Chapter 5

Question 1

Economic Goal 1

Answer 1

Full Employment

Question 2

Economic Goal 2

Answer 2

Price Stability (low inflation)

Question 3

Economic Goal 3

Answer 3

High rate of economic growth (2.5%-3%)

Question 4

Economic Goal 4

Answer 4

Viable Balance of Payments (Exports > Imports)

Question 5

Economic Goal 5

Answer 5

Equitable Distribution of Income

Question 6

Nominal GDP measures what?

Answer 6

The value measure of what is produced in the economy,
Market price * Quantity

Question 7

What are the two types of GDP?

Answer 7

Nominal GDP (value measure) and Real GDP (volume measure)

Question 8

____ = P*Q

Answer 8

Nominal GDP

Question 9

_____GDP = Q

Answer 9

Real GDP

Question 10

For this chapter what does P represent?

Answer 10

Consumer Price index

Question 11

___________: only measures the price movement of goods and services purchased by consumers

Answer 11

Consumer price index (CPI)

Question 12

____________: measures the price movements of all goods and services purchased by consumers, business and government

Answer 12

GDP Deflator

Question 13

For this chapter, what does Q represent

Answer 13

Real GDP

Question 14

P= Nominal GDP/Real GDP, is a formula for what value

Answer 14

GDP deflator

Question 15

_______: ((Current/Previous)-1)*100)

Answer 15

Growth Rate, Ex. GDP growth and Price index growth

Question 16

What are the approaches to calculating GDP?

Answer 16

Expenditure approach and Consumption/consumer Spending (C)

Question 17

_________: Adds up all the expenditures made by consumers, business government and foreigners to purchase the final goods and services produced by the economy

Answer 17

Expenditure Approach

Question 18

________: sum of all purchases of newly produced capital goods, by both government and business

Answer 18

Gross Investment

Question 19

________= Net Investment + Depreciation

Answer 19

Gross Investment

Question 20

What is depreciation in economics?

Answer 20

Investment in worn out capital assets

Question 21

Why are transfer payments not included in calculating?

Answer 21

they are not related to production

Question 22

If X>M and if X<M how do you describe this.

Answer 22

trade surplus, trade deficit

Question 23

_______ income: income before deductions of federal/provincial taxes and transfer paymetn to government

Answer 23

Personal

Question 24

_______ Income: income after deductions

Answer 24

Personal Disposable

Question 25

What is the formula for CPI?

Answer 25

CPI = (current/base) * 100

Question 26

What is the formula for the GDP deflator?

Answer 26

Deflator = (nominal/real) *100

Question 27

What is the expenditure approach?
What do the variables in the formula mean?

Answer 27

Nominal GDP=C+I+G+X-M

C= Personal Expenditure
I= Gross Investment
G= Government expenditure on goods/services
X= Exports
M= Imports

Gross investment= Net investment +depreciation

Question 28

Using the Income approach, how would you arrive at GDP, National Income, and Personal Disposable Income?

Answer 28

Wages and salaries
Corporate Profits Before Taxes
Interest and Miscellaneous Investment Income
Net Income From Farming operations
Net Income of Non-Farm Unincorporated Business, Including rent

Equals National Income

Plus Indirect Taxes
Less Subsidies
Plus Depreciation (CCA)

Residual Error of Estimate/Statistical Discrepancy

Equals GDP

National Income
Less Corporate Income Taxes
Less Undistributed Corporate Profits
Plus Transfer Payments to Persons

Equals Personal Income

Less Personal Income Taxes
Equals Personal Disposable Income