Question Details

How does this inventory change appear in the GDP calculation when adding up all expenditures 



1. Which of the following raises measured GDP 
a) you are hired by GM to shuffle paper uselessly for $200 
b) a steel company sells some steel to an automobile manufacturer 
c) you are hired by the government to shuffle paper uselessly for $200 
d) both a) and c) above 
2. "But economists believe that one of the most important sources of bias in the CPI as a measure of the cost of living is when consumers shift their buying patterns in response to changing relative prices, buying ..." This clipping is best completed by 
a) more of everything b) less of everything 
c) more of relatively cheaper things and less of relatively more expensive things 
d) less of relatively cheaper things and more of relatively more expensive things. 
3. "Republicans are already eyeing changes to the inflation measure as a way to meet their goal of halving the budget deficit by 2002. The CPI is used to adjust social security and other benefits, and income-tax brackets, for inflation." The suggested changes will lower the deficit because measured inflation will be 
a) increased which lowers real taxes b) decreased which increases real taxes 
c) increased which increases social security payments 
d) decreased which decreases social security payments 
4. "A series of methodological improvements to the Consumer Price Index that will continue into 1999 is expected to add about half a percentage point to measured productivity growth, raising the economy's sustainable rate of GDP growth from between 2 percent and 2.25 percent to between 2.5 percent and 2.75 percent." This will increase measured productivity growth because 
a) of the inverse relationship between inflation and unemployment 
b) lower inflation reduces uncertainty and increases investment, which promotes growth 
c) if inflation comprises less of nominal GDP increases, real output increases must comprise more 
d) this clipping is incorrect - changing the way something is measured should have no impact on growth 7 

 

5. "High demand in this year's economy caught producers unaware, forcing their inventories to absorb this demand." How does this inventory change appear in the GDP calculation when adding up all expenditures ? 
a) it is added when measuring GDP, as an element of investment demand 
b) it is added when measuring GDP, as an element of consumption demand 
c) it is subtracted when measuring GDP, as an element of investment demand 
d) it is subtracted when measuring GDP, as an element of consumption demand



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