Give two reasons why GDP does not reflect total production in an economy
What will be an ideal response?
The measure of GDP leaves out production in two cases. First it does not count household production as part of production. A person engages in household production if he or she produces for himself or herself. Do-it-yourself work is household production. Homemaking and child care done by a parent for their own child is household production. This is clearly productive work, but is excluded from the calculation of GDP. Second, GDP does not include the production of the underground economy. This includes illegal activity, work that is unreported to avoid taxes, and work that is unreported to avoid regulation. Again these are all productive activities, yet are not included in GDP.
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The United States economy ______________ operates on its production possibility curve.
A. Always B. Sometimes C. Never
What are menu costs?
A) the cost to a household of borrowing money when there is deflation B) the opportunity cost of dining in a restaurant instead of at home C) the costs to a firm of changing prices D) the full list of a firm's costs of production
Suppose the Economics Department has a graduation party for its students but as a final test they must show they have learned something about trade. The men are given food when they walk in and the women are given drink. Suppose they have identical preferences where food and drink provide utility U = F?D? . The exchange would be such that
a. both would be guaranteed to be better off than when they entered. b. both would be guaranteed to be at least as well off as when they entered. c. the men would end up with more. d. the women would end up with more.
If you borrow money at a 9% nominal rate and the inflation rate is 2%, what is the real interest rate on the loan?
a. 9.0% b. 11.0% c. 7.0% d. 2.0% e. 4.5%