Chapter 'Economic Decision Makers'

P17. Complete each of the following sentences:

1. When the private operation of a market leads to overproduction or underproduction of some goods, this is known as a(n)___________.
2. Goods that are nonrival and nonexcludable are known as___________.
3. ______________ are cash or in-kind benefits given to individuals as outright grants from the government.
4. A(n)______________ confers an external benefit on third parties that are not directly involved in a market transaction.
5. ________________________ refers to the government's pursuit of full employment and price stability through variations in taxes and government spending.

Chapter 'Tracking the U.S. Economy'

Q2. Define gross domestic product. Determine whether each of the following would be included in the 2007 U.S. gross domestic product:

1. Profits earned by Ford Motor Company in 2007 on automobile production in Ireland.
2. Automobile parts manufactured in the United States in 2007 but not used until 2008.
3. Social Security benefits paid by the U.S. government in 2007.
4. Ground beef purchased and used by McDonald's in 2007.
5. Ground beef purchased and consumed by a private U.S. household in 2007.
6. Goods and services purchased in the United States in 2007 by a Canadian tourist.

Q7. Which of the following is a necessary condition - something that must occurfor nominal GDP to rise? Explain your answers.

1. Actual production must increase.
2. The price level must increase
3. Real GDP must increase
4. Both the price level and actual production must increase.
5. Either the price level or real GDP must increase.

Q9 What is gross about gross domestic product? Could an economy enjoy a constant - or growing - GDP while not replacing worn out capital?

P15. Given the following information about a hypothetical country, answer questions a through d.

a. What is the value of GDP?

b. What is the value of net domestic product?

c. What is the value of net investment?

d. What is the value of net exports?

Homework Sheet

Problem 1 Using the definition of GDP determine whether the following economic activities would

be included (I) in GDP or excluded (E).

a. ____ the sale of a stock

b. ____ the sale of a home owned by Mr. Jones

c. ____ the government builds a new office building

d. ____ the purchase of a crane by a construction company

e. ____ a factory that was built to replace one destroyed in a fire.