CH-5

Question 1

National Income Accounting

Answer 1

The measurement of aggregate economic activity, particularly national income and its components.

Question 2

Intermediat Goods

Answer 2

Goods or services purchased for use as input in the production of final goods or in services.

Question 3

Value added

Answer 3

The increase in the market value of a product that takes place at each stage of the production process.

Question 4

nominal GDP

Answer 4

The value of final output produced in a given period, measured in the prices of that period (current prices).

Question 5

real GDP

Answer 5

The value of final output produced in a given period, adjusted for changing prices.

Question 6

Base year

Answer 6

The year used for comparative analysis; the basis for indexing price changes.

Question 7

depreciation

Answer 7

The consumption of capital in the production process; the wearing out of plant and equipment.

Question 8

NDP (net domestic product)

Answer 8

GDP less depreciation.

Question 9

investment

Answer 9

Expenditures on (production of) new plants, equipment, and structures (capital) in a given time period, plus changes in business inventories.

Question 10

gross investment

Answer 10

Total investment expenditure in a given time period

Question 11

net investment

Answer 11

Gross investment less depreciation.

Question 12

Four components of GDP

Answer 12

Consumption, Investment, Government Goods and services, Net Exports

Question 13

national income (NI)

Answer 13

Total income earned by current factors of production: GDP less depreciation and indirect business taxes, plus net foreign factor income.

NI= NDP + Foreign Factor Income

Question 14

Personal Income (PI)

Answer 14

Income received by households before payment of personal taxes.

Question 15

Okun’s Law

Answer 15

One percent more unemployment is estimated to equal 2 percent less output.

Question 16

Equation for Unemployment Rate:

Answer 16

Number of Unemployed

Divided by

The Labor Force

Question 17

Frictional Unemployment

Answer 17

Brief periods of unemployment experienced by people moving between jobs or into the labor market.

Question 18

Structural Unemployment

Answer 18

Unemployment caused by a mismatch between the skills (or location) of job seekers and the requirements (or location) of available jobs.

Question 19

Cyclical Unemployment

Answer 19

Unemployment attributable to a lack of job vacancies—that is, to an inadequate level of aggregate demand.

Question 20

Inflationary Flashpoint

Answer 20

The rate of output at which inflationary pressures intensify; the point on the AS curve where slope increases sharply.

Question 21

Full Employment

Answer 21

The lowest rate of unemployment compatible with price stability, variously estimated at between 4 percent and 6 percent unemployment.

Question 22

“Natural” Rate of Unemployment

Answer 22

The long-term rate of unemployment determined by structural forces in labor and product markets

Question 23

Deflation

Answer 23

A decrease in the average level of prices of goods and services.

Question 24

Nominal Income

Answer 24

The amount of money income received in a given time period, measured in current dollars.

Question 25

Real Income

Answer 25

Income in constant dollars; nominal income adjusted for inflation.

Question 26

Money Illusion

Answer 26

Income in constant dollars; nominal income adjusted for inflation.

Question 27

Hyper Inflation

Answer 27

Inflation rate in excess of 200 percent, lasting at least one year.

Question 28

Bracket Creep

Answer 28

The movement of taxpayers into higher tax brackets (rates) as nominal incomes grow.

Question 29

Consumer Price Index

Answer 29

A measure (index) of changes in the average price of consumer goods and services.

Question 30

Inflation Rate

Answer 30

The annual percentage rate of increase in the average price level; (Price Level Year 2 − Price Level Year 1)/Price Level Year 1.

Question 31

Item Weight

Answer 31

The percentage of total expenditure spent on a specific product; used to compute inflation indexes.

Question 32

Core Inflation Rate

Answer 32

Changes in the CPI, excluding food and energy prices.

Question 33

GDP deflator

Answer 33

A price index that refers to all goods and services included in GDP