Questions

Define GDP. List two things that GDP measures. How can GDP measure two things at once?

A farmer grows a bushel of wheat and sells it to a miller for $1.00. The miller turns the wheat into flour and then sells the flour to a baker for $3.00. The baker uses the flour to make bread and sells the bread to an engineer for $6.00. The engineer eats the bread. What is the value added by each person? What is GDP?

Suppose a woman marries her butler. After they are married, her husband continues to wait on her as before, and she continues to support him as before (but as a husband rather than as an employee). How does the marriage affect GDP? How should it affect GDP?

Define real GDP, nominal GDP, and the GDP deflator. What is the purpose of the GDP deflator?

Here are the latest GDP figures (in an Excel file), in current and constant (chained) dollars.

Consider how each of the following events is likely to affect real GDP. Do you think the change in real GDP reflects a similar change in economic well-being?
a. A hurricane in Florida forces Disney World to shut down for a month.
b. The discovery of a new, easy-to-grow strain of wheat increases harvests.
c. Increased hostility between unions and management sparks a rash of strikes.
d. Firms throughout the economy experience falling demand, causing them to lay off workers.
e. A tsunami devastates the Pacific Rim, resulting in damaged property and loss of life. (Hint.)
f. Congress passes new environmental laws that prohibit firms from using production methods that emit large quantities of pollution.
g. More high school students drop out of school to take jobs mowing lawns.
h. Fathers around the country reduce their workweek to spend more time with their children.

Define: Gross private domestic investment. Are public sector employee salaries included in GDP measure? If so, where?

Define: GNP. What goods contribute to (say) Italy's GNP but U.S. GDP?

Define: Net National Product, National Income, Personal Income, and Disposable Personal Income.

Define: The CPI and the Inflation Rate. Who is the typical Urban consumer, and why would an Alabama retiree depending on Social Security payments for part of her livelihood care?

Give three reasons why the CPI may be over-stated.

What is a Paasche index? What is a Laspeyres index?