Chapter 7

Question 1

National income and product accounts

“national accounts”

Answer 1

Keep track of the flows of money between different sectors of the economy

Question 2

Consumer spending

Answer 2

Household spending on goods and services

Question 3

Stock

Answer 3

A share in the ownership of a company held by a shareholder

Question 4

Bond

Answer 4

Borrowing in the form of an IOU that pays interest

Question 5

Dvidiends

Answer 5

profits distributed to shareholders

Question 6

Government transfers

Answer 6

Payments by the government to individuals for which no good or service is provided in return

Ex. Social Security, unemployment insurance

Question 7

Disposable income

Answer 7

Income + government transfers - taxes = d.income

The total amount of household income available to spend on consuption and save

Question 8

Private savings

Answer 8

Disposable income that is not spent on consumption

Disposable income - Consumer spending

Question 9

Financial markets

Answer 9

The banking, stock, and bond markets, which channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing

Question 10

Gross domestic product

Answer 10

The value of all the final goods and services provided

Question 11

Government borrowing

Answer 11

The total amount of funds borrowed by federal, state, and local governments in the financial markets

Question 12

Government purchases of goods and services

Answer 12

Total expenditures on goods and services by federal, state, and local governments

Question 13

Exports

Answer 13

Goods and services sold to other countries

Question 14

Imports

Answer 14

Goods and services purchased from other countries

Question 15

Inventories

Answer 15

Stocks of goods and raw materials held to facilitate business operations

Question 16

Investment spending

Answer 16

Spending on productive physical capital - such as machinery and construction of buildings, and on changes to inventories

Question 17

final goods and services

Answer 17

Goods and services sold to the final, or end, user

Question 18

Intermediate goods and services

Answer 18

Goods and services bought from one firm by another firm that are inputs for production of final goods and services

Question 19

Gross Domestic Product (GDP)

Answer 19

The total value of all final goods and services produced in the conomy during a given year

Question 20

Aggregate spending

Answer 20

The sum of consumer spending, investment spending, government purchases of goods and services, and exports minus imports

=

Total spending on domestically produced final goods and services in the economy

Question 21

Third Way

GDP =

Answer 21

Sum the total factor income earned by households from firms in the economy

Question 22

3 ways of GDP calculation

Answer 22

1. Adding up total value of all final goods and services provided
2. Adding up spending on all domestically produced goods and services
3. Adding to total factor income earned by households from firms in the economy

Question 23

Value added

Answer 23

The value of a producer’s sales minus the value of its purchases of intermediate goods and services

Question 24

Not included in GDP

Answer 24

Intermediate goods and services

Inputs

Used goods

Stocks and bonds

Foreign produced goods and services

Question 25

GNP

Answer 25

The total factor income earned by residents of a country

excludes: factor income earned by foreigners (profits to foreign investors on american stocks or payments to foreigners working in US)
includes: americans who work abroad temporarily and american companies profiting in foreign countries

Question 26

Aggregate output

Answer 26

The economy’s total quantity of output of final goods and services

Question 27

Real GDP

Answer 27

The total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year

Question 28

Nominal GDP

Answer 28

The value of all final goods and services produced in the economy during a give year

Calculated using the prices current in the year in which the output is produced

Question 29

Chained dollars

Answer 29

The method of calculating changes in real GDP using the average between the growth rate calculated using an early base year and the growth rate calculated using a late base yera

Question 30

GDP per capita

Answer 30

GDP divided by the size of the population

The equivalent to the average GDP per person

Question 31

Aggregate price level

Answer 31

A measure of the overall level of prices in the economy

Question 32

Market basket

Answer 32

A hypothetical set of consumer purchases of goods and services

Question 33

Price index

Answer 33

Measures the cost of purchsing a given market basket in a given year, where that cost is normalized so that it is equlal to 100 in the selected base year

Question 34

Inflation rate

Answer 34

The percent change per year in a price index - typically the consumer price index

Question 35

Consumer price index (CPI)

Answer 35

Measures the cost of the market basket of a typical urban American family

Question 36

Price index formula

Answer 36

Cost of market basket in a given year

Cost of market basket in base year

X 100

Question 37

Inflation rate formula

Answer 37

Price index in year 2 - Price index in year 1

Price index in year 1

X 100

Question 38

Producer Price index (PPI)

Answer 38

Measures changes in the prices of goods purchased by producers

Question 39

GDP deflator

Answer 39

100 times the ratio of nominal GDP to real GDP in a given year