Chapter 5 Questions _Mankiw_

Chapter 5 Questions _Mankiw_ - SOLUTIONS TO TEXT PROBLEMS...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes: The answers to the Quick Quizzes can also be found near the end of the textbook. 1. Gross domestic product measures two things at once: (1) the total income of everyone in the economy and (2) the total expenditure on the economy’s output of final goods and services. It can measure both of these things at once because all expenditure in the economy ends up as someone’s income. 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. Real GDP is the production of goods and services valued at constant prices. Nominal GDP is the production of goods and services valued at current prices. Real GDP is a better measure of economic well-being because changes in real GDP reflect changes in the amount of output being produced. 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 healthcare, better educational systems, and more of the material necessities of life. Questions for Review: 1. An economy's income must equal its expenditure, because 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 of an economy car because the luxury car has a higher market value. 3. The contribution to GDP is $3, the market value of the bread, which is the final good that is sold.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern