In computing GDP, market prices are used to value final goods and services because
a. market prices reflect the values of goods and services to the buyer.
b. market prices do not change much over time, so it is easy to make comparisons between years.
c. if market prices are out of line with how people value goods, the government sets price ceilings and price floors.
d. None of the above is correct; market prices are not used in computing GDP.
A
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When using the income approach to measure GDP at market prices, in addition to summing all factor incomes it is necessary to ________
A. subtract depreciation because profit is not reported as net profit B. add depreciation because capital depreciates when goods are manu-factured C. add indirect taxes less subsidies to convert aggregate income from factor cost to market prices D. add a statistical discrepancy which is the sum of depreciation and in-direct taxes less subsidies
During the recession of 2007-2009 in the United States, ________ relative to potential GDP
A) business fixed investment spending rose and net export spending declined B) federal government purchases rose and changes in business inventories declined C) consumption spending rose and residential construction spending declined D) net export spending rose and consumption spending declined
An activist policy to promote high employment ________
A) could lead to inflationary pressures from an ensuing temporary negative supply shock B) might incentivize workers to push for higher wages beyond what productivity gains can justify C) could lead to inflationary pressures from an ensuing increase in aggregate demand D) all of the above E) none of the above
The Monetarist transmission mechanism through which monetary policy affects the price level, real GDP, and employment depends on the:
a. indirect impact of changes on the interest rate. b. indirect impact of changes on profit expectations. c. direct impact of changes in fiscal policy on aggregate demand. d. direct impact of changes in the money supply on aggregate demand.