ch. 9 questions

Question 1

t/f explain: wealth and income are the same thing

Answer 1

false; income is a flow that reflects value creation. wealth is a stock of what you own, which is accumulated saving from past income earned

Question 2

t/f explain: we actually measure income as the social gain from production

Answer 2

true; measure of income is social gain, we measure how much is paid for output that is produced

Question 3

define GDP

Answer 3

the market value of all final goods and service produced within a country’s borders in one year

Question 4

what is a final good?

Answer 4

one that is sold to a final consumer

Question 5

t/f explain: the value of crystal meth production is not included in US GDP

Answer 5

true; because we do not have reliable records of the production

Question 6

t/f explain: sales of used goods are not counted in GDP

Answer 6

true; because they have been previously counted, so to count them again would double count them

Question 7

t/f explain: the value of a newly issued share of stock is counted in GDP

Answer 7

false; the money that comes from the stock sale will purchase capital, and to count both transactions would double count

Question 8

what are two approaches to calculate GDP?

Answer 8

the expenditure approach and the income approach

Question 9

which approach does government use in calculating GDP? why?

Answer 9

in income approach because tax records give information about income

Question 10

which is bigger, the double value of output produced in the economy or the dollar value of income earned in the economy? why?

Answer 10

they are equal, because every penny gained from the sale of a final good is income for someone in the production process

Question 11

what are the four components of the expenditure approach?

Answer 11

consumption, investment, government purchases, net exports

Question 12

of the four components of GDP as measured by the expenditure approach, which is largest,second largest, and third largest?

Answer 12

in order: consumption, government purchases, investment, net exports

Question 13

what is the definition of investment as regards the expenditure approach to GDP?

Answer 13

production of capital goods, production of new residential housing, changes in inventories

Question 14

t/f explain: we measure real GDP in order to reflect the fact that though illegal goods may destructive, they have value to those who buy them

Answer 14

false; we measure real GDP to adjust for inflation

Question 15

what is real GDP?

Answer 15

it is what GDP would be if prices were the same as they had been in the base year

Question 16

since we have real GDP, why would we ever want to use nominal GDP?

Answer 16

as long as we are not comparing values of different numbers across time, where inflation could occur, there is nothing to gain from using nominal GDP

Question 17

what is the definition of economic growth?

Answer 17

the percentage change in real GDP over a year’s time

Question 18

an examination of a graph of real GDP over 6 decades reveals something about our economy. what does it reveal?

Answer 18

our economy generally grows

Question 19

a very strong growth rate for the economy is

Answer 19

over 3.5%

Question 20

t/f explain: we would be pleased to find out we are at a peak of economic activity

Answer 20

false; that means we are about to contract

Question 21

what is the definition of a recession?

Answer 21

two successive quarterly declines in real GDP

Question 22

compare the 1982 recession and recovery to the latest recession and recovery

Answer 22

the 1982 recession was as bad or worse than the latest recessions, but the recovery in 1982 was much stronger

Question 23

what is the definition of per capita GDP? if we know this number, what does it tell us about the economy (other than the definition)?

Answer 23

GDP/population. it tells us how well off the people in the economy are

Question 24

what does GDP tell us about the economy?

Answer 24

how big it is

Question 25

t/f explain: when we look at a graph of five decades of GDP per capita we see that the average person is now worse off than before

Answer 25

false; wellbeing generally improves over time

Question 26

which is bigger, US GDP per capita or canadian GDP per capita? by how much?

Answer 26

f