, regardless of where they are living, in a given period of time.
6. GDP excludes most items that are produced and sold illegally and most items that are
produced and consumed at home because
a. the quality of these items is not high enough to contribute value to GDP.
b. measuring them is so difficult.
c. the government wants to discourage the production and consumption of these
items.
d. these items are not reported on income tax forms.
7. Estimates of the values of which of the following non-market goods or services are
included in GDP?
a. the value of unpaid housework
b. the value of vegetables and other foods that people grow in their gardens
c. the estimated rental value of owner-occupied homes
d. All of the above are included in GDP.
8. Over time, people have come to rely more on market-produced goods and less on goods
that they produce for themselves. For example, busy people with high incomes, rather
than cleaning their own houses, hire people to clean their houses. By itself, this
change has
a. caused measured GDP to fall.
b. not caused any change in measured GDP.
c. caused measured GDP to rise.
d. probably changed measured GDP, but in an uncertain direction; the direction of
the change depends on the difference in the quality of the cleaning that has
resulted.
9. Which of the following is not included in GDP?
a. carrots grown in your garden and eaten by your family
b. carrots purchased at a farmer’s market and eaten by your family
c. carrots purchased at a grocery store and eaten by your family
d. More than one of the above is not included in GDP.
10. The consumer price index is used to
a. monitor changes in the level of wholesale prices in the economy.
b. monitor changes in the cost of living over time.
c. monitor changes in the level of real GDP over time.
d. monitor changes in the stock market.
11. Which of the following is not correct?
a. The consumer price index gives economists a way of turning dollar figures into
meaningful measures of purchasing power.
b. The consumer price index is used to monitor changes in the cost of living over
time.
c. The consumer price index is used by economists to measure the inflation rate.
d. The consumer price index is used to measure the quantity of goods and services
that the economy is producing.
12. When the consumer price index rises, the typical family
a. has to spend more dollars to maintain the same standard of living.
b. can spend fewer dollars to maintain the same standard of living.
c. finds that its standard of living is not affected.
d. can offset the effects of rising prices by saving more.
13. The CPI is a measure of the overall cost of the goods and services bought by
a. a typical firm.
b. the government.
c. a typical consumer.
d. All of the above are correct.
14. The CPI is calculated
a. weekly.
b. monthly.
c. quarterly.
d. yearly.
15. In the calculation of the CPI, coffee is given greater weight than tea if
a. consumers buy more coffee than tea.
b. the price of coffee is higher than the price of tea.
c. it costs more to produce coffee than it costs to produce tea.
d. coffee is more readily available than tea is to the typical consumer.