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EC140 > Chapter 20 > Flashcards

Chapter 20 Flashcards

1
Q

Intermediate goods are:

A

All outputs used as inputs by other producers in a further stage of production

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2
Q

Final goods are:

A

Goods not used as inputs by other firms but produced to be sold for consumption, investment, government, or export during period under consideration

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3
Q

Value added equation:

A

Value added = sales revenue - cost of intermediate goods

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4
Q

How do economists avoid double counting?

A

Using the concept of value added… the amount of value that firms and workers add to their products over and above the costs of purchased intermediate goods

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5
Q

value added is equal to

A

payments owed to the firm’s factors of production

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6
Q

value added is the correct measure of

A

each firm’s contribution to total output - the amount of market value produced by that firm

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7
Q

How is the economy’s total output (GDP) found?

A

By finding the sum of all values added

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8
Q

How do you find GDP on the expenditure side?

A

Adding total expenditure for each of the main components of final output

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9
Q

How do you find GDP on the income side?

A

By adding up all income claims generated by the act of production

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10
Q

What are the four categories of expenditure?

A

Consumption, investment, government purchases, and net exports

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11
Q

Consumption (C) expenditure is:

A

household expenditure on all goods and services

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12
Q

Investment (I) expenditure is:

A

expenditure on the production of goods not for present consumption (capital goods - factories, computers, machines, warehouses, housing)

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13
Q

inventories are:

A

stocks of raw materials, goods in process, and finished goods held by firms to mitigate effect of short-term fluctuations in production

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14
Q

why do firms hold inventories?

A

to ensure they will have enough materials in case of production delays

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15
Q

accumulation of inventories counts as positive investments because

A

it represents goods produced but not used for current consumption

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16
Q

decumulation counts as

A

disinvestment because it represents a reduction in the stock of finished goods available to be sold

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17
Q

fixed investment is:

A

creating new capital goods to be added to economy’s total quantity of capital stock (tools, machines, etc)

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18
Q

net investment equation:

A

net investment = gross investment - depreciation

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19
Q

gross investment is:

A

the total investment that occurs in the economy

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20
Q

replacement investment is:

A

the amount of investment required to replace that part of the capital stock that loses its value through wear and tear

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21
Q

Why is gross investment included in the calculation of national income?

A

The production of new investment goods is part of nation’s total current output, and production creates income whether they are part of net or replacement investment

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22
Q

government (G) purchases are:

A

all government expenditure on currently produced goods and services

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23
Q

transfer payments are:

A

payments made by the government not in exchange for a good or service (pension, employment insurance, welfare, interest on debt)

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24
Q

why are transfer payments not counted as part of GDP?

A

because there is no market transaction involved.. no purchase of any currently produced goods or services

25
Q

why are exports considered part of canadian gdp and what denotes the value of actual exports?

A

Exports constitute expenditure on Canadian output - goods and services produced in Canada but sold outside create incomes for Canadian residents. Denoted by X.

26
Q

How does one calculate total expenditure on Canadian products considering imports? What is this denoted by?

A

Must subtract total expenditure the economy’s total expenditure on imports. Actual imports is denoted by IM.

27
Q

How do you find net exports, and what is it denoted by?

A

Total exports - total imports (X - IM) denoted by NX.

28
Q

What is the equation for total expenditure (GDP on the expenditure side?)

A

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

29
Q

Factor incomes include:

A

wages, interest and business profits

30
Q

the sum of factor incomes is called

A

net domestic income at factor cost

31
Q

non-factor payments include:

A

indirect taxes and subsidies and depreciation

32
Q

gdp from the income side is calculated by:

A

adding factor incomes + indirect taxes + depreciation

33
Q

nominal GDP is:

A

total GDP valued at current prices

34
Q

real GDP is:

A

GDP valued at base-period prices

35
Q

the GDP deflator is:

A

an index number derived by dividing nominal GDP by real GDP. Its change measures the average change in price of all items in the GDP

36
Q

what is the GDP deflator equation?

A

GDP at current prices (Nominal)/GDP at base-period prices (Real) x 100

37
Q

Why are the GDP deflator and the CPI indices different?

A

GDP deflator index measures changes in average price of goods produced in Canada.
CPI measures the change in average price of consumer goods

38
Q

What is not included in GDP?

A

Illegal activities, underground economy, home production (non-market activities), economic “bads”

39
Q

what is the underground economy?

A

people doing jobs under the table to avoid having income taxed

40
Q

what is an economic “bad”?

A

things like pollution, environmental damage

41
Q

why is the conventional approach to measuring GDP used rather than including the omitted factors?

A

impossible to measure illegal activities and home production. economic bads would change the nature of the measurement, no longer giving accurate measure of level of economic activity

42
Q

what are the three reasons for using the current way of measuring GDP?

A

correcting major omissions would be impossible, change in GDP from one year to the next is a good indication of economic activity, and policymakers need to measure the amount of market output to design policies to control inflation and tax rates

43
Q

what is not included in the calculation of GDP on the income side?

A

consumption

44
Q

Because the focus of long-run economic growth is on the standard of living of the average person, we measure the standard of living in terms of:

A

real GDP per capita

45
Q

How does Statistics Canada measure GDP?

A

by adding the value in dollar terms of all the final goods and services produced domestically.

46
Q

What tends to be the final stage of a nation’s economic development?

A

Services

47
Q

The GDP per capita is computed by dividing a country’s:

A

real GDP by its population

48
Q

The total national income actually received by a country’s residents is:

A

smaller than the value of GDP

49
Q

In the circular flow model, who supplies factors of production in exchange for income?

A

Households

50
Q

Which of these is not a shortcoming of GDP as a measure of welfare?

A

It only counts final goods and services and not intermediate goods.

51
Q

In the classical model, when households save:

A

business investments will offset that savings

52
Q

Which measure of GDP represents changes in the quantity of goods and services produced in the economy, holding prices constant?

A

real GDP

53
Q

What has approximately the same value when measuring macroeconomic activity?

A

Production and income

54
Q

Using the income​ approach, how do you find GDP?

A

From the income​ side, GDP is the sum of factor incomes plus​ non-factor payments. The factor incomes consist of wages and​ salaries, interest​ income, and business profits.​ Non-factor payments consist of indirect taxes​ (net of​ subsidies) plus depreciation.

55
Q

Suppose national accounting was done by adding up the market values of all outputs of all firms. This approach would

A

overestimate the value of production in the economy

56
Q

is the best description of the business cycle?

A

the short-run fluctuations of national income around its trend value

57
Q

The Canadian-U.S. exchange rate is defined as the number of Canadian dollars to buy one U.S. dollar. If one Canadian dollar ($1 CDN) buys $1.10 USD, the Canadian-U.S. exchange rate is:

A

1CDN/1.10US = 0.91

58
Q

In national-income accounting, “depreciation” refers to

A

the amount by which the capital stock is depleted through the production process

EC140 (8 decks)

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