1. Which of the following is not a component of GDP?
a. Consumption
b. Investment
c. Producer Price Index
d. Government purchases
e. Net exports
2. What part of government spending is excluded from GDP because it does not correspond to goods and services currently being produced?
a. National defense
b. Transfer payments
c. Education
d. Purchases of police cars
3. If depreciation exceeds gross investment, net investment will be ______.
4. A trade deficit occurs when _________exceeds ________.
5. GDP Statistics and Unemployed Workers. In Economy A, the government puts workers on the payroll who cannot find jobs for long periods, but these employees do no work. In Economy B, the government does not hire any long-term unemployed workers but gives them cash grants. Comparing the GDP statistics between the two otherwise identical economies, what can you determine about measured GDP and the actual level of output in each economy?
6. Health Care Subsidies. If the federal government provides subsidies for individuals to buy health-care insurance, is this included in the federal budget? Is it included in GDP?
7. The Upside and Downside of Trade Deficits. A student once said, Trade deficits are bad because we are buying goods from abroad and not making them here. What is an upside to trade deficits?
8. Depreciation and Consumer Durables. Consumer durables depreciate just like investment goods. Suppose you purchase a refrigerator for $1000 and, at the same time, four new designer dresses worth $1,000. After one year, has the refrigerator or the designer dresses depreciated more? Why?
9. Investment Spending versus Intermediate Goods. A publisher buys paper, ink, and computers to produce textbooks. Which of these purchases is included in investment spending? Which are intermediate goods?