Chapter 5: Gross Domestic Product Flashcards
_______ _______ ________ is the market value of all final goods and services produced in a nation during a period of time
Gross domestic product (GDP)
True or false: GDP only includes current transactions
True
A used car or home that is being sold used are examples of what?
Secondhand transactions
True or false: the sales commission on a used product produced in another GDP period doesn’t count in current GDP
False (current services are included in GDP, such as a salesperson selling a used car in current GDP period)
What are transactions such as giving private gifts, buying and selling stocks and bonds, and making transfer payments called?
Nonproductive financial transactions
True or false: transfer payments are included in the current GDP period
False
A _____________ is a government payment to individuals not in exchange for goods or services currently produced (Welfare, social security, etc)
Transfer payment
True or false: GDP counts only final goods
True
Are intermediate goods (goods and services used as inputs for the production of final goods) included in GDP?
No
_____________ are when firms demand the natural resources, labor, capital and entrepreneurship needed to produce the goods and services sold in the product markets
Factor markets
_______________ are the income people receive for supplying the factors of production: land, labor, capital or entrepreneurship
Factor payments
Are personal consumption expenditures the largest component of GDP?
Yes
What is the difference between a flow and a stock?
- A flow is rate of change in a quantity during a given time period (the number of gallons of water pouring into a bathtub per minute)
- A stock is quantity measured at one point in time (the amount of water in a bathtub)
One way to calculate GDP is to use the _____________ to measure total spending flowing through product markets in the circular flow diagram
expenditure approach
True or false: Personal consumption expenditures comprise of total spending by households for durable goods, nondurable goods, and services
True
Define what durable goods, nondurable goods, and services are
- Durable goods are cars, appliances, and furniture
- Nondurable goods are foods, clothing, soap, and gas
- Services are legal advice, medical treatment, education, etc (this is the largest category in US economy)
Is government spending included in GDP?
Yes (i.e., spending for police and state university professors, and capital in the form of tanks, schools, highways, bridges, and gov. buildings)
True or false: net imports are included in U.S. GDP
False (net exports, goods foreigners purchase of U.S. products are)
What is being shown? GDP = C + I + G + (X - M)
The total of household Consumption, Investment (spending by firms), Government spending, Net exports (exports minus imports)
A second approach to measuring GDP is the __________ approach, which measures GDP by adding up all the incomes earned by households in exchange for the factors of production during a persiod of time
How is GDP expressed with the second approach?
GDP = compensation of employees + rents + profits + net interest + indirect taxes (sales taxes, license fees, business property taxes, etc) + depreciation
Does GDP exclude non-market transactions?
Yes
____________ is calculated by adjusting GDP for depreciation
National Income (NI), a alternative to GDP
Is Personal Income (PI) an alternative to GDP, in which the total income of households (not businesses) is measured
Yes
What is the third alternative to GDP?
Disposable Personal Income (DI): amount of income that households actually have to spend or save after payment of personal taxes
Are social security payments included in Personal Income?
Yes
The most broadly based price index is the ____________
GDP chain price index
Based on the circular flow model, money flows from households to businesses in ___________
Product markets
The value of all final foods based on the prices existing during the time period of production (current dollar GDP, money GDP); what is being described?
Nominal GDP
The value of all final goods produced in a given time period based on the prices existing in a selected base year (constant dollar GDP); what is being described?
Real GDP
How is real GDP calculated?
Real GDP = (nominal GDP)/(GDP chain price index) x 100
What happens if the underground economy is sizable?
GDP will understate the economy’s performance
The income that people earn in resource or factor markets is called ____________
national income
What are the 5 factors that GDP excludes?
- Nonmarket transactions
- Distribution, kind, and quality of products
- Neglect of quality of life (leisure time)
- The underground economy (such as illegal activities)
- Economic bads (pollution that costs society but not factored into the GDP)
What is fixed investment?
Investment by firms in fixed capital (such as new equipment or machinery used in the production of goods)
True or false: Depreciation is also called capital consumption allowance
True
True or false: National income (NI) is the total income earned by resource owners, including wages, rents, interest, and profits.
True
