Introduction to principles of macroeconomics/required reading measures

Rationale for GDP: A monetary measure

Coins

In this section we'd like you to read Principles of Macroeconomics: "Chapter 6: Measuring Total Output and Income" and then do the short quiz below to test your understanding.

In each case, the try to answer the following questions: What impact would each of the following have on real GDP? Would economic well-being increase or decrease as a result?

• On average, people in a country decide to increase the number of hours they work by 5%. In this case, real GDP would increase.
  • True
    • Correct. Assuming the people chose to increase their work effort and forgo the extra leisure, economic well-being would increase as well.
  • False
    • Incorrect.
• Spending on homeland security increases in response to a terrorist attack. GDP will increase, and economic well-being would likely rise.
  • True
    • Incorrect.
  • False
    • Correct Real GDP would increase, but the extra expenditure in the economy was due to an increase in something “bad,” so economic well-being would likely be lower..
• The price level and nominal GDP increase by 10%, so everyone in society is better off.
  • True
    • Incorrect.
  • False
    • Correct. Because there was no change in real GDP, for some people, economic well-being might increase and for others it might decrease, since inflation does not affect each person in the same way. .

Did you get the right answers? If not, perhaps you should revisit the readings again.

(: There's a problem with the bullet lists.)