If the U.S. Bureau of Economic Analysis (BEA) added up to the value of every good and service sold during the year, would the total be larger or smaller than measured gross domestic product (GDP?)
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In the circular flow of expenditure and income, why must the value of production in an economy equal the total value of income?
What is the difference between the value of a firm”s final product and the value added by the firm to the final product?
The value of a firm”s final product is the sale price; value added is the difference between the sale price and the price of intermediate goods.
Suppose a house is built and sold in the year 2000. If the house is resold in the year 2013, is the value of the house included in Gross Domestic Product for 2013?
Would the service of a real estate agent who helped sell (or helped buy) the house be included in GDP for 2013?
Yes. GDP for 2013 includes the market value of final goods and services. This includes real estate services.
Transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service
GDP is an imperfect measure of economic well being because it fails to measure what types of production?
Even if GDP included these types of production, why would it still be an imperfect measure of economic well-being?
1. Value or leisure not measured2. GDP is not adjusted for pollution and it does not account for unequal income distribution 3. GDP is not adjusted for crime or other social problems
Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next?
When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities
1. Real GDP separates price changes from quantity changes2. Real GDP uses the prices of goods and services in the base year to calculate 3. By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced
If you were attempting to forecast the level of consumer spending by households, which measure of total production or total income might be most helpful in making your forecast?