BUSM25543 – Chapter 10
GDP is a good measure of economic well-being because people prefer higher to lower incomes. But it isnot a perfect measure of well-being. For example, GDP excludes the value of leisure and the value of a clean environment.Questions for Review:1.)Explain why an economy’s income must equal its expenditure.2.)Which contributes more to GDP—the production of an economy car or the production of a luxury car? 3.)A farmer sells wheat to a baker for $2. The baker uses the wheat to make bread, which is sold for $3. What is the total contribution of these transactions to GDP?The total contribution to the GDP will only be $3. This is because GDP calculates the market value of only final goods, and not the intermediate goods used in their production. 4.)Many years ago, Peggy paid $500 to put together a record collection. Today, she sold her albums at a garage sale for $100. How does this sale affect current GDP