Chapter 5.1 Flashcards
What is a central topic of macroeconomics?
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.
What is national product?
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.
What is national income?
The income generated by the production of the national product.
Example sentence: National income includes wages, profits, and rents earned in the economy.
What is a commonly used measure of national income?
Gross Domestic Product (GDP).
Example sentence: GDP is often used to compare the economic performance of different countries.
Why is obtaining a total for the nation’s output not simple?
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.
What is double counting?
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.
What are intermediate goods?
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.
What are final goods?
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.
What is value added?
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.
How is an individual firm’s value added calculated?
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.
What does value added represent?
The correct measure of each firm’s contribution to total output.
Example sentence: Value added provides insights into the economic performance of individual firms.
How is the sum of all values added in an economy significant?
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.
What example illustrates value added through stages of production?
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.
What is the correct measure of the final goods’ value in the example provided?
$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.
