### Step 2 – Measuring Output & Income Homework – Macro Mini – Spring 2019

The key terms in this Step 2 – Measuring Output & Income Homework – Macro Mini – 2019 Spring include

#### Item 1

Which of the following statements correctly explains exports versus net exports?

multiple choice

• Exports are goods, services, or resources produced abroad and sold domestically, while net exports are equal to imports minus exports.
• Exports are goods, services, or resources produced abroad and sold domestically, while net exports are equal to exports minus imports.
• Exports are goods, services, or resources produced domestically and sold abroad, while net exports are equal to imports minus exports.
• Exports are goods, services, or resources produced domestically and sold abroad, while net exports are equal to exports minus imports. Correct
##### Explanation

When we produce goods, services, or resources domestically that we sell abroad, they are called exports. Imports are goods, services, or resources produced abroad and sold domestically. When counting expenditures for GDP, it is very important to include the value of goods sold in another country, but we also need to subtract out the value of goods produced in another country. Therefore, the amount of net exports is equal to exports minus imports.

Step 2 – Measuring Output & Income Homework

#### Item 2

The table below shows the expenditure components for the United States in 2016.

Expenditures in the United States

Using the values in the table, calculate the following aggregate expenditures and nominal GDP.

Instructions: Round your answers to one decimal place. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

a. Calculate consumption expenditures in 2016.

\$ 12,820.7 billion  correct.

b. Calculate the amount of net exports in 2016.

\$ -521.2 billion  correct.

c. Calculate nominal GDP in 2016.

\$ 18,624.5 billion  correct.

#### Explanation

a. To find the amount of consumption expenditures, we add the amount of durable goods, nondurable goods, and services together.

Consumption Expenditures = Durable Goods + Nondurable Goods + Services

We can find each of those values in the table, so in 2016, consumption expenditures = \$1,411.0 + \$2,710.4 + \$8,699.3 = \$12,820.7 billion.

b. Net exports are equal to exports minus imports.

Net Exports = Exports – Imports

We can find the value of exports and imports for 2016 in the table, so net exports = \$2,214.6 – \$2,735.8 = \$–521.2 billion.

c. Nominal GDP is equal to consumption expenditures, gross investment, government purchases, and net exports added together. We already found consumption of \$12,820.7 billion and net exports of \$–521.2 billion, so if we add those along with the components of government purchases (\$1,231.5 billion and \$2,036.3 billion) and gross investment of \$3,057.2 billion, we find nominal GDP. Therefore, nominal GDP = \$12,820.7 + 3,057.2 + \$1,231.5 + \$2,036.3 – \$521.2 = \$18,624.5 billion.

Step 2 – Measuring Output & Income Homework

#### Item 3

The table below shows the expenditure components for the United States in 2015.

Expenditures in the United States

Using the values in the table, calculate the following aggregate expenditures and nominal GDP.

Instructions: Round your answers to one decimal place.

a. What is the value of consumption expenditures in 2015?

\$ 12,332.2 billion  correct.

b. What is the value of government expenditures in 2015?

\$ 3,218.9 billion  correct.

c. What is the value of gross investment in 2015?

\$ 3,093.5 billion  correct.

d. What is the value of nominal GDP in 2015?

\$ 18,120.5 billion  correct.

##### Explanation

a. To find the amount of consumption expenditures, we add the amount of durable goods, nondurable goods, and services together.

Consumption Expenditures = Durable Goods + Nondurable Goods + Services

We can find each of those values in the table, so in 2015, consumption expenditures = \$1,367.1 + \$2,666.0 + \$8,299.1 = \$12,332.2 billion.

b. To find the amount of government expenditures, we add the amount of federal government and state and local government expenditures together.

Government Expenditures = Federal Expenditures + State and Local Expenditures

We can find those values from their respective rows in the table, so government expenditures = \$1,224.0 + \$1,994.9 = \$3,218.9 billion.

c. To find the amount of gross investment, we add the amount of nonresidential fixed investment, residential fixed investment, and change in private inventories together.

Gross Investment = Nonresidential Fixed Investment + Residential Fixed Investment + Change in Private Inventories

Again, we can find those values from their respective rows in the table, so gross investment = \$2,336.2 + \$645.4 + \$111.9 = \$3,093.5 billion.

d. Nominal GDP is equal to consumption expenditures, gross investment, government purchases, and net exports added together. We already found consumption of \$12,332.2 billion, gross investment of \$3,093.5 billion, and government purchases of \$3,218.9 billion. To find net exports, it is exports minus imports, and using the table net exports = \$2,264.9 – \$2,789.0 = \$–524.1 billion.

Nominal GDP = Consumption + Gross Investment + Government Purchases + Net Exports = \$12,332.2 + \$3,093.5 + \$3,218.9 – \$524.1 = \$18,120.5 billion

Step 2 – Measuring Output & Income Homework

#### Item 4

Henry and his girlfriend ate dinner at the new Thai restaurant that recently opened in his neighborhood. This expenditure would be included in:

multiple choice

• government purchases.
• consumer nondurables.
• services. Correct
• consumer durables.
##### Explanation

Consumption expenditures are purchases of new goods and services by households. Consumption expenditures are broken into three categories: durable goods, nondurable goods, and services. Services are the direct output of another person and are often intangible. Restaurant meals fall under the category of service.

#### Item 5

The major difference between nominal GDP and real GDP is:

multiple choice

• nominal GDP measures the value of output in current-year prices, while real GDP measures output using constant prices. Correct
• nominal GDP measures the value of output with constant output levels, while real GDP measures output using current-year output levels.
• nominal GDP measures the value of output with current-year output levels, while real GDP measures output using constant output levels.
• nominal GDP measures the value of output in constant prices, while real GDP measures output using current-year prices.
##### Explanation

Nominal GDP is the value of goods and services (output) produced in an economy measured at current prices. Real GDP is the value of goods and services (output) produced in an economy measured using constant prices.

#### Item 6

The following table shows national income by the type of income for the hypothetical economy of Highlands.

Income Data for Highlands

Instructions: Enter your answers as a whole number.

a. What is the value of national income for Highlands?

\$ 1,650 billion  correct.

b. Using the income approach, what is the value of nominal GDP for Highlands?

\$ 1,950 billion  correct.

##### Explanation

a. National income adds up all of the rent, wages, interest, and profits and losses earned from our resources.

National Income = Rent + Wages + Interest + Profits and Losses

Using the values in the table, we can see that National Income = \$300 + \$800 + \$150 + \$400 = \$1,650 billion.

b. From the income approach,

GDP = National Income + Indirect Business Taxes + Depreciation + Net Foreign Factor Income

Having already found national income and using the values from the table, we can find nominal GDP = \$1,650 + \$70 + \$180 + \$50 = \$1,950 billion.

Step 2 – Measuring Output & Income Homework

# Item 7

Which of the following scenarios would be included in GDP?

multiple choice

• Pam buys a new 40-inch television at Walmart. Correct
• Darius unclogs the drain in his sink using the plunger he owns.
• Sandra is a waitress at Morton’s Steakhouse. She receives a cash tip of \$50 that she pockets and does not report.
• Miguel won \$100 in his office fantasy football league.
##### Explanation

GDP only includes the purchases of newly produced final goods and services. However, sometimes even newly produced goods and services are not included in GDP. This typically occurs from two major areas: services provided by yourself (home production) or the underground economy (illegal or unreported transactions). When Pam buys a new TV from Walmart, it is a purchase of a new good and is recorded, so it would be included and counted in GDP.

When Darius fixes his own drain, it is home production and not included in GDP. The waitress that does not report the tip provided a new service, but since it is not reported it would not be included in GDP. Likewise, entertainment and/or gambling services would not be included if they are not legal or reported.

Step 2 – Measuring Output & Income Homework

#### Item 8

The equation for net investment is written as:

multiple choice

• Net Investment = Consumption – Gross Investment
• Net Investment = Nominal GDP – Gross Investment
• Net Investment = Depreciation – Gross Investment
• Net Investment = Gross Investment – Depreciation Correct
##### Explanation

While gross investment tells us how much was spent on investment in a fixed amount of time, net investment tells us the additional amount of investment that was added to the economy. Because some of the capital in the economy wears out, is used up, or becomes obsolete, some investment simply acts as a replacement and does not add any additional amount to the economy. Therefore, to find net investment, we subtract out depreciation (worn out or used up capital) from the amount of gross investment. Thus, Net Investment = Gross Investment – Depreciation.

#### Item 9

Which of the following expenditures is an example of a consumer durable good?

multiple choice

• Latisha gets a manicure from the nail salon in the mall.
• Arti buys a new refrigerator from Sears. Correct
• Marcus buys some new soccer cleats at the sporting goods store.
• Colin buys a large coffee and a donut from Dunkin’ Donuts.
##### Explanation

Consumption expenditures are purchases of new goods and services by households. Consumption expenditures are broken into three categories: durable goods, nondurable goods, and services. Durable goods are goods that have an average useful life of three years or more. In this example, only the refrigerator would be expected to last at least three years, so it is considered a durable good. The manicure is a service, while the coffee, donut, and soccer cleats are nondurable goods.

#### Item 10

The table below shows nominal GDP, exports, and imports for the United States.

Nominal GDP, Exports, and Import

Instructions: Round your answers to one decimal place. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

a. Calculate the value of net exports in 2015.

\$ -524.1 billion correct.

b. Calculate the value of net exports in 2016.

\$ -521.2  billion  correct.

##### Explanation

a. Net exports are exports minus imports in a given period. For 2015, exports were \$2,264.9 billion and imports were \$2,789.0 billion. Therefore, net exports = \$2,264.9 billion – \$2,789.0 billion = \$−524.1 billion. Negative net exports means that the economy imported more goods, services, and resources than it exported.

b. Net exports are exports minus imports in a given period. For 2016, exports were \$2,214.6 billion and imports were \$2,735.8 billion. Therefore, net exports = \$2,214.6 billion – \$2,735.8 billion = \$−521.2 billion. Negative net exports means that the economy imported more goods, services, and resources than it exported.