Chapter 4

Question 1

Gross Domestic Product (definition)

Answer 1

Market value of the final goods and services produced within a country in a given time period

Question 2

For an economy as a whole, income must equal:

Answer 2

Expenditure

Question 3

Households sell and firms buy the services of these things in factor markets

Answer 3

Labour, Land, Capital

Question 4

What do labor, capital, and land specifically earn for households?

Answer 4

Labour earns wages, Capital earns interest, Land earns rent

Question 5

What is the formula for GDP with the expenditure approach?

Answer 5

Consumption + Investment + Government Expenditure + Exports - Imports

Question 6

What is Consumption (C)?

Answer 6

Spending by households in goods and
services, with the exception of purchases of new housing

Question 7

What is Investment (I)?

Answer 7

Spending in capital-equipment, inventories, and structures, including household spending on new housing

Question 8

What is Government Expenditure (G)?

Answer 8

spending in goods and services by local, territorial, provincial, and federal governments

Question 9

What are financial transfers? Are they included in the circular flow of expenditure?

Answer 9

Government transfers, such as subsidies to firms. They are not included in expenditure.

Question 10

What are Exports (X)?

Answer 10

Goods and services sold from Canada to the rest of the world

Question 11

What are Imports (M)?

Answer 11

Goods and services bought by Canada from the rest of the world

Question 12

What are Net Exports? What is this Value also called?

Answer 12

value of a nation’s exports minus the value of its imports; also called the trade balance

Question 13

What determines whether the same good is an intermediate or final good?

Answer 13

What it is used for, not what it is. Example; Ice cream for consumption vs ice cream for sundaes

Question 14

Are financial assets and second-hand goods final or intermediate goods?

Answer 14

Trick question ;), they are neither <3.

Question 15

What is the relationship between Gross Investment, Net Investment, and Depreciation?

Answer 15

Net Investment = Gross Investment- Depreciation

Question 16

Who makes consumption expenditure?

Answer 16

Households

Question 17

Who makes investments?

Answer 17

Firms

Question 18

What do governments buy?

Answer 18

Goods and Services

Question 19

What does the rest of the world buy?

Answer 19

Exports

Question 20

What do firms pay to households?

Answer 20

Income (Y)

Question 21

Where do firm’s retained earnings go in the Circular Flow?

Answer 21

Household’s sector income

Question 22

What are the 2 ways GDP can be measured?

Answer 22

Expenditure and Income

Question 23

Where are purchases by new homes counted in the expenditure method?

Answer 23

Investments

Question 24

What do The National Income and Expenditure Accounts divide income into?

Answer 24

1. Wages, Salaries, and Supplementary Labour Services
2. Other Factor Incomes

Question 25

What are Wages, Salaries, and Supplementary Labour Services, and what does it include?

Answer 25

The payment for labor services, wages plus benefits such as pension contributions

Question 26

What are other factor incomes?

Answer 26

Corporate profits, interest, farmer's income, and income from non-farm unincorporated businesses

Question 27

What must you do to get net incomes to gross incomes?

Answer 27

Add depreciation

Question 28

Wages, Salaries, and Supplementary Labour Services + Other Factor Incomes + Depreciation =

Answer 28

Gross Domestic Income at Factor Cost

Question 29

What must you do to get from Gross Domestic Income at Factor Cost to GDP?

Answer 29

Add indirect taxes - subsidies

Question 30

What is an indirect tax?

Answer 30

A tax paid by consumers when they buy goods and services

Question 31

What is a subsidy?

Answer 31

A payment by the government to a producer

Question 32

What is the gap between the Expenditure approach and the Income approach called? How is it calculated?

Answer 32

Statistical discrepancy, GDP Expenditure Total - GDP Income Total

Question 33

What is Real GDP?

Answer 33

The value of goods and services produced in a given year when valued at the prices of a reference base year

Question 34

What is Nominal GDP?

Answer 34

A more precise name for GDP

Question 35

How do we find the total expenditure for Real GDP?

Answer 35

Quantity Produced in our Year x Price of base year

Question 36

Why do economists use estimates of Real GDP?

Answer 36

1. To compare the standard of living over time 2. To compare the standards of living across countries

Question 37

How is Real GDP Per Person calculated? What does it measure?

Answer 37

Real GDP/Population, the value of goods and services the average person can enjoy

Question 38

What is Potential GDP?

Answer 38

The maximum quantity of Real GDP that can be produced while avoiding shortages of labor, capital, land, and entrepreneurial ability that would bring rise to inflation

Question 39

What is the Lucas Wedge?

Answer 39

The dollar value of the accumulated gap between what Real GDP Per Person would have been if the growth rate of the 1960s had persisted and what Real GDP Per Person turned out to be.

Question 40

What are the fluctuations in the pace of expansion of Real GDP called?

Answer 40

The business cycle

Question 41

What is the business cycle?

Answer 41

A periodic, but irregular up-and-down movement of total production and other measures of economic activity

Question 42

What are the phases of the business cycle?

Answer 42

Expansion and Recession

Question 43

What are the turning points of the business cycle?

Answer 43

Peaks and Troughs

Question 44

What is expansion?

Answer 44

A period in which real GDP increases

Question 45

What is a Real GDP Nowcast?

Answer 45

An estimate of real GDP in the current quarter and reported in the current quarter.

Question 46

What is PPP?

Answer 46

Purchasing Power Parity. It uses the same prices in both countries to compare GDP.

Question 47

What are the limitations of Real GDP?

Answer 47

It cannot measure: Household production, Underground economic activity, Leisure time, and Environmental quality

Question 48

What is HDI?

Answer 48

Human Development Index.

Question 49

What does HDI measure?

Answer 49

It combines real GDP, life expectancy, health and education.

Question 50

How is Chained Dollar Real GDP measured?

Answer 50

The ratio of two values of GDP in adjacent years, measured at a common set of prices