1.1: Introduction to GDP and Production (2.1-2.2)

Question 1

national income accounts

Answer 1

accounting framework used in measuring current economic activity

1. PRODUCT APPROACH: amount of output produced, excluding output used up in intermediate stages of production
2. INCOME APPROACH: incomes received by producers of output
3. EXPENDITURE APPROACH: amount of spending by ultimate purchasers of output

Question 2

product approach

Answer 2

measures econ activity by adding the market values of G&S produced, excluding any G&S used up in intermediate stages of production

value-added concept (value of output - value of inputs it purchases from other producers)

sums all value-added by producers

Question 3

income approach

Answer 3

measure econ activity by adding all income received by producers of output - including wages received by workers and profits received by owners of firm.

Question 4

expenditure approach

Answer 4

measures activity by adding the amount spent by all ultimate users of output.

Question 5

fundamental identity of national income accounting

Answer 5

total production = total income = total expenditure

Question 6

gross domestic product

Answer 6

market value of final G&S newly produced within a nation during a fixed period of time

Question 7

intermediate goods and services

Answer 7

those used up in the production of other G&S in the same period that they themselves were produced

flour that is produced and then used to make bread in the same year = int good

Question 8

final goods and services

Answer 8

the end products of a process.

bread produced by the bakery, shopper’s bus ride home = final good/service

Question 9

capital good

Answer 9

good that is itself produced and is used to produce other goods

Question 10

inventories

Answer 10

stocks of unsold finished goods, goods in process, and raw materials held by firms.
is treated as a final good and part of GDP b/c increased inventories on hand imply greater productive capacity in the future

Question 11

gross national product

Answer 11

market value of final G&S newly produced by domestic factors during current period (GDP production takes places WITHIN a country)

Question 12

net factor payments from abroad (NFP)

Answer 12

income paid to domestic factors of production by the rest of the world minus income paid to foreign factors of production by the domestic economy

Question 13

GDP = xxx - xxx

Answer 13

GDP = GNP - NFP

Question 14

expenditure approach to measuring GDP

income-expenditure identity

Answer 14

Y = C + I + G + NX

GDP = consumption + investment + government purchases of G&S + net exports of G&S

Question 15

consumption

Answer 15

1. consumer durables (cars, tvs, furniture, fridges, not houses)
2. nondurable goods (food, clothing, fuel)
3. services (health care, education, transit)

Question 16

investment

Answer 16

spending for new capital goods (fixed investment) and increases in firms’ inventory holdings (inventory investment)

business and residential investment (construction of new houses)

includes spending on foreign-produced goods. increases in inventories are included in investment spending

Question 17

government purchases of G&S

Answer 17

foreign or domestic expenditure

transfers = social security and medicare - not included in GDP according to expenditure approach. interest payments on national debt are NOT counted as part of govt purchases.

Question 18

net exports

Answer 18

exports-imports

Question 19

National Income

Answer 19

1. compensation of employees
2. proprietors’ income
3. rental income of persons
4. corporate profits
5. net interest
6. taxes on production and imports
7. business current transfer payments
8. current surplus of government enterprises

Question 20

net national product (NNP)

Answer 20

NNP = national income + statistical discrepancy

Question 21

private disposable income

Answer 21

=Y + NFP + TR + INT - T

= GDP + net factor payments from abroad + transfers received from govt - taxes

Question 22

net government income

Answer 22

= T - TR - INT

= taxes paid by private sector - payments from the govt to the private sector transfers (TR) - interest payments on the govt debt (INT)