Chapter 23 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. 3. The contribution to GDP is $3, the market value of the bread, which is the final good that is sold. 4. The sale of used records does not affect GDP at all because it involves no current production. 8. It is desirable for a country to have a large GDP because people could enjoy more goods and services. But GDP is not the only important measure of well-being. For example, laws that restrict pollution cause GDP to be lower. If laws against pollution were eliminated, GDP would be higher but the pollution might make us worse off. Or, for example, an earthquake would raise GDP, as expenditures on cleanup, repair, and rebuilding increase. But an earthquake is an undesirable event that lowers our welfare. Problems and Applications 2. With transfer payments, nothing is produced, so there is no contribution to GDP.
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