CH 5 - Measuring a Nation's Income

Question 1

GDP

Answer 1

gross domestic product
-> market value of all final goods and services produced within a country in a given period of time
=> For an economy as a whole, income must equal expenditure: national income = national expenditure = national production

Question 2

characteristics of the GDP

Answer 2

-> sold legally
-> excludes objects produced and consumed at home - never entered the market
-> final goods only - no intermediate
-> only produced within the country regardless of nationality of producer
-> measured within a specific interval of time
-> goods are valued at market price

Question 3

4 components of GDP

Answer 3

• Consumption, C: spending by households
• Investment, I: Spending by firms and households that provide for future consumption (anything a firm buys is for future production)
• Government purchases, G: Consumption like and investment-like spending by governments
  (Does not include transfer payments to households)
• Net Exports, NX: Net foreign demand for domestic output, or exports (goods produced domestically) minus imports (goods produced abroad)

Question 4

GDP equation / identity

Answer 4

Y = C + I + G + NX (= production = income)

Question 5

GDP deflator + usage

Answer 5

reflects the prices of goods and services but not the quantities produced

Question 6

3 components to measuring GDP

Answer 6

Wages (including benefits): employee compensation

Return to capital: net operating surplus plus depreciation

Sales taxes (net of subsidies)

Question 7

Market Basket Measure

Answer 7

-> official poverty line
-> if a family’s income is insufficient to be able to afford to purchase this basket of goods (what needs to be purchased by a family in order to enjoy a modest, basic standard of living), it is considered to be in poverty

Question 8

things left of of GDP

Answer 8

• Leisure
• Harm inflicted on the environment / quality of the environment
• Value of goods produced at home
• Distribution of income