Chapter 7: Measuring Output

Question 1

Nominal gross domestic product (GDP)

Answer 1

the current dollar value of production.

Question 2

intermediate goods

Answer 2

goods used to build or make another product that will be later sold

Question 3

final goods and services

Answer 3

goods sold to the end user and not used to produce another product

Question 4

consumption (C)

Answer 4

all expenditures made by households on goods and services, like clothing, food, electronics, and recreation during a given time period; sum of durables goods, nondurable goods, and services

Question 5

gross investment (I) (or investment)

Answer 5

dollar value of all new capital purchased and the expansion of inventories in an economy during a given time period

Question 6

3 gross investment categories

Answer 6

business fixed investment, residential investment, inventory investment

Question 7

government purchases (G)

Answer 7

all final goods purchased by federal, state, and local governments (tanks, police cars, fire engines, labor such as police officers, teachers, etc.) during a given time period

Question 8

imports (M)

Answer 8

goods, services, resources produced abroad and sold domestically

Question 9

exports (X)

Answer 9

goods, services, resources produced domestically and sold abroad

Question 10

net exports (NX)

Answer 10

NX = X (exports) - M (imports)

Question 11

Questions to determine if included GDP

Answer 11

1. Does the transaction represent new production of a final good or service?
2. Who is purchasing the good or service?
3. Where was the good or service produced originally?

Question 12

consumer durables

Answer 12

Goods that have an average useful life of three years or more

Question 13

consumer nondurables

Answer 13

Goods that have an average useful life of less than three years

Question 14

services

Answer 14

outputs, often intangible, of the direct activities of another person

Question 15

transfer payment

Answer 15

payment made by the government that does not require an exchange of economic activity in return (payments to households)

Question 16

business fixed investment

Answer 16

purchased by firms of new capital goods such as offices, factories, tools, machinery

Question 17

residential investment

Answer 17

purchases of new homes inc. home improvements

Question 18

inventory investment

Answer 18

inventory changes from year to year; positive if inventory growing; negative if declining)

Question 19

depreciation

Answer 19

consumption of physical capital or value of capital that wears out, used up, obsolete during a year

Question 20

net investment

Answer 20

Gross investment minus depreciation

Question 21

GDP expenditures approach

Answer 21

approach to calculating nominal GDP that sums 4 categories of expenditures on final goods and services in an economy in a given time period

Question 22

national income

Answer 22

total payments to owners of resources plus profits and losses

Question 23

rent

Answer 23

payments made to land resources

Question 24

wages

Answer 24

payments made to labor resources

Question 25

interest

Answer 25

a fee for the use of money over time; payments made to lender

Question 26

profits and losses

Answer 26

payments accruing to owners of entrepreneurial ability

Question 27

proprietor’s income

Answer 27

profits and losses earned by individual proprietors

Question 28

corporate profits

Answer 28

profits and losses of corporations

Question 29

indirect business taxes

Answer 29

taxes paid by businesses (i.e.. property taxes, sales taxes, license fees)

Question 30

net foreign factor income

Answer 30

difference between payments received from resources owned internationally and income earned by people in foreign countries from resources owned domestically

Question 31

GDP income approach

Answer 31

GDP = National Income + Indirect business taxes + depreciation + net foreign factor income

Question 32

real gross domestic product (real GDP, Y)

Answer 32

constant dollar value of all final goods and services produced in an economy during a given period of time (AKA inflation-adjusted GDP)

Question 33

Difference between Nominal GPD and real GDP

Answer 33

prices used; nominal uses current prices and real uses prices from a base year (constant prices)

Question 34

real GDP per capita

Answer 34

real GDP / population

Question 35

inflation

Answer 35

a general increase in prices of goods and services

Question 36

GDP price index

Answer 36

a price index based on all the goods and services that are counted as part of gross domestic product (AKA GDP deflator); way to measure the average price level in an economy;

Question 37

Why GDP best measure of economic activity for a country?

Answer 37

1. G/S not bought in a formal market aren’t included
2. G/S in underground economy not included
3. cannot account for the ultimate intangible: happiness

Question 38

nominal GDP formula

Answer 38

Nominal GPD = C (consumption) +I (gross investment)+G (government purchases) +NX (net exports)

Question 39

what year are real GPD and nominal GPD the same?

Answer 39

Base year

Question 40

GPD price index formula

Answer 40

Nominal GDP/Real GDP x 100

Question 41

home production

Answer 41

goods and services produced by a household and are not exchanged in a market

Question 42

underground economy

Answer 42

economic activity where goods and services exchanged or payment but not counted as part of GDP (i.e. black markets)

Question 43

national income formula

Answer 43

National Income = rent + wages + interest +

profits and losses