Explain why real GDP might be an unreliable indicator of the standard of living
What will be an ideal response?
Real GDP is sometimes used to measure the standard of living but real GDP can be misleading for several reasons. Real GDP does not include household production, productive activities done in and around the house by the homeowner. Because these tasks often are an important component of people's work, this omission creates a major measurement problem. Real GDP omits the underground economy, economic activity that is legal but unreported or that is illegal. In many countries the underground economy is an important part of economic activity, and its omission creates a serious measurement problem. The value of leisure time is not included in real GDP. People value their leisure hours and an increase in people's leisure that enhances people's economic welfare can lower the nation's real GDP. Environmental damage is excluded from real GDP. So an economy wherein real GDP grows but at the expense of its environment, as was the case with Eastern European countries under communism, falsely appears to offer greater economic welfare than a similar economy that grows slightly more slowly but at less environmental cost.
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________ unemployment occurs due to a mismatch between the jobs that are available and the skills of workers seeking jobs
A) Frictional B) Cyclical C) Voluntary D) Structural
To obtain national income, start with GNP and subtract:
A. depreciation. B. depreciation and the statistical discrepancy. C. depreciation, indirect business taxes, and corporate profits. D. depreciation, indirect business taxes, corporate profits, and social insurance contributions.
If a firm shuts down in the short run, it will:
A. incur losses equal to its fixed costs. B. have total revenue greater than total fixed costs. C. reduce its losses to zero. D. do this because P > AVC.
Which of the following is NOT a consequence of the introduction of the Medicare program?
A. an increased ability for the poor to obtain medical services B. an increased quantity of medical services demanded C. an increased ability for the elderly to obtain medical services D. a reduced demand for medical services