Chapter 6A | GDP, Economic Growth, Business Cycles

Question 1

Nominal GDP

Answer 1

value at current prices of all final products and services produced annually in a country

Question 2

GDP

Answer 2

concepts measure the value of all final products and services produced annually in a country; nominal GDP combines changes in prices and quantities, real GDP measures only changes in quantities, and real GDP per person is the best measure of material standard of living.

Question 3

Differences in nominal GDP

Answer 3

between years due to price changes or quantity changes

Question 4

GDP includes

Answer 4

products and services produced within a country’s borders, no matter what the nationality of the business doing the producing

GDP is a flow amount per unit of time

Question 5

Stock

Answer 5

fixed amount at a moment in time

Question 6

Real GDP

Answer 6

value at constant prices of all final products and services produced annually in a country

Question 7

Differences in real GDP

Answer 7

between years show only changes in quantities

Question 8

Real GDP per person

Answer 8

real GDP divided by population

Real GDP per person is the best measure of material standard of living

Question 9

Value Added & Enlarged Circular Flow

Answer 9

aggregate spending equals aggregate income in circular flow diagrams

Question 10

Final product or service

Answer 10

consumed directly by consumers

Question 11

Intermediate product or service

Answer 11

input bought from other businesses

Question 12

Value added

Answer 12

value of output minus the value of intermediate products and services bought from other businesses

Value added solves the problems of double counting and of distinguishing between final and intermediate products and services
Value of final products and services = value added
Value of final products and services (GDP) = input’s income

Question 13

Value of final products and services = value added
Value of final products and services (GDP) = input’s income
GDP can be calculated using either half of the circular flow
Aggregate spending (GDP) = aggregate income (Y)
Spending on final products and services = payments to input owners

Answer 13

Value of final products and services = value added
Value of final products and services (GDP) = input’s income
GDP can be calculated using either half of the circular flow
Aggregate spending (GDP) = aggregate income (Y)
Spending on final products and services = payments to input owners

Question 14

Flows of spending on the enlarged circular flow

Answer 14

C - consumption spending by consumers

I - business investment spending on factories and machines made by businesses

G - government spending on products and services

X - spending by the rest of the world on Canadian exports of products and services

IM - Canadian spending on imports of products and services produced by the rest of the world

Question 15

preferences

Answer 15

your wants and their intensities

Question 16

demand

Answer 16

consumers’ willingness and ability to pay for a product or service

Question 17

marginal benefit

Answer 17

the additional benefit from a choice, changing with circumstance

Question 18

quantity demanded

Answer 18

amount you actually plan to buy at a given price

Question 19

market demand

Answer 19

sum of demands of all individuals willing and able to buy a particular product or service

Question 20

law of demand

Answer 20

if the price of a product or service rises, quantity demanded decreases, other things remaining the same

Question 21

demand curve

Answer 21

shows the relationship between price and quantity demanded, other things remaining the same

Question 22

Five Ways to Change Demand and Shift the Demand Curve

Answer 22

Preferences

Prices of related products

Income

Expected future prices

Number of consumers

A change in any of these five factors shifts the demand curve.

Question 23

decrease in demand

Answer 23

decrease in consumers’ willingness and ability to pay

Question 24

substitutes

Answer 24

products or services used in place of each other to satisfy the same want

Question 25

complements

Answer 25

products or services used together to satisfy the same want

Question 26

normal goods

Answer 26

products or services you buy more of when your income increases

Question 27

inferior goods

Answer 27

products or services you buy less of when your income increases

Question 28

Demand changes with changes in preferences, prices of related goods, income, expected future price, and number of consumers. For example, demand increases with:

Answer 28

– increase in preferences.
– rise in price of a substitute — products or services used in place of each other to satisfy the same want.
– fall in price of a complement — products or services used together to satisfy the same want.
– increase in income for normal goods — products or services you buy more of when your income increases.
– decrease in income for inferior goods — products or services you buy less of when your income increases.
– rise in expected future prices.
– increase in number of consumers.