Chapter 7 Terms

Question 1

The techniques used to measure the overall production of a country’s economy as well as other related variables.

Answer 1

National income accounting

Question 2

The total market value of all final goods and services produced annually within the boundaries of a nation.

Answer 2

Gross Domestic Product (GDP)

Question 3

Products that have been purchased for final use (rather than for resale or further processing or manufacturing).

Answer 3

Final Goods and Services

Question 4

Products that are purchased for resale or further processing or manufacturing

Answer 4

Intermediate Goods and Services

Question 5

The value of a product sold by a firm less the value of the products (materials) purchased and used by the firm to produce that product

Answer 5

Value Added

Question 6

The dollar value of the economic activity taking place at every stage of production and distribution. By contrast, gross domestic product (GDP) only accounts for the value of final output

Answer 6

Gross Output (GO)

Question 7

Wrongly including the value of intermediate goods in the gross domestic product; counting the same good or service more than once

Answer 7

Multiple Counting

Question 8

The method that adds all expenditures made for final goods and final services to measure the gross domestic product

Answer 8

Expenditures Approach

Question 9

The method that adds all the income generated by the production of final goods and final services to measure the gross domestic product

Answer 9

Income Approach

Question 10

The expenditures of households for both durable and nondurable consumer goods

Answer 10

Personal Consumption Expenditure (C)

Question 11

A consumer good with an expected life (use) of three or more years

Answer 11

Durable Good

Question 12

A consumer good with an expected life (use) of less than three years

Answer 12

Non-durable Good

Question 13

An (intangible) act or use for which a consumer, firm, or government is willing to pay

Answer 13

Service

Question 14

Expenditures that increase the nation’s stock of capital, which is the collection of physical objects and intangible ideas that help to produce goods and services. Includes spending on final purchases of plant, machinery, and equipment by business enterprises; residential construction; changes in inventories; expenditures on the research and development (R&D) of new productive technologies; and money spent on the creation of new works of art, music, writing, film, and software

Answer 14

Gross Private Domestic Investment (Ig)

Question 15

Gross private domestic investment less consumption of fixed capital; the addition to the nation’s stock of capital during a year

Answer 15

Net Private Domestic Investment

Question 16

Expenditures by government for goods and services that government consumes in providing public services as well as expenditures for publicly owned capital that has a long lifetime; the expenditures of all governments in the economy for those final goods and final services

Answer 16

Government Purchases (G)

Question 17

Exports minus Imports

Answer 17

Net Exports (Xn)

Question 18

A national income accounting category that includes such taxes as sales, excise, business property taxes, and tariffs that firms treat as costs of producing a product and pass on (in whole or in part) to buyers by charging a higher price.

Answer 18

Taxes on Production and Imports

Question 19

Total income earned by resource suppliers for their contributions to gross domestic product plus taxes on production and imports; the sum of wages and salaries, rent, interest, profit, proprietors’ income, and such taxes.

Answer 19

National Income

Question 20

An estimate of the amount of capital worn out or used up (consumed) in producing the gross domestic product; also called depreciation.

Answer 20

Consumption of Fixed Capital

Question 21

Gross domestic product less the part of the year’s output that is needed to replace the capital goods worn out in producing the output; the nation’s total output available for consumption or additions to the capital stock

Answer 21

Net Domestic Product (NDP)

Question 22

The earned and unearned income available to resource suppliers and others before the payment of personal taxes

Answer 22

Personal Income (PI)

Question 23

Personal income less personal taxes; income available for personal consumption expenditures and personal saving

Answer 23

Disposable Income (DI)

Question 24

The techniques used to measure the overall production of a country’s economy as well as other related variables

Answer 24

National Income Accounting

Question 25

GDP measured in terms of the price level at the time of measurement; GDP not adjusted for inflation. Compare with real gross domestic product (real GDP).

Answer 25

Nominal Gross Domestic Product GDP

Question 26

Gross domestic product adjusted for inflation; gross domestic product in a year divided by the GDP price index for that year, the index expressed as a decimal. Compare with nominal GDP.

Answer 26

Real GDP

Question 27

An index number that shows how the weighted-average price of a “market basket” of goods changes over time relative to its price in a specific base year.

Answer 27

Price Index

Question 28

The year with which other years are compared when an index is constructed; for example, the base year for a price index.

Answer 28

Base Year

Question 29

GDP Formula

Answer 29

Personal consumption + Gross Private Domestic Investment + Government Spending + Net Exports