1. Do government statisticians calculate GDP by simply adding up the total sales of all business firms in one year? Explain.

2. Evaluate whether all of the following are considered to be investment (I) in calculating GDP.

The Smith family buys a new house.

The Chinese government builds a new dam in the Valley of the Three Gorges.

Sally Homer buys $10,000 in bonds.

3. Explain whether transfer payments, such as Social Security or unemployment compensation, are counted as government spending in calculation GDP.

4.In the following cases, what happens, if anything, to the nation's unemployment rate?

1. Individuals have their weekly hours cut from 40 to 30 hours.
2. Massive layoffs occur due to a decline in economic activity.
3. A sharp reduction in college and university applications occurs because high school students decide to work rather than get advanced degrees. It takes six months for them to find employment.
4. Due to a sluggish economy, many of the high school graduates in Question 4c get jobs that are substantially below their abilities.
5. There is a significant increase in the number of homemakers looking for work to pay fortheir children's university educations.
6. Due to a rapidly growing economy, executives with well-paying jobs send their rsums and letters of application to potential employers offering more interesting positions.

5. Indicate whether the following variables are procyclical, countercyclical, or acyclical.

• Imports
• Exports
• Layoffs
• Transfer payments)

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6. Using AS and AD analysis, explain what effects, if any, the following changes have oneach nation's GDP Price Index and real GDP. Explain your answer and draw the appropriate supply and demand graphs (use the PPT-based graphing tool posted near the top of our course page).

a. United States: A cold snap hits the southern part of the United States and destroys 25% of the crops.b. China: The People's Bank of China, which is China's central bank, tightens monetary policy.

c. Greece: The Greek government's budget deficit is reduced drastically in order to meet thebailout conditions of the European Monetary Union and International Monetary Fund.

d. Japan: Japan's saving rate falls due to the nation's aging population.

e. United States: Turmoil between Iraq and Iran causes a sharp increase in the price of oil.