Question : 12.2   Does GDP Measure What We Want It to Measure? 1) : 1266892

12.2   Does GDP Measure What We Want It to Measure?

1) The Philippines and Vietnam have roughly the same size population.  Suppose the GDP of the Philippines is $1,000 billion and the GDP of Vietnam is $10,000 billion.  You should conclude

A) a typical person in Vietnam is 10 times as well off as the typical person in the Philippines.

B) a typical person in Vietnam is more than 10 times as well off as the typical person in the Philippines.

C) a typical person in Vietnam is less than 10 times as well off as the typical person in the Philippines.

D) it is not possible to make a good comparison of the economic well-being of a typical individual in the 2 countries without additional information.

2) Gross domestic product understates the total production of final goods and services because of the omission of

A) exports.

B) inflation.

C) intermediate goods.

D) household production.

3) Gross domestic product understates the total production of final goods and services because of the omission of

A) the underground economy.

B) intermediate goods.

C) inflation.

D) exports.

4) The size of the underground economy would tend to decrease if the government of a country

A) decreased government regulations on businesses.

B) made over-the-counter drugs illegal.

C) increased income tax rates.

D) increased business taxes.

5) The size of the underground economy would tend to increase if the government of a country

A) decreased government regulations on businesses.

B) increased income tax rates.

C) legalized prostitution.

D) legalized marijuana.

6) Suppose Bob works for Mary as a proofreader.  Mary and Bob fall deeply in love, marry and have eight children.  Bob stops working for Mary in order to care for the children.  What will be the effect on GDP? 

A) GDP will decrease.

B) GDP will increase.

C) GDP will not change.

D) GDP may increase or may decrease depending on inflation.

7) Which of the following statements about the underground economy is true?

A) The underground economy in developing countries amounts to less than 10% of measured GDP.

B) Most transactions that occur in the underground economy are included in the calculation of GDP.

C) Excluding underground economy production from measured GDP causes errors in GDP growth estimates in the long run.

D) Income that is earned but not reported as income for tax purposes is included in the calculation of GDP.

8) The informal sector can be a significant drag on the economies of developing countries because the firms in the informal sector

A) produce goods and services no one wants.

B) sell their goods and services to citizens in other countries.

C) do not pay taxes to the government.

D) employ illegal immigrants from other countries.

9) Recent estimates put the size of the underground economy in the United States at ________ of measured GDP.

A) 2 percent

B) 8 percent

C) 13 percent

D) over 50 percent

10) Legalizing all forms of illegal activities

A) reduces GDP and the size of the underground economy.

B) reduces GDP and increases the size of the underground economy.

C) increases GDP and reduces the size of the underground economy.

D) increases GDP and increases the size of the underground economy.