Chapter 02

Question 1

GDP Gross Domestic Product

Answer 1

The total income earned domestically, including the income earned by foreign-owned factors of production; the total expenditure on domestically produced goods and services.

Question 2

National income accounting

Answer 2

The accounting system that measures GDP and many other related statistics.

Question 3

Stocks and flows

Answer 3

Quantity variables; stocks are quantities measured at a given point in time, and flows are quantities measured per unit of time.

Question 4

Value added

Answer 4

The value of a firm’s output minus the value of the intermediate goods the firm purchased.

Question 5

Imputed value

Answer 5

An estimate of the value of a good or service that is not sold in the marketplace, and therefore does not have a market price.

Question 6

Nominal GDP

Answer 6

The value of goods and services measured at current prices.

Question 7

GDP Deflator

aka Implicit Price Deflator for GDP

Answer 7

The ratio of Nominal GDP (numerator) to Real GDP (denominator).

Question 8

National income accounts identity

Answer 8

The equation showing that GDP is the sum of consumption, investment, government purchases, and net exports.

Question 9

Consumption

Answer 9

The goods and services bought by households. It is divided into 3 subcategories: nondurable goods, durable goods, and services.

Question 10

Nondurable goods

Answer 10

Goods that last only a short time, such as food and clothing.

Question 11

Durable goods

Answer 11

Goods that last a long time, such as cars and TV’s.

Question 12

Services

Answer 12

Includes various intangible items purchased by consumers, such as haircuts and doctor visits.

Question 13

Investment

Answer 13

Goods bought for future use.

Question 14

Business fixed investment

Answer 14

Purchase of new plant and equipment by firms.

Question 15

Residential fixed investment

Answer 15

Purchase of new housing by households and landlords.

Question 16

Inventory investment

Answer 16

The increase in frims’ inventories of goods. If inventories is falling, then inventory investment is negative.

Question 17

Government purchases

Answer 17

Goods and services bought by the federal, state, and local governments. Includes items such as military equipment, highways, and the services provided by the government workers.

It does not include individual payments for Social Security and welfare.

Question 18

Net exports

Answer 18

The value of goods and services sold to other countries (exports) minus the goods and services foreigners sell to us (imports).

Question 19

CPI Consumer Price Index

Answer 19

A measure of the overall level of prices that shows the cost of a fixed basket of consumer goods relative to the cost of the same basket from a base year.

Question 20

Labor force

Answer 20

Those in the population that have a job or are looking for a job.

Question 21

Labor-force participation rate

Answer 21

The percentage of the adult population that is in the labor force.

Question 22

GNP Gross National Product

Answer 22

GNP = GDP + Factors from payments abroad - Factor payments to abroad.

Question 23

NNP Net National Product

Answer 23

NNP = GNP - Depreciation