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Refer to Table 8-5. The value of each automobile in gross domestic product equals
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- How do automatic stabilizers work?A.When an increase in national income occurs there will be an increase in income tax collections and an increase in unemployment compensation and welfare payments muting the increase in planned expenditures that would have otherwise resulted.B.When a decline in national income occurs there will be an increase in income tax collections and an increase in unemployment compensation and welfare payments muting the reduction in planned expenditures that would have otherwise resulted.C.When an increase in national income occurs there will be a reduction in income tax collections and a decrease in unemployment compensation and welfare payments muting the reduction in planned expenditures that would have otherwise resulted.D.When a decline in national income occurs there will be a reduction in income tax collections and an increase in unemployment compensation and welfare payments muting the reduction in planned expenditures that would have otherwise resulted.
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- Michael Burda of Humboldt University in Germany and Daniel Hamermesh of the University of Texas examined how workers in the United States who lost their jobs between 2003 and 2006 spent their time. They discovered that during the period when they were unemployed, the reduction in the number of hours of paid work was almost completely replaced by an increase in the number of hours spent on household production.Source: Michael Burda and Daniel S. Hamermesh, "Unemployment and Household Production," National Bureau of Economic Research working paper 14676, January 2009.Based on these findings, what can we predict about total production—whether or not that production is included in the calculation of GDP—in the economy when these workers became unemployed?A.If the workers had been paying other people to perform the household activities prior to unemployment, then total production will fall.This is the correct answer.B.When workers lose their jobs, total production falls since workers are no longer earning wages.C.If the workers had been paying other people to perform the household activities prior to unemployment, then total production will rise.D.Since household production is not calculated in GDP, there is a decrease in total production that comes due to unemployment.