11.1 Circular Flow and GDP

Question 1

Gross Domestic Product

Answer 1

The total value of all final goods and services produced in a year within the country.

Question 2

What is not included in GDP?

Answer 2

• The value of intermediate goods like lumber and steel
• Repurchase of used goods
• Financial transactions (buying/selling bonds and stocks)
• Public and private transfer payments
• Underground economic activities

Question 3

How does GDP increase?

Answer 3

• Expenditures on natural disasters, deadly epidemics, war, crime, and other detriments to society

Question 4

National Income (NI)

Answer 4

The sum of income earned by the factors of production owned by a country’s citizens

Question 5

Personal Income (PI)

Answer 5

The money income received by households before personal income taxes are subtracted

Question 6

Disposable Income (DI)

Answer 6

Personal income minus personal income taxes

Question 7

What are the two primary methods for calculating GDP?

Answer 7

Expenditure approach and income approach

Question 8

Expenditure Approach

Answer 8

Adds up spending by households, firms, the government, and the rest of the world

Question 9

Expenditure Approach formula

Answer 9

GDP = C + I + G + (X - M)