Chapter 6 - The Macroeconomic Perspective

Question 1

Gross domestic product (GDP)

Answer 1

Value of all final goods and services produced within a year, within the country

Question 2

Four main parts of demand

Answer 2

Consumer spending, government spending, business spending, spending on net exports (imports and exports)

Question 3

Investment expenditure

Answer 3

Purchasing of physical equipment, such as plants and machinery

Question 4

Is investment demand or consumption demand bigger?

Answer 4

Consumption demand. Investment demand only accounts for about 15-18% of GDP

Question 5

The only part of government spending included in GDP

Answer 5

Spending on goods and services within the economy

Question 6

Net export equation

Answer 6

X - M (exports - imports)

Question 7

Trade balance

Answer 7

Difference between exports and imports

Question 8

Trade surplus

Answer 8

Exports are larger than imports

Question 9

Trade deficit

Answer 9

Imports are larger than exports

Question 10

GDP equation

Answer 10

GDP = Consumption + Investment + Government + Trade balance
Or
GDP = C + I + G + (X – M)

Question 11

Five categories of what is produced

Answer 11

Durable goods, nondurable goods, services, structures, and inventories

Question 12

Largest component of GDP

Answer 12

Services

Question 13

Final goods

Answer 13

Goods in the last stage of production, ready to be sold and shipped, by the end of the year

Question 14

Double counting

Answer 14

Things are counted more than once as they travels through the stages of production

Question 15

Intermediate goods

Answer 15

Materials that go into the production of other goods

Question 16

Gross national product (GNP)

Answer 16

Includes everything in GDP plus anything else that is domestically owned but produced outside of the country

Question 17

Difference between GNP and GDP

Answer 17

GDP is focused on what happens within the country, GNP is focused on what the citizens of that country do

Question 18

Net national product (NNP)

Answer 18

Take GNP and subtract the value of how much physical capital is worn out, or reduced in value because of aging, over the course of a year. In other words, subtracting depreciation value from GNP.

Question 19

Depreciation

Answer 19

Capital ages and loses value over the course of its lifetime

Question 20

National income

Answer 20

All income of businesses and individuals

Question 21

Personal income

Answer 21

Only the income of individuals

Question 22

Nominal value

Answer 22

Measured in terms of actual prices that existed at the time

Question 23

Real value

Answer 23

Nominal statistic after it has been adjusted for inflation

Question 24

GDP deflator

Answer 24

Price index measuring the average prices of all goods and services included in the economy

Question 25

2 reasons nominal GDP can increase

Answer 25

Increase in output and increase in prices

Question 26

Real GDP equation

Answer 26

Real GDP = Nominal GDP / Price index

Question 27

Recession

Answer 27

Two consecutive quarters of economic shrinking. Lasts from peak to trough

Question 28

Depression

Answer 28

6 - 8 consecutive quarters of economic shrinking

Question 29

When real GDP rises, so does…

Answer 29

Employment

Question 30

4 parts to the business cycle

Answer 30

Peak, recession, trough, recovery

Question 31

Two issues of comparing GDP between countries

Answer 31

Different currency/exchange rate, and differing populations

Question 32

Purchasing power parity (PPP)

Answer 32

Longer run measure of the exchange rate, typically used for cross country comparisons of GDP

Question 33

GDP per capita

Answer 33

GDP per person (GDP / population)

Question 34

Standard of living

Answer 34

Includes all elements that affect people’s well-being

Question 35

How GDP can help understand standard of living

Answer 35

Shows if a country is materially better or worse off in terms of jobs and incomes