Download 4 MEASURING GDP AND ECONOMIC GROWTH*

C h a p t e r
4
Key Concepts
 Gross Domestic Product
Gross domestic product, GDP, is the market value of
all the final goods and services produced within in a
country in a given time period.
 A final good or service is an item that is bought by
its final user during a specified time period. In contrast, an intermediate good is an item produced by
one firm, bought by another firm, and used as a
component of a final good or service. Intermediate
goods are not directly included in real GDP because
if they were they would be double counted.
The circular flow of income and expenditure shows real
and monetary flows in the economy. The circular flow
involves:
 Four economic sectors — households, firms, governments, and the rest of the world.
 Two major markets — factor markets and goods
markets.
In these markets people make their economic decisions
by choosing the amounts of key economic variables:
 Consumption expenditure (C ) — total household
spending on consumption goods and services.
 Investment (I ) — firms’ purchase of new plants,
equipment, buildings, and additions to inventories.
 Government expenditure (G ) — government
expenditure on goods and services.
 Net exports (X−M ) — the value of exports (X,
sales of U.S. goods and services abroad) minus the
value of imports (M, purchases of foreign good and
services).
The circular flow diagram shows the important result
that aggregate expenditure, C + I + G + X − M, equals
aggregate production, GDP, and also equals aggregate
MEASURING GDP
AND ECONOMIC
GROWTH*
income, Y. This equality is the basis for measuring
GDP.
 Depreciation is the decrease in the value of a firm‘s
capital stock because of wear and tear and obsolescence. Gross investment is the total amount of investment. Net investment is the amount by which
the capital stock changes. Net investment equals
gross investment minus depreciation.
Gross domestic product includes gross investment and
so on the income side includes firms’ gross profit, profit before subtracting depreciation.
 Measuring U.S. GDP
In 2012, U.S. GDP equaled $15,478 billion. GDP can
be measured using the expenditure approach and/or the
income approach:
 The expenditure approach measures GDP by adding
final expenditures, C + I + G + NX. Of these expenditures, personal consumption expenditure is
the largest, at 71.1 percent. Gross private investment is 13.1 percent, government expenditures on
goods and services is 19.7 percent, and net exports
is negative 4.0 percent.
 The income approach adds the compensation of employees and net operating surplus (which equals the
sum of net interest, rental income, corporate profits,
and proprietors’ income) to give net domestic income
at factor cost. Indirect taxes and depreciation are
added and subsidies are subtracted to obtain GDP.
Real GDP is the value of final goods and services produced in a given year when valued at the prices of a
reference base year. Nominal GDP is the value of the
final goods and services produced in a given year valued
at the prices of that year. In the base year, the prices
used for real GDP are the same as for nominal GDP so
in the base year real GDP equals nominal GDP.

* This chapter is Chapter 21 in Economics.
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CHAPTER 4 (21)
 The Uses and Limitations of Real GDP
Real GDP is used to compare the standard of living
within a country over time and to compare the standard of living across different countries.
Real GDP per person, real GDP divided by the population, is one method of comparing the standard of
living over time. Both the long-term trends and the
short-term fluctuations in the standard of living are
important.
Long-term growth in the standard of living is related to
potential GDP. Potential GDP is the maximum level
of real GDP that can be produced while avoiding
shortages of labor, capital, land, and entrepreneurial
ability that would bring rising inflation.
 Productivity growth, the growth of potential GDP
per person, slowed during the 1970s. The productivity growth slowdown that started in the 1970s
means that GDP per person is $33,400 per year
lower than it would be productivity had not slowed.
The Lucas wedge is the dollar value of the accumulated gap between what real GDP per person would
have been if the 1960s growth rate had persisted
and what real GDP per person turned out to be.
The productivity growth slowdown has created an
accumulated Lucas wedge of $460,000 per person.
Short-term fluctuations in the expansion of real GDP
per person occur as real GDP rises and falls irregularly
around potential GDP. These periodic but irregular
up-and-down movements in total production and other measures of economic activity are called the business
cycle. A business cycle has four parts:
 Trough — the lower turning point, when a recession ends and an expansion begins.
 Expansion — a period of time during which real
GDP increases. During an expansion real GDP returns to potential GDP.
 Peak — the upper turning point, when an expansion ends and a recession begins.
 Recession — commonly defined as a period during
which real GDP decreases for at least two successive
quarters. However the National Bureau of Economic Research defines a recession more broadly as a period of 6 months or more with a significant downturn in total output, income, employment, and trade.
When comparing real GDP per person across countries, two problems occur:
 The real GDP of one country must be converted
into the currency used in the other country.
 The goods and services in both countries must be
valued at the same prices.
Using the yuan/dollar exchange rate to convert Chinese
GDP to U.S. dollars, U.S. real GDP per person is 8.4
times larger than that in China. But Chinese prices of
goods and services differ from U.S. prices. If the same
prices (purchasing power parity or PPP prices) are used
to value U.S. and Chinese production, then U.S. GDP
per person is (only) 5.6 times larger than Chinese real
GDP per person.
Real GDP is an imperfect measure of the standard of
living because real GDP:
 Omits household production — all household production is omitted from real GDP.
 Omits the underground economy — the underground economy (transactions hidden from the
government) is not part of real GDP.
 Omits leisure time — the value of leisure time is
not factored into real GDP.
 Omits environmental quality — the consequences
of adverse and beneficial environmental changes are
omitted from real GDP.
 Mathematical Note: Chained-Dollar Real GDP
The base year prices method values the quantities produced in each year using the prices of the base year.
The Bureau of Economic Analysis calculates a chaineddollar real GDP. This method uses the prices of two
adjacent years to calculate real GDP:
 Calculate the value of GDP for this year and last
year, using prices from last year to value both years’
outputs and then calculate the growth rate of GDP
between the two years.
 Next calculate the value of GDP for this year and
last year, this time using prices from this year to value both years’ outputs. Again calculate the growth
rate of GDP between the two years.
 Average the two growth rates. Last year’s real GDP
is scaled up to this year’s real GDP by multiplying
last year’s real GDP by the average growth rate thereby
chaining real GDP back to its base year.
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MEASURING GDP AND ECONOMIC GROWTH
65
Measuring U.S. GDP
Helpful Hints
1. GDP, AGGREGATE EXPENDITURE, AND AGGREGATE I NCOME : Some of the most important
results in this chapter show the equality between
GDP, aggregate expenditure, and aggregate income. A key point about these equalities is that
GDP, aggregate expenditure, and aggregate income
are linked. For instance, the production of output
(GDP) creates income (aggregate income) as firms
pay their workers and also creates expenditure (aggregate expenditure) as households use their incomes to buy goods and services.
2. THE DIFFERENCE BETWEEN GOVERNMENT EXPENDITURE AND G OVERNMENT T RANSFER
PAYMENTS : Government expenditure on goods
and services (G ) and government transfer payments are fundamentally different. Both involve
outlays by the government, but transfer payments
are not payments for goods and services. Instead,
they are simply a flow of money. Transfer payments are like gifts; they do not buy a good or service for the government in exchange. Transfer
payments are not payment for a good or service, so
they are not part of the G component of aggregate
expenditure, C + I + G + X − M, because aggregate
expenditure measures purchases of goods and services.
Questions
 True/False and Explain
Gross Domestic Product
11. The market value of all the goods and services produced within a country in a given time period are
included in GDP.
12. A memory chip purchased by Dell Computer to be
used in a computer Dell manufactures is a final
good.
13. Transfer payments are included in the government
expenditure component of aggregate expenditure.
14. Wages paid to households for their labor is part of
aggregate income.
15. Aggregate income equals aggregate expenditure.
16. Net investment equals gross investment minus
depreciation.
17. GDP can be measured only one way.
18. The expenditure approach to measuring GDP adds
firms’ expenditures on wages, rent, interest, and profit.
19. Government expenditure on goods and services is
the largest component of aggregate expenditure.
10. Comparing real GDP from one year to the next
shows the change in production.
11. If prices rise, nominal GDP is less than real GDP.
The Uses and Limitations of Real GDP
12. Potential GDP is defined to be real GDP when the
economy is in an expansion.
13. A productivity growth slowdown started in the
1970s.
14. The trough is the lower turning point of the business cycle.
15. Real GDP includes household production but
omits the underground economy.
16. An increase in leisure time increases real GDP.
 Multiple Choice
Gross Domestic Product
11. Which of the following is NOT part of the definition of GDP?
a. GDP includes production within a country
b. GDP uses the market value
c. GDP is measured over a given time period
d. GDP includes intermediate goods
12. An example of an intermediate good is a
a. new computer sold to an NYU student.
b. new car sold to Avis for use in their fleet of rental
cars.
c. purse sold to a foreign visitor.
d. hot dog sold to a spectator at a Chicago Bears
football game.
13. Which of the following is not part of aggregate expenditure?
a. consumption expenditure
b. investment
c. net exports
d. wages and rent
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CHAPTER 4 (21)
66
14. The only component of aggregate expenditure that
can be negative is
a. consumption expenditure.
b. investment.
c. net exports.
d. None of the above can be negative.
15. GDP equals
a. aggregate expenditure.
b. aggregate income.
c. the value of the aggregate production in a country during a given time period.
d. all of the above.
16. If gross investment is $2.0 trillion and net investment is $1.5 trillion, then depreciation is
a. $3.5 trillion.
b. $2.0 trillion.
c. $1.5 trillion.
d. $0.5 trillion.
Measuring U.S. GDP
17. Gross private domestic investment is a component
of which approach to measuring GDP?
a. Incomes approach
b. Expenditure approach
c. Linking approach
d. Output approach
Use Table 4.1 for the next four questions. Assume there
are no indirect taxes, subsidies, or depreciation.
19. How much is GDP?
a. $440 billion
b. $330 billion
c. $300 billion
d. $270 billion
10. How much is aggregate income?
a. $440 billion
b. $330 billion
c. $300 billion
d. $270 billion
11. How much is net exports?
a. $20 billion
b. $10 billion
c. $0
d. $10 billion
12. Which of the following is NOT a component of the
incomes approach to GDP?
a. Net exports
b. Compensation of employees
c. Corporate profits
d. Proprietors’ income
Table 4.2 presents expenditure categories for a small
economy. Net exports is equal to zero. Use Table 4.2 for
the next four questions.
TABLE 4.2
Multiple Choice Questions 13–16
TABLE 4.1
Multiple Choice Questions 9–12
Consumption expenditure
$200 billion
Government expenditure
60 billion
Net taxes
50 billion
Investment
50 billion
Corporate profits
30 billion
Imports
20 billion
Exports
10 billion
18. How much is aggregate expenditure?
a. $440 billion
b. $330 billion
c. $300 billion
d. $270 billion
Quantity
(millions)
Price
(dollars)
Year
Good
100
2
2012
Investment
10
4
Government
10
4
Consumption
Consumption
2013
120
4
Investment
10
4
Government
20
6
13. What is nominal GDP in 2012?
a. $500 million
b. $280 million
c. $360 million
d. $640 million
© 2014 Pearson Education, Inc.
MEASURING GDP AND ECONOMIC GROWTH
14. Using 2012 as the base year, what is real GDP in
2012?
a. $500 million
b. $280 million
c. $360 million
d. $640 million
15. What is nominal GDP in 2013?
a. $500 million
b. $280 million
c. $360 million
d. $640 million
16. Using 2012 as the base year, what is real GDP in
2013?
a. $500 million
b. $280 million
c. $360 million
d. $640 million
The Uses and Limitations of Real GDP
18. Which is the proper order for the business cycle?
a. Peak, recession, trough, expansion
b. Peak, trough, expansion, recession
c. Peak, expansion, trough, recession
d. Peak, recession, expansion, trough
18. Real GDP rose in all four quarters of 2011; thus
2011 was definitely a year
a. of expansion.
b. with a business cycle peak.
c. of recession.
d. with a business cycle trough.
19. Which of the following statements about productivity growth in the United States is correct?
a. Productivity growth during the last 50 years was
highest during the beginning decade of the 21st
century.
b. Productivity growth slowed during the 1960s.
c. The Lucas wedge measures the loss in real GDP
per person resulting from the slowdown in
productivity growth.
d. A common definition of recession is a period of
time during which productivity growth is slow
for at least two successive quarters.
67
20. Pollution is a by-product of some production processes, so real GDP as measured
a. is adjusted downward to take into account the
pollution.
b. is adjusted upward to take into account the expenditures that will be made in the future to
clean up the pollution.
c. tends to overstate economic welfare.
d. tends to understate economic welfare.
21. Which of the following is a reason that real GDP is
a poor measure of a nation’s economic welfare?
a. Real GDP changes when the prices of goods and
services change.
b. Real GDP takes into account the value of people’s leisure time.
c. Real GDP does not include the underground
economy.
d. Real GDP overvalues household production.
22. Which of the following statements about the comparison between GDP in China and in the U.S. is
correct?
a. Using the exchange rate to value China’s GDP in
dollars shows that China’s GDP per person exceeds the GDP per person in the United States.
b. Using purchasing power parity prices to value
China’s GDP in dollars shows that China’s GDP
per person exceeds the GDP per person in the
United States.
c. China’s GDP per person is higher using purchasing power parity prices rather than the exchange
rate when valuing China’s GDP in dollars.
d. None of the above answers are correct because
they are all false statements.
 Short Answer Problems
11. Robert buys 500 shares of stock in Microsoft and
pays a total of $10,000. Is his expenditure of
$10,000 part of GDP? Explain your answer.
12. How can we measure gross domestic product,
GDP, with either the expenditure or the incomes
approach, when neither of these approaches actually measures production?
13. Betty receives a Social Security check for $1,800
from the government. Is her check part of the government purchases component of GDP? Explain
your answer.
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CHAPTER 4 (21)
68
TABLE 4.3
Data From Mallville
Consumption expenditure
$400 billion
Government expenditure
120 billion
Net taxes
100 billion
Investment
80 billion
Corporate profits
50 billion
Imports
50 billion
Exports
60 billion
44. Table 4.3 shows data for the nation of Mallville.
Depreciation in Mallville is zero. Using these data,
what is the value of Mallville’s
a. GDP?
b. aggregate expenditure?
c. net exports?
d. aggregate income?
45. What is a business cycle and what are its four parts?
46. List and explain 6 factors that limit real GDP as a
measure of standard of living.
17. (Math Note) Igor has been hired to use the chainweighted output index method for calculating real
GDP for Transylvania’s real GDP in 2013. Igor
likes chains, so he thought he would be good at his
new job, but he needs help. Real GDP in 2012 was
$500. Igor calculates that GDP using 2012 prices
is $1,000 in 2012 and $1,100 in 2013. He also
calculates that GDP using 2013 prices is $1,200 in
2012 and $1,440 in 2013. Help Igor avoid chains
himself by calculating real GDP in 2013.
 You’re the Teacher
1. “Even though I studied this chapter a lot, just like
our teacher told us to, I don’t understand why I
had to study it so much. What’s the big deal? Do
you know why?” Your friend probably didn’t study
this chapter quite enough. Because you did, you
can help your friend by explaining why this chapter
is worthy of study.
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MEASURING GDP AND ECONOMIC GROWTH
69
14. T After the trough, the economy enters the expansion phase of the business cycle.
15. F GDP omits both household production and the
underground economy.
16. F GDP also omits the value of leisure time.
Answers
 True/False Answers
Gross Domestic Product
11. F The market value of only final goods and services is included in GDP; the market value of
intermediate goods is not included.
12. F The memory chip is an intermediate good because it used to produce another good, the computer.
13. F Aggregate expenditure includes the government’s purchase of goods and services but does
not include transfer payments because they are
not part of the government’s purchase of goods
and services.
14. T Compensation of employees (wages) is the single
largest component of aggregate income.
15. T Aggregate income equals aggregate expenditure
and both equal GDP.
16. T Net investment is the “new” investment, the
amount of the increase in the capital stock.
 Multiple Choice Answers
Gross Domestic Product
11. d GDP includes only final goods and services.
12. b The new car sold to Avis is an intermediate
good.
13. d Wages and rent are part of aggregate income not
aggregate expenditure.
14. d Net exports, which equals the value of exports
minus the value of imports, has been negative
for the United States for more than 30 years.
15. d The equality of these three measures of GDP is a
key result developed in this chapter.
16. d Gross investment minus depreciation equals net
investment.
Measuring U.S. GDP
Measuring U.S. GDP
17. F Because GDP equals aggregate expenditure and
also equals aggregate income, GDP can be
measured using the expenditure approach or the
income approach.
18. F The expenditure approach to measuring GDP
adds consumption expenditure, investment,
government expenditure, and net exports.
19. F Consumption expenditure is the largest—it is
over 70 percent of aggregate expenditure.
10. T Real GDP measures production by removing
price changes from nominal GDP.
11. F When prices rise, nominal GDP is larger than
real GDP and must be deflated to equal real
GDP.
The Uses and Limitations of Real GDP
12. F Potential GDP is the GDP that would be produced while avoiding shortages of labor, capital,
land, and entrepreneurial ability that would
bring rising inflation.
13. T The productivity growth slowdown refers to the
slowing in the growth rate of real GDP per person that started in the 1970s.
17. a The expenditures approach adds the expenditures made on all final goods and services.
18. c Aggregate expenditure equals the sum of consumption expenditure ($200 billion) plus investment ($50 billion) plus government expenditure ($60 billion) plus net exports (–$10
billion, exports minus imports).
19. c GDP equals aggregate expenditure.
10. c Aggregate income equals GDP.
11. d Net exports equals exports ($10 billion) minus
imports ($20 billion).
12. a Net exports is a component of the expenditure
approach to measuring GDP.
13. b Because net exports are zero, nominal GDP for
2012 equals the sum of consumption expenditure for 2012 valued using year 2012 prices
($200 million) plus investment for 2012 valued
using year 2012 prices ($40 million) plus government expenditure 2012 valued using year
2012 prices ($40 million), which is $280 million.
14. b The year 2012 is the reference base year so real
GDP equals nominal GDP for that year.
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CHAPTER 4 (21)
15. d Nominal GDP for 2013 equals the sum of consumption expenditure for 2013 valued using
year 2013 prices ($480 million) plus investment
for 2013 valued using year 2013 prices ($40
million) plus government expenditure valued using year 2013 prices ($120 million), which is
$640 million.
16. c Real GDP for 2013 equals the sum of consumption expenditure for 2013 valued using year
2012 prices ($240 million) plus investment for
2013 valued using year 2012 prices ($40 million) plus government expenditure 2013 valued
using year 2012 prices ($80 million), which is
$640 million.
The Uses and Limitations of Real GDP
17. a Keep in mind that the business cycle is not a
“smooth” cycle; some expansions last longer
than others, some troughs are deeper than others, and so on.
18. a By definition, an expansion is a period of time
during which real GDP increases.
19. c The slowdown in productivity growth has created an accumulated Lucas wedge of $460,00 per
person.
20. c Because pollution is not subtracted from real
GDP, real GDP overstates economic welfare.
21. c Real GDP omits household production.
22. c When the exchange rate is used to value China’s
GDP, GDP per person in the United States is
8.4 times larger than China’s GDP per person.
If purchasing power parity prices are used to
value China’s GDP, U.S. GDP per person is 5.6
times larger than China’s GDP per person.
 Answers to Short Answer Problems
1. No, Robert’s purchase of Microsoft stock is not part
of GDP. GDP includes the purchase of final goods
and services. Included in GDP would be, say, Microsoft’s purchase of a new telephone system because this is the purchase of a piece of capital.
When Robert purchased Microsoft stock, no good
or service changed hands. So this purchase is excluded from GDP because the expenditures in GDP
represent the purchase of goods or services.
2. The analysis of the circular flow showed that firms
produce goods and services (what we want to meas-
ure, GDP); sell them (what the expenditure approach measures); and then use the proceeds to pay
incomes, such as rents, profits, and the like (what
the incomes approach measures). Therefore aggregate expenditure = aggregate income = production =
GDP.
3. No, Betty’s $1,800 Social Security check is not part
of the government expenditure (G ) component of
GDP. That measures the government’s expenditures on goods and services. The government is not
buying a good or service when it gives Betty her Social Security check. Instead, the check is a transfer
payment, that is, a transfer of income from the people who paid Social Security taxes to Betty. Transfer
payments are not part of the government expenditure component of GDP.
4. a. GDP in Mallville equals the sum of consumption expenditure (C, $400 billion) plus investment (I, $80 billion) plus government expenditure (G, $120 billion) plus net exports (X − M ),
which equals exports (X, $60 billion) minus imports (M, $50 billion). So GDP in Mallville is
$610 billion.
b. Aggregate expenditure equals GDP, so aggregate
expenditure is $610 billion.
c. Net exports, X − M, is equal to exports ($60
billion) minus imports ($50 billion), or $10 billion.
d. Aggregate income, Y, equals GDP, or $610
billion.
5. A business cycle is the irregular fluctuations of real
GDP around potential GDP. One part of the business cycle is the expansion, when real GDP increases
so that it eventually equals and then exceeds potential GDP. The expansion ends at the peak after
which the economy enters a recession. A common
definition of a recession is when real GDP decreases
for two or more consecutive quarters. The recession
ends at the trough after which the economy starts
another expansion.
6. Six factors limit use of real GDP as a measure of the
standard of living:
 Household production — Real GDP does not
include household production. This omission is
a major drawback in many developing nations
because in those nations a lot of production
takes place in the home rather than in the market.
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MEASURING GDP AND ECONOMIC GROWTH
 Underground economic activity— Real GDP
omits production in the underground economy,
activity that is hidden from the government. In
some nations the underground economy is an
important fraction of total economic activity.
 Health and life expectancy — Health and life
expectancy are important factors in people’s
standard of living but real GDP does not include any direct measurement of them.
 Leisure time — Real GDP does not include the
value of people’s leisure time.
 Environmental quality — Real GDP does not
subtract the effect of pollution. Indeed, if production increases and increases pollution, real
GDP increases with no offset for the degradation done to the environment.
 Political freedom and social justice — Although
political freedom and social justice can have important impacts on people’s standard of living,
neither is included in real GDP.
7. Using 2012 prices, Transylvania’s GDP grew from
$1,000 in 2012 to $1,100 in 2013, so the percent$1,100  $1,000
 100.
age increase is 10 percent,
$1,000
Using 2013 prices, GDP increased from $1,200 in
2012 to $1,440 in 2013, for a 20 percent increase.
The average percent increase is 15 percent. As a result, real GDP is calculated as growing 15 percent
between 2012 and 2013, so real GDP in 2013 is
(15 percent  $500) = $575.
71
 You’re the Teacher
1. “Yes, I have an idea why this chapter is important.
Basically, it is a lot of the foundation for the next 10
or so chapters!”
“That statement sure got your attention! Now, listen: We’re trying to learn what factors affect the aggregate economy in order to discover what makes
our economy grow more or less rapidly and what
causes business cycles and other stuff. Look, these
are important issues! I don’t know about you, but I
sure hope the economy’s not in a recession when we
graduate and have to look for jobs. At least I sure
hope there’s no recession going on when I have to
look for a job! And once we get jobs, I sure hope
that the economy grows rapidly so that our incomes
grow rapidly along with it.”
“Anyway, we have to know what GDP is in order to
understand growth and business cycles. After all,
how would we measure these things if we didn’t
know what the GDP is? So, we’re going to be
studying what makes GDP grow faster and what
makes it fluctuate. And, when we do, a lot of the
stuff we learned in this chapter will be important,
like the idea that aggregate expenditure equals aggregate income and both equal GDP. So, I’m glad
you studied this stuff, because if you’d blown it off,
I’d be alone, without any friends, in the last half of
the class.”
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CHAPTER 4 (21)
Chapter Quiz
11. Which of the following statements is correct?
a. Real GDP is the same as potential GDP.
b. Real GDP can be larger or smaller than potential
GDP.
c. In the United States, real GDP generally grows
at rate of 10 percent per year.
d. Since 1960, real GDP has decreased about as
many years as it has increased.
12. The correct order of the business cycle is
a. peak, trough, expansion, recession.
b. peak, recession, expansion, trough.
c. recession, trough, expansion, peak.
d. recession, peak, expansion, trough
13. In the national income accounts, government expenditures on goods and services exclude
a. transfer payments.
b. state and local government spending.
c. spending on national defense.
d. local government spending, though it does include state government spending.
14. Following a recession is the
a. trough and then the expansion.
b. peak and then the trough.
c. expansion and then the trough.
d. expansion and then the peak.
15. Real GDP
a. measures only real things, such as goods but not
services.
b. is the value of final goods and services using current prices.
c. measures the change in production.
d. is always larger than nominal GDP.
16. Which component of GDP has been negative in
recent years?
a. Consumption expenditure
b. Investment
c. Government expenditure on goods and services
d. Net exports
17. Gross investment equals
a. depreciation minus net investment.
b. net investment plus depreciation.
c. net investment minus depreciation.
d. saving.
18. As a measure of economic welfare, real GDP takes
account of
a. household production.
b. the value of leisure time.
c. the underground economy.
d. None of the above answers is correct because real
GDP does not take account of any of them.
19. Which of the following is correct?
a. Aggregate production, GDP, equals aggregate
expenditure.
b. Aggregate production, GDP, equals aggregate
income.
c. Investment can be financed by national saving or
borrowing from the rest of the world.
d. All of the above answers are correct.
10. GDP equals
a
b.
c.
d.
C + I + G – X − M.
I + G + X − M.
C + I + G + X − M.
C + I – G + X − M.
The answers for this Chapter Quiz are on page 253
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