macro_tif1_ch07

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Unformatted text preview: furniture manufactured in other countries such as China. These firms close their U.S. factories, import the furniture or other goods from China or elsewhere, and domestic production declines and imports rise. However, the import price index gets miscalculated so that it grossly overstates prices of these imported goods. The BLS has no way of connecting the new, imported table with the table that used to be domestically manufactured. (Source: The Real Cost Of Offshoring U.S. data show that moving jobs overseas hasn't hurt the economy. Here's why those stats are wrong, Michael Mandel, Business Week, June 18, 2007. http://www.businessweek.com/magazine/content/07_25/b4039001.htm? chan=top+news_top+news+index_businessweek+exclusives) How would overstating the import price index affect the calculation of real imported consumption goods? How would the miscalculation of real imported consumption goods affect the real consumption expenditure component of GDP and the estimate of real GDP? Answer: Overstating the import price index would cause one to underestimate the real value of imported consumption expenditures for a given nominal value of imported consumer expenditures. This is because the index is essentially the price deflator. The price deflator is too large, and since it is in the denominator of our real import consumption calculation, the estimate of the real value of imported consumer goods is therefore underestimated. To calculate real domestic consumption expenditures, the Bureau of Commerce subtracts real imported Diff: 3 consum ption expendit ures from real total consum ption expendit ures. Real importe d consum ption expendit ures are underest imated, causing real domesti c consum ption expendit ures and real GDP to be overesti mated. Type: SA Page Ref: To pic : 646-8/226-8 R S Analytical Objective: LO3: Discuss the difference between real GDP and nominal AACSB Coding: GDP Analytic Skills Special Feature: None 7.4 Other Measures of Total Production and Total Income 1. Gross national product, GNP, of the United States is the market value of all final goods and services A) produced by residents of the United States anywhere in the world. B) consumed within the United States. C) produced within the United States. D) consumed by residents of the United States anywhere in the world. Answer: A Diff: 1 Type: MC Page Ref: To pic : 649/229 G S Definition Objective: LO4: Become familiar with other measures of total production and AACSB Coding: total income Reflective Thinking Special Feature: None 2. The output of Mexican citizens who work in Texas would be included in the A) gross domestic product of Mexico. B) gross national product of Mexico. C) net national product of the United States. D) gross national product of the United States. Answer: B Diff: 2 Type: MC Page Ref: To pic : 649/229 G S Conceptual Objective: LO4: Become familiar with other measures of total production and AACSB Coding: total income Reflective Thinking Special Feature: None 3....
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