1. Which of the following are not included in GDP?
a. Leisure time
b. Sales of new cars
c. Strawberries sold in a grocery store
d. Economics textbooks sold in the bookstore
2. Men s reported happiness has increased relative to women’s reported happiness in the last several decades _____ (True/False) (Related to Application 3 on page 114.)
3. The approximate percentage of GDP in the United States that goes unreported because of the underground economy is ___________.
4. Illegal activities are not computed as part of measured GDP because they are not
a. legal.
b. production.
c. reported.
d. big enough to worry about.
5. Does Spending Measure Welfare? Suppose a community spends $1 million on salaries and equipment for its police department. Because it believes that citizens are now more law abiding, the community decides to cut back on the number of police it employs. As a result, the community now spends $800,000 less on the police officers. The crime rate remains the same.
a. What happens to measured GDP?
b. Does GDP accurately reflect welfare in this case? Discuss the underlying issue that this example poses.
6. Disappearing Trees and National Income. Suppose you were worried that national income does not adequately take into account the extraction of trees that provide shade and help stem global warming. How would you advise the Commerce Department to include this factor in its calculations?
7. Air Quality and Measured GDP. Air quality in Los Angeles deteriorated in the 1950s through the 1970s and then improved in the 1980s and 1990s. Can a change in air quality such as this be incorporated into our measures of national income? Discuss.
8. Comparing Welfare across Countries. Suppose Country A and Country B have exactly the same measured real GDP, but in Country A, the average worker spends more time at home, either doing housework or on vacation. Which country has a higher level of welfare and why?
9. Does Money Buy Happiness? Although people with high incomes appear to be happier than those with low incomes, people in the United States in general have become less happy over the last 30 years even though real GDP has risen. What are some of the reasons why the increase in real GDP does not always imply greater happiness?
10. Measuring Happiness across States. Suppose statisticians find from survey data that the residents of California and Louisiana report that they are equally happy. However, incomes in California are higher, on average, than those in Louisiana. Could you make a case that living in Louisiana actually makes you happier than living in California?