chapter 4

Question 1

Gross domestic product (GDP)

Answer 1

market value of final goods and services produced in a country during given period

Question 2

Market value

Answer 2

the selling price of goods and services in the open market.

Question 3

The amount people are willing to pay for an item indicate what?

Answer 3

indication of the economic benefit they expect to receive from it.

Question 4

Final good or service

Answer 4

the end product of a process, the product or service that consumers actually use.

Question 5

Only _____ goods and serivices are included in GDP

Answer 5

Final goods and services

Question 6

What is a capital good?

Answer 6

long-lived good that is used in the production of other goods or services.

Question 7

Factories and machines are an example of what?

Answer 7

capital goods

Question 8

Are capital goods final goods?

Answer 8

No because their purpose it to produce other goods but yet are not used up during the production process except over long periods of time so not intermediate goods either. So for measuring GDP economist agree to classify NEWLY produced capital goods as the final goods even though not consumed by ultimate consumer

Question 9

Why in newly produced final capital included into GDP?

Answer 9

If not a country who invested in the future by building modern factories and buying new machines would be counted as having a lower GDP than a country that devoted all its resources to producing consumer goods.

Question 10

value added

Answer 10

equals market value of its product or service minus the cost of input purchased from other firms.

Question 11

Economist divide the users of the final goods and services that make up the GDP for any given year int o what four categories

Answer 11

• Households
• Firms
• Government
• Foreign Sector

Question 12

GDP can be measured by what two methods?

Answer 12

1) adding up the market values of all final goods and services that are produced domestically
2) Adding up the total amount spent by each of the four groups on final goods and services and subtracting spending on imported goods and services.

Question 13

Consumption expenditure or consumption

Answer 13

Spending by households on goods and services and subdivided into categories

Question 14

What are the categories of consumption expenditure?

Answer 14

• Consumer durable goods
• Consumer nondurable goods
• Services (such as haircuts and taxi rides)

Question 15

Investment

Answer 15

Spending by firms on final goods and services, primarily capital goods

Question 16

Business fixed investment

Answer 16

purchase by firms on new goods such as machinery, factories and office buildings.

Question 17

Residential Investment

Answer 17

• Construction of new homes and apartment buildings.

- business sector which sells homes to households

Question 18

Inventory Investment

Answer 18

addition of unsold goods to company inventories; unsold goods are treated as if firm bought them themselves.

Question 19

Government purchases

Answer 19

final goods bought by federal, state and local government; fighter planes and public school teachers but do not include transfer payments like social security, unemplyment, pensions paid, or welfare. Interest paid on government debt is also excluded.

Question 20

GDP

Answer 20

= Consumption expenditure + Government purchase + Investment + Net exports

Question 21

What are examples of capital income?

Answer 21

• profits earned by business owners
• rent paid to owners of land or building
• interest recieved by bondholders
• roylaties by holders of copyrights and patents

Question 22

labor and capital income are both measure prior to what?

Answer 22

prior to taxes

Question 23

real GDP

Answer 23

When GDP is calculated using the prices from a base year rather than current year’s prices to indicate measure of real physical production; adjusted for inflation

Question 24

nominal GDP

Answer 24

GDP at current year prices; current dollar value of production

Question 25

What is not included in GDP that contributes to economic well-being?

Answer 25

• Leisure time
• Nonmarket economic activities (volunteer service like fire and rescue, or unpaid housekeeping). This includes underground economy
• Environmental quality and Resource depletion
• Quality of life (low crime rate, minimal traffic congestion, active civic organization and open space)
• Poverty and Economic inequality