Chapter 4 Measuring Total Production and Income

Question 1

Macroeconomics

Answer 1

The study of the economy as a whole… topics such as inflation, unemployment, and economic growth.

Question 2

Business Cycle

Answer 2

Altering periods of economic expansion and economic recession.

Question 3

Recession

Answer 3

The period of a business cycle where total production and employment are decreasing.

Question 4

Expansion

Answer 4

The period of a business cycle where total production and employment are increasing

Question 5

Economic Growth

Answer 5

The ability of an economy to produce increasing quantities of goods and services.

Question 6

Inflation Rate

Answer 6

The % increase in the price level from one year to the next

Question 7

Gross Domestic Product (GDP)

Answer 7

The market value of all final goods and services, produced domestically.

Question 8

How To Calculate GDP For A Year?

Answer 8

PxQ

Question 9

GDP’s For 2 Products In A Year?

Answer 9

PriceA x QuantityA + PriceB x QuantityB

Question 10

Final Good (Add Example)

Answer 10

Something that is purchased by the end user. Ex: The Sandwich sold to a customer, not the price of the ingredients.

Question 11

Intermediate Good (Add Example)

Answer 11

Goods that are used to complete a final good.–> In GDP it is only an intermediate good if someone is buying the product. Ex: Ingredients used to make a sandwich.

Question 12

Is GDP Counted In Canada If A Canadian Firm Produces The Product Overseas?

Answer 12

No, GDP is only counted if the product is produced domestically. Even if it is produced by a Canadian firm.

Question 13

Compensation

Answer 13

Covers all the employees benefits workers receive from providing labor to firms.

Question 14

Gross Operating Surplus

Answer 14

Covers payments to owners of the capital used by firms and governments.

Question 15

Net Operating Surplus

Answer 15

Payments to owners of capital over and above compensation for capital that wore out.

Question 16

Capital Consumption

Answer 16

Payment to the owners for capital that wore out.

Question 17

Suppose, You lease a truck to someone and receive $5,000 a year. There is a $1,000 depreciation per year. Gross operating surplus? Net operating surplus?

Answer 17

Gross = $5,000
Net = $4,000

Question 18

Gross Mixed Income

Answer 18

Covers income generated by small businesses for their owners.

Question 19

Consumption of Fixed Capital

Answer 19

The depreciation of the capital used by small businesses.

Question 20

Net Mixed Income

Answer 20

The payment to owners of small businesses over and above the compensation for dep. of capital owned by businesses.

Question 21

Taxes Less Subsidies

Answer 21

Payment to Gov. that mimics income received by the owners of other inputs.

Question 22

Final Consumption

Answer 22

All the domestic purchases of goods/services by their users.

Question 23

Gross Fixed Capital Formation

Answer 23

The purchase of fixed assets by firms, Gov., and households. –> Benefits over long period of time that is converted into cash.

Question 24

Investment in Inventories

Answer 24

Spending on finished products kept on hand to sell.

Question 25

Net Exports

Answer 25

Value of exports minus the value of imports.

Question 26

Statistical Discrepancy

Answer 26

Accounting item that ensures the income and expenditure approach veiled the same item.

Question 27

GDP Equation

Answer 27

Y = C + I + G + (x-m)
x = export
m = Import

Question 28

Value Added

Answer 28

The marked value a firms adds to a product

Question 29

Value Added Example

Answer 29

Intermediate goods of a sandwich = $10
Sold for $15
Value Added = $5

Question 30

Nominal GDP

Answer 30

GDP for the year

Question 31

Nominal GDP Equation

Answer 31

NGDP2022 = P2022 x Q2022

Question 32

Real GDP

Answer 32

The GDP over a number of years

Question 33

Real GDP Equation

Answer 33

RGDP2023 = P2022 x Q2023