PS1 - Key - Problem Set #1 - Answer Key MC 1 pt each (5...

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Page 1 Problem Set #1 - Answer Key MC – 1 pt each (5 pts) 1. A 2. D 3. D 4. D 5. B 6. (10 pts; 3,3,3) a. Y = 100 + 3(200) + 9(500) = 5,200 b. Y c. K, L 7. (10 pts) This would of course not represent a violation. The reason is that the firm "purchases" that extra $1 of final good, which becomes inventory. Inventory investment is part of the investment (I) component of GDP. (Recall Investment can be thought of as goods purchased for future use) 8. (10 pts) As Senator Robert Kennedy pointed out, GDP is an imperfect measure of economic performance or well-being. In addition to the left-out items that Kennedy cited, GDP also ignores many services and products produced as part of household activity, such as cooking and cleaning; and the value of goods produced and sold in illegal activities, such as the drug trade. These imperfections in the measurement of GDP do not necessarily reduce its usefulness. As long as these measurement problems stay constant over time, then GDP is useful in comparing economic activity from year to year. Moreover, a large GDP allows us to afford better medical care for our children, newer
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PS1 - Key - Problem Set #1 - Answer Key MC 1 pt each (5...

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