Chapter 5.1 Flashcards

1
Q

What is a central topic of macroeconomics?

A

The overall level of economic activity—aggregate output and the income that is generated by its production.

Example sentence: Macroeconomics focuses on factors such as inflation, unemployment, and economic growth.

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2
Q

What is national product?

A

The value of the total production of goods and services in a country.

Example sentence: National product is a key indicator of a country’s economic performance.

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3
Q

What is national income?

A

The income generated by the production of the national product.

Example sentence: National income includes wages, profits, and rents earned in the economy.

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4
Q

What is a commonly used measure of national income?

A

Gross Domestic Product (GDP).

Example sentence: GDP is often used to compare the economic performance of different countries.

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5
Q

Why is obtaining a total for the nation’s output not simple?

A

Because one firm’s output is often another firm’s input, leading to potential double counting.

Example sentence: Double counting can inflate the actual value of a country’s output.

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6
Q

What is double counting?

A

An error that arises from adding up the market values of all outputs of all firms, resulting in multiple counting of the same goods.

Example sentence: Double counting distorts the true value of a country’s economic output.

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7
Q

What are intermediate goods?

A

Outputs of some firms that are used as inputs by other firms.

Example sentence: Intermediate goods include components used in the production of final products.

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8
Q

What are final goods?

A

Products that are not used as inputs by other firms in the period of time under consideration.

Example sentence: Final goods are consumed or used for investment purposes by end-users.

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9
Q

What is value added?

A

The amount of value that firms and workers add to their products over and above the costs of purchased intermediate goods.

Example sentence: Value added is a key concept in measuring economic productivity.

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10
Q

How is an individual firm’s value added calculated?

A

Sales revenue minus the cost of intermediate goods purchased from other firms.

Example sentence: Calculating value added helps determine a firm’s efficiency in production.

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11
Q

What does value added represent?

A

The correct measure of each firm’s contribution to total output.

Example sentence: Value added provides insights into the economic performance of individual firms.

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12
Q

How is the sum of all values added in an economy significant?

A

It is a measure of the economy’s total output.

Example sentence: The sum of all values added reflects the overall economic activity of a country.

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13
Q

What example illustrates value added through stages of production?

A

A mining company produces iron ore valued at $1000, a steel producer adds $500 value, and a metal fabricator adds $300 value, resulting in final goods valued at $1800.

Example sentence: The example demonstrates how value is added at each stage of production.

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14
Q

What is the correct measure of the final goods’ value in the example provided?

A

$1800, either by counting only the sales of the last firm or by summing the values added by each firm.

Example sentence: The final goods’ value can be determined by considering the value added at each production stage.

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