Chapter 8

Question 1

gross domestic product

Answer 1

the market value of all FINAL goods and services produced IN A COUNTRY during a period of time, typically one year

Question 2

GDP=

Answer 2

sum of all goods

Question 3

final good or service

Answer 3

purchased by a final user
these are what are used to calculate GDP

Question 4

why use final goods and services?

Answer 4

if we counted intermediate goods and services as well, ones that were inputs into another good or service, such as a tire on a truck, then there would be double counting

Question 5

to measure total output in a given year, we measure goods and services produced

Answer 5

only in that given year
(avoids double counting)

Question 6

if a new car was produced in 2018 and sold in 2019

Answer 6

it would be counted in 2018 GDP, not 2019 GDP

Question 7

there are two main conceptual ways to measure the total economic activity in an economy:

Answer 7

1. total production
2. total income

Question 8

when we measure one, we are also measuring the other, why?

Answer 8

everything that is produced and sold constitutes income or someone

Question 9

transfer payments

Answer 9

payments to households for which the government does not receive a good or service in return

Question 10

example of transfer payments

Answer 10

social security and welfare programs

Question 11

imports

Answer 11

households buy goods and services to households in other countries

Question 12

exports

Answer 12

firms sell goods and services to households in other countries

Question 13

households elect not to spend some of their income,

Answer 13

and instead save it with financial system firms like banks
- these banks lend money to other firms and the government

Question 14

who measures GDP

Answer 14

bureau of economic analysis (BEA)

Question 15

four categories of expenditures

Answer 15

1. personal consumption expenditures, “consumption” (C)
2. gross private domestic investment. “investment” (I)
3. government consumption & gross investment, “government purchases” (G)
4. net exports of goods and services, “net exports” (NX)

Question 16

GDP=

Answer 16

Y=C+I+G+NX

Question 17

consumption

Answer 17

spending by households on goods and services, not including spending on new houses (under investments)

Question 18

consumption- service

Answer 18

landscaping, daycare, concert, lodging

Question 19

consumption-nondurable goods

Answer 19

consumables, foods, drinks, clothes

Question 20

consumption- durable goods

Answer 20

car, appliances, furniture, tools

Question 21

investment

Answer 21

spending by forms on new factories, office buildings, and additions to investories, plus spending by households and firms on new houses

Question 22

investment- business fixed investment

Answer 22

new buildings, equipment, intellectual property

Question 23

investment- residential investment

Answer 23

building a new house

Question 24

investment- changes in business inventories

Answer 24

goods that have been produced but not yet sold

Question 25

government purchases

Answer 25

spending by federal, state, local government on goods and services

Question 26

government purchases examples

Answer 26

teachers' salaries, highways, aircraft carriers

Question 27

transfer payments are NOT included in GDP, why?

Answer 27

because they do NOT result in the production of a goods or services

Question 28

the "G" in the GDP equation is

Answer 28

government purchases, not total government expenditures

Question 29

net exports

Answer 29

defined as the value of export (X) - imports (M)

Question 30

net exports equation

Answer 30

NX= X - M

Question 31

The us has negative NX which means

Answer 31

we import more than we export (trade deficit)

Question 32

since we want to count ___ production, we add up the value of goods and services sold to foreigners, and subtract off the value of the goods and services sold to americans by foreigners

Answer 32

domestic

Question 33

the subtracting of exports is really an issue of

Answer 33

accounting, does not affect GDP directly

Question 34

Imports are not inherently bad

Answer 34

accounting issue is not hurting the economy

Question 35

consumption is the largest component of GDP; within that, services are the largest component-

Answer 35

usa= "service economy"

Question 36

value added

Answer 36

the market value a firm adds to a product -shows that the final selling price of a good must equal the sum of all values added in all steps of the production process

Question 37

what is an alternative method to measure GDP

Answer 37

value added

Question 38

household production

Answer 38

childcare, cleaning, and cooking not typically paid for with money if done and paid for by a non-household-member, it would be counted in GDP

Question 39

the underground economy

Answer 39

"blackmarket" trading hidden -avoid taxes or regulations -or because the goods and services are illegal may be 10% or more of the economy in america, higher in low-income households

Question 40

if we are comparing GDP from year to year, the size of household production and the underground economy is probably about the same from year to year

Answer 40

GDP growth is a reasonable measure at the growth in total production

Question 41

Issues with GDP over long periods of time

Answer 41

increase in GDP may exaggerate the increase in actual total production

Question 42

in many developing countries, the informal sector is very large;

Answer 42

often above 50% of total output

Question 43

development economists say this often reflects poor government policies

Answer 43

higher taxes and regulations low confidence in the security of private property from government seizure

Question 44

GDP per capita would not reflect

Answer 44

the value of leisure pollution or other negative effects of pollution crime, other social problems distribution of income

Question 45

example of improvements that result in lower GDP per capita

Answer 45

lower crime -allows lower spending on police, prisons, and private security -this decreases GDP

Question 46

military spending is part of the ____ portion of GDP

Answer 46

government purchases (G)

Question 47

WWII GDP stats

Answer 47

production was very high, but mostly military goods- people weren't better off after WWII, GDP fell; - but production of consumption goods rose rapidly

Question 48

nominal GDP

Answer 48

the value of final goods and services evaluated at current-year prices

Question 49

real GDP

Answer 49

the value of final goods and services evaluated - we adjust this years number for inflation

Question 50

real and nominal GDP are ___ in the base year

Answer 50

equal

Question 51

growth figures reported in the media are the growth in real GDP

Answer 51

prices have generally increased since 2012 today: real GDP< nominal GDP prior to 2012: real GDP> nominal GDP

Question 52

relative prices

Answer 52

a ratio of prices asking: a good is worth how many of the other good?

Question 53

chain weighted prices

Answer 53

based on geometric means of growth rates weighted on last year prices (X) and this year prices (Y)

Question 54

chained growth rate=

Answer 54

square root X x Y

Question 55

price level

Answer 55

a measure of the average prices of goods and services in the economy

Question 56

price level, why?

Answer 56

stable prices are desirable because they allow households, firms, and government to plan for future

Question 57

GDP deflator

Answer 57

a measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100

Question 58

GDP deflator

Answer 58

nominal GDP/real GDP x 100

Question 59

percentage change

Answer 59

new-old/old

Question 60

percentage change in GDP deflator,

Answer 60

give us estimate of the change in price level

Question 61

gross national product (GNP)

Answer 61

production performed by citizen's of a nation, including overseas production

Question 62

national income

Answer 62

GDP minus the consumption of fixed capital ex. gdp-depreciation

Question 63

personal income

Answer 63

income received by households; including transfer payments, but excluded firms' retained earnings

Question 64

disposable personal income

Answer 64

personal income minus personal tax payments; this measures the amount that households are able to spend or save

Question 65

all products must be rewarded with

Answer 65

income

Question 66

data limitations

Answer 66

there is always some "statistical discrepancy"