ECO 201
Module 2 Quiz

Why don’t we include the value of intermediate goods in calculating GDP?...

Question

ECO 201
Module 2 Quiz

Why don’t we include the value of intermediate goods in calculating GDP? (2)

The price index for year 2 is 103. Nominal GDP is $180,000,000. Find real GDP. Round to the nearest dollar. (2)

State whether the following will increase, decrease, or have no effect on GDP. Explain your answers.: (12)
Humbert decides to shovel the snow as a favor for his elderly neighbor.
The government increases spending without increasing taxes.
Marijuana sales are legalized. Cheech begins selling pot openly and reporting his income.
The EPA shuts down Toxic Corp.
	
Document Preview: ECO 201Module 2 QuizWhy don’t we include the value of intermediate goods in calculating GDP? (2)The price index for year 2 is 103. Nominal GDP is $180,000,000. Find real GDP. Round to the nearest dollar. (2)State whether the following will increase, decrease, or have no effect on GDP. Explain your answers.: (12)Humbert decides to shovel the snow as a favor for his elderly neighbor.The government increases spending without increasing taxes.Marijuana sales are legalized. Cheech begins selling pot openly and reporting his income.The EPA shuts down Toxic Corp. for repeated environmental violations.The government reduces Social Security payments.Mortimer starts bringing his own lunch to work instead of buying it.A researcher finds a significant difference in GDP per capita between advanced country A and developing country B. Knowing that GDP does not count household production, is the gap in income narrower or wider than it initially appears? Explain. (3)Find GDP. (2)Consumption1500Gross Investment800Changes to Inventories-50New Residential Construction115Gov’t Purchases of Goods and Services200Gov’t Transfer Payments100Exports600Imports800GDP Using the above example, find NDP if depreciation is XXXXXXXXXX)Explain whether each of the following would increase the rate of economic growth in the future and why or why not. (10)An increase in consumption (Hint: what effect will this have on saving, ceteris paribus?)Subsidies for scientific researchDecreased education spending.A new technological breakthrough with wide ranging applications is discovered.A government implements a legal system for formalizing property rights.Country X wants to increase its long run rate of economic growth. In order to do this, it wants to change its tax code to encourage savings and investment. Of the following, pick one tax to lower and one tax to raise. Explain your choices. (6)Sales taxTax on investment incomeTax on labor...

David · Accepted Answer

ECON 213 
Page 1 of 6 
ECO 201 
Module 2 Quiz 
 
1. Why don’t we include the value of intermediate goods in calculating GDP? (2) 
 
     What the definition of Gross Domestic Product says is that we will count the 
value of the final goods but not the value of the intermediate goods. The 
reason for this is that we don’t want to count intermediate goods twice. 
Suppose that we counted the value of bread and the value of wheat in our 
measure of Gross Domestic Product. Part of the value of the bread is made up 
of the wheat that it contains. So we’re counting the wheat twice – once as itself 
and once as part of the bread. To avoid this problem of double-counting, we 
simply don’t count the intermediate goods at all 
 
2. The price index for year 2 is 103. Nominal GDP is $180,000,000. Find real GDP. 
Round to the nearest dollar. (2) 
 
Real GDP = Nominal GDP/Price Index 
Real GDP = 180,000,000/103 = 1,747,572.82 
 
3. State whether the following will increase, decrease, or have no effect on GDP. 
Explain your answers.: (12) 
a. Humbert decides to shovel the snow as a favor for his elderly 
neighbor. No effect 
b. The government increases spending without increasing taxes. 
Increase GDP 
c. Marijuana sales are legalized. Cheech begins selling pot openly and 
reporting his income. Increases GDP 
d. The EPA shuts down Toxic Corp. for repeated environmental 
violations. Increases GDP 
e. The government reduces Social Security payments. GDP reduces 
f. Mortimer starts bringing his own lunch to work instead of buying it. 
No effect 
 
4. A researcher finds a significant difference in GDP per capita between advanced 
country A and developing country B. Knowing that GDP does not count 
household production, is the gap in income narrower or wider than it initially 
appears? Explain. (3) 
 
5. Find GDP.

ECO 201 Module 2 Quiz Why don’t we include the value of intermediate goods in calculating GDP? (2) The price index for year 2 is 103. Nominal GDP is $180,000,000. Find real GDP. Round to the nearest...

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