1. How are business cycles defined? Describe the four phases of business cycles.

2. What is a key problem with the way the NBER dates recessions and recoveries?

3. Describe the circular flow diagram. Why must all income equal spending in the economy?

4. Why does GDP accounting include only the final value of goods and services produced? What would be the problem if intermediate products were included?

5. Describe why GDP can be computed using either expenditures or income.

6. What does GDP per capita measure? Why is it not a precise measure of a typical person’s standard of living in a country?

7. Explain how it is possible for an economy in the recovery phase of the business cycle to have a lower GDP and a higher unemployment rate than when it was in the recession phase of the business cycle.

8. As a percentage of GDP, government spending tends to increase during recessions and decrease during times of economic expansion. Explain why government spending tends to change depending on the phase of the business cycle, and how that affects spending as a percentage of GDP.

9. Critics argue that the NIPA are outdated and fail to account for “intangibles” in our new knowledge economy. For example, many firms create copyrighted materials (movies, books, etc.) that when completed are much more valuable than just the value of the marketplace inputs that went into their production. What might be some of the problems associated with trying to include these intangibles in the NIPA?

10. Gross domestic product and its related statistics are published quarterly and are often revised in the following quarter. Do you think quarterly publication and revision in the next quarter would present problems for policymakers trying to control the business cycle? Why or why not?

11. Gross private domestic investment (GPDI) includes new residential construction as investment. Why is new housing included? Isn’t this just another consumer purchase of housing services? How would the sale of an existing house be treated in the GDP accounts?

12. Suppose that a new method of calculating GDP allows for reductions in GDP as a result of the severity of environmental degradation in a country. If this method is used, which of the following countries might experience the greatest adjustment to their GDP calculation: India, Germany, or Iceland?

13. For much of the last 20 years, China’s GDP has grown around 10% per year, but in recent years has fallen to around 6% per year, which is still much higher than the average U.S. growth rate in recent years of about 2% per year. Why would a slowdown in China’s GDP growth be a significant concern to the U.S. macroeconomy? If prices of goods and services fall in China due to slower growth, does this help or hurt U.S. GDP?

14. According to the CIA’s World Factbook, in 2015 the tiny country of Equatorial Guinea had the highest GDP per capita in Africa (over $20,000 per year), even higher than more developed countries such as Morocco, Egypt, or South Africa. But despite the significant overall income from the sale of its natural resources, Equatorial Guinea has extreme poverty, with half of the population lacking clean drinking water, and one of the highest infant mortality rates in the world. How can a country that looks so good on paper (in terms of GDP per capita) be one of the least desirable places to live on the planet for the average citizen?

15. The table lists gross domestic product (GDP), consumption (C), gross private domestic investment (I ), government spending (G), and net exports (X – M ). Compute each as a percent of GDP for the six years presented.

16. Use the following list of GDP components and data (given in millions of $U.S.) to answer the following questions.

17. According to By the Numbers, in what year since 2005 was the difference between the unemployment rate and the real GDP growth rate the largest? What phase of the business cycle would this year best represent?

18. According to By the Numbers, has the personal savings rate trended upward or downward during the last five economic recessions? Why does this trend occur?