a. State concisely, in your own words, the essence i.of what GDP measures and
ii.what GDP doesnot measure.
b. Stocks and bonds issued by firms comprise the "Investment" component of GDP.
i. True or False? ii.Briefly explainwhy.
c. It is pretty much a given, through time and across countries, that Consumption accounts for about 70% of GDP.
i. True or False? ii. Briefly explain why.
d. A March 2012 article in the WSJ observed, "It was the first increase [in household debt] since the second quarter of 2008, before Lehman Brothers' collapse and the ensuing financial panic and recession. Since then, Americans have focused on reducing their debt. That process strengthens an economy in the long run but crimps short-term growth ...
{Excerpt from Neil Shah, "Consumers Shape Up Their Finances," The Wall Street Journal, March 9, 2012, pA2.}
How does that work ... that households reducing debt strengthens an economy in the long run but "crimps" it in the short term?
e. If you only get to know either the nominal or real GDP growth rate of an economy,
i. which would you choose? ii.Why?
f. Briefly explain whether you i. agree or disagree with the following statements and ii. Why?
- "If nominal GDP is less than real GDP, then the price level must have fallen during the year."
- "Whenever real GDP declines, nominal GDP must also decline."
- "If a recession is so severe that the price level declines, then we know that both real GDP and nominal GDP must decline."
- "Nominal GDP declined between 2008 and 2009, therefore the GDP deflator must also have declined."
g. An artist buys scrap metal from a local steel mill as a raw material for her metal sculptures. Last year, she bought $5,000 worth of the scrap metal. During the year, she produced 10 metal sculptures that she sold for $800 each to a local art store. The local art store sold all of the sculptures to local art collectors, at an average price of $1,000 each.
For the 10 metal sculptures, i. what was the total value added of the artist, and ii. what was the total value added of the local art store (Show work and explain each point)?