Answer the following questions:
a. In 2004, four major hurricanes hit Florida. Explain how this destruction of property, and the rebuilding that went on afterward, affected GDP.
b. Explain how GDP has trouble accounting for other parts of the economy as well.
a. The goods that are destroyed are not subtracted from GDP, and there is no way to account for the loss in productive capacity to the economy. The rebuilding that occurs after a natural disaster, however, is counted in GDP; for this reason, disasters like hurricanes and earthquakes can actually end up increasing GDP.
b. GDP also cannot account for production of goods outside of the market system, like household production. Also, unreported and illegal transactions (the underground economy) are not counted in GDP. These factors will cause GDP to understate the true level of production in the economy.
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Figure 4.3 illustrates the demand for tacos. If people expect the price of tacos to decrease in the near future, this would most likely bring about a movement from
A) point a to point b. B) point c to point a. C) D2 to D0. D) D0 to D1.
In a perfectly competitive market,
A) firms can freely enter and exit. B) firms sell a differentiated product. C) transaction costs are high. D) All of the above.