Chapter 6 - Measuring Production, Spending and Income of Nations

Question 1

GDP

Answer 1

the market value of all new products produced in a territory at a given time

Question 2

Final good

Answer 2

Goods that undergo no additional processing

Question 3

Intermediate good

Answer 3

Goods that are a part of final goods. (Are not included in GDP)

Question 4

(3) ways to measure GDP

Answer 4

1- Expenditure approach: total spending is divided into four components: consumption, investment, government spending and net exports and added together)

2- Income approach:
3- Production approach

Question 5

Consumption

Answer 5

purchases of final goods and services by individuals

Question 6

Investment

Answer 6

purchases of final goods and services by businesses

Question 7

Government spending

Answer 7

purchases of new goods and services by federal, state and local government

Question 8

Net exports

Answer 8

the value of exports minus imports, (also known as the trade balance)

Question 9

Labor income

Answer 9

the sum of wages, salaries and fringe benefits paid to workers

Question 10

Capital income

Answer 10

the sum of profits, rental payments, and interest payments

Question 11

Depreciation

Answer 11

the decrease in an asset’s value over time

Question 12

Net investment

Answer 12

the difference between investment, (the purchases of new goods and services), and depreciation.

Question 13

Value added

Answer 13

the value of a firm’s production minus the value of the intermediate goods used in production

Question 14

(4) categories of spending

Answer 14

1- consumption
2- investment
3- government spending
4- Net exports

Question 15

Total amount of saving

Answer 15

a measure of the amount of resources a country has available for investment

Question 16

National saving

Answer 16

aggregate income minus government purchases

Ex: S = Y - C - G

Question 17

Real GDP

Answer 17

a measure of the value of all newly produced goods and services during some period of time adjusted for changes in prices over time

Question 18

Nominal GDP

Answer 18

a measure of GDP without correcting for inflation

Question 19

GDP deflator

Answer 19

nominal GDP divided by real GDP; it measures the level of prices of goods and services in real GDP relative to a given base year.

Question 20

price level

Answer 20

the average level of prices in the economy.

Question 21

Consumer price index (CPI)

Answer 21

a price index equivalent that calculates current price of a fixed market basket of consumer goods and service relative to a given year.

Question 22

(3) main types of limitations of nominal GDP

Answer 22

1- revisions in GDP can change the assessment of the economy
2- some types of production are omitted from GDP
3- the production of goods and services is only part of what affects the quality of life

Question 23

The ________ approach of calculating GDP requires adding up all expenditures on consumption, investment, government spending and net exports

Answer 23

spending/expenditure

Question 24

In the __________ approach, GDP is calculated by adding labor income, capital income, depreciation and taxes.

Answer 24

income

Question 25

_________ is used to calculate GDP under the production approach

Answer 25

Value added

Question 26

____________ or the ratio of nominal GDP to real GDP is a measure of a price level in the economy

Answer 26

GDP deflator

Question 27

The change in the _______________ is a measure of inflation in the economy

Answer 27

consumer price index