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23 章
SOLUTIONS TO TEXT PROBLEMS:
Quick Quizzes:
1. Gross domestic product measures two things at once: (1) the total income
of everyone in the economy; and (2) the total expenditure onthe economy’s
output of goods and services. It can measure both of these things at once
because income must equal expenditure for the economy as a whole.
2. The production of a pound of caviar contributes more to GDP than the
production of a pound of hamburger because the contribution to GDP is measured
by market value and the price of a pound of caviar is much higher than the
price of a pound of hamburger.
3. The four components of expenditure are: (1) consumption; (2) investment;
(3) government purchases; and (4) net exports. The largest component is
consumption, which accounts for more than two-thirds of total expenditure.
4. Nominal GDP is the production of goods and services valued at current prices.
Real GDP is the production of goods and services valued at constant prices.
Real GDP is a bettermeasure of economic well-being because it reflectsthe
economy’s ability to satisfy people’s needs and desires. Thus a rise in
real GDP means people have produced more goods and services, but a rise in
nominal GDP could occur either because of increased production or because
of higher prices.
5. Although GDP is not a perfect measure of well-being, policymakers should care
about it because a larger GDP means that a nation can afford better health
care, better educational systems, and more of the material necessities of
life.
Questions for Review:
1. An economys income must equal its expenditure, since every transaction has
a buyer and a seller. Thus, expenditure by buyers must equal income by
sellers.
2. The production of a luxury car contributes more to GDP than the production
o
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