Chapter 5

Question 1

Personal income minus personal taxes is:

Answer 1

disposable personal income

Question 2

All changes in nominal GDP are due to price changes T of F

Answer 2

False

Question 3

Which of the following statements is true?

Answer 3

real GDP has been adjusted for changes in the general level of prices due to inflation

Question 4

To calculate GDP using the income approach, add:

Answer 4

compensation of employees, rents, profits, net interest, indirect business taxes, and depreciation

Question 5

In any ear, nominal GDP divided by the DP chain price index equals real GDP T or F

Answer 5

True

Question 6

Using the expenditure approach, total spending by households for durable goods, nondurable goods, and services is a category called:

Answer 6

personal consumption expenditures

Question 7

Taxes collected by businesses and sent to the government are:

Answer 7

indirect business taxes

Question 8

The circular flow model assumes:

Answer 8

households own the factors of production

Question 9

in the circular flow model, money flows from the business sector to the household sector through the:

Answer 9

resource market

Question 10

GDP:

Answer 10

is the dollar value of all the final goods and services produced within the borders of a nation.

Question 11

A shortcoming of GDP:

Answer 11

GDP excludes nonmarket transactions

Question 12

define GDP

Answer 12

the market value of all final goods and services produced in a nation during a period of time, usually a year

Question 13

GDP demand what 2 points

Answer 13

GDP counts only new domestic production and it counts only final goods

Question 14

define transfer payment

Answer 14

a government payment to individuals not in exchange for goods or services currently produced

Question 15

define final goods

Answer 15

finished goods and services produced for the ultimate user

Question 16

what are intermediate goods

Answer 16

goods and services used as inputs for the production of final goods

Question 17

what is a circular flow model

Answer 17

a diagram showing the flow of products from businesses to households and the flow of resources from households

Question 18

what is flow

Answer 18

a flow is the rate of change in a quantity during a given time period such as dollars per year for example income and consumption are flows that occur per week per month or per year

Question 19

what is stock

Answer 19

a quantity measured at one point in time for example an inventory of goods or the amount of money in a checking account

Question 20

T or F all measurements in the circular flow model are rates of change (flows) and tell us nothing about the total amounts (stocks)of goods, services, money, or anything else in the economy

Answer 20

True

Question 21

what is the expenditure approach

Answer 21

the national income accounting method that measures GDP by adding all the spending for final goods during a period of time

Question 22

what are personal consumption expenditures

Answer 22

comprise of the total spending by households for durable goods, nondurable goods, and services.

Question 23

what is private domestic investment

Answer 23

this national income account includes “gross”(all) “private”(not government) “domestic” (not foreign) spending by businesses for investment in assets that are expected to earn profits n the fixture

Question 24

Gross private domestic investment is caused by what 2 components

Answer 24

fixed investment expenditures for newly produced capital goods such as commercial and residual structures, tools etc. 
business inventories (net change in spending or unsold finished goods

Question 25

what is the equation for GDP

Answer 25

GDP= C+I+G+(X-M) or GDP = compensation of employees + rents + profits + net interest + indirect taxes + depreciation

Question 26

define indirect business taxes

Answer 26

taxes levied as a percentage of the prices of goods sold and therefore collected as part of the firms revenue. firms treat such taxes as production costs. examples include general sales taxes, excise taxes, and customs duties

Question 27

Is GDP a quantitative or qualitative measure of the output of goods and services

Answer 27

quantitative

Question 28

GDP understates national well being because no allowance is made for people working fewer hours than they once did

Answer 28

what does GDP understate

Question 29

what will happen to GDP if the underground economy is sizeable

Answer 29

GDP will understate an economy’s performance

Question 30

how do economic bads effect GDP

Answer 30

since the costs of negative by-products are not deducted GDP overstates the national well being

Question 31

what is national income NI

Answer 31

the total income earned by resource owners including wages rents interest, profits. NI is calculated as GDP - depreciation of the capital worn out in producing output

Question 32

what is personal income PI

Answer 32

the total income received by households that is available for consumption saving and payment of personal taxes

Question 33

what is disposable personal income DI

Answer 33

the amount of income that households actually have to spend or save after payment of personal taxes

Question 34

the value of all final goods based on the prices existing during the time period of production

Answer 34

nominal GDP or current dollar/money GDP

Question 35

the value of all final goods produced during a given time period based on the prices existing in a selected base year is

Answer 35

real GDP

Question 36

define GDP chain price index

Answer 36

a measure that compares changes in the prices of all final goods during a given year to the prices of those goods in a base year (real GDP = {nominal GDP/GDP chain price index}X100