Chapter 8

Question 0

Total income

Answer 0

The yearly amount earned by the nation’s resources (factors of production). Total income therefore includes wages, rent, interest payments, and profits that are received by workers, landowners, capital owners, and entrepreneurs respectively.

Question 1

National income accounting

Answer 1

A measurement system used to estimate national income and it’s components; one approach to measuring an economy’s aggregate performance

Question 2

Final goods and services

Answer 2

Goods and services that are at their final stage of production and will not be transformed into yet other goods or services. For example, wheat is not ordinarily considered a final good because it is usually used to make a final good, bread.

Question 3

Gross domestic product (GDP)

Answer 3

The total market value of all final goods and services produced by factors of production located within a nation’s borders

Question 4

Intermediate goods

Answer 4

Goods used up entirely in the production of final goods

Question 5

Value added

Answer 5

The dollar value of an industry’s sales minus the value of immediate goods (for example, raw materials and parts) used in production

Question 6

Expenditure approach

Answer 6

Computing GDP by adding up the dollar value at current market prices of all final goods and services

Question 7

Income approach

Answer 7

Measuring GDP by adding up all components of national income, including wages, interest, rent, and profits

Question 8

Durable consumer goods

Answer 8

Consumer goods that have a life span of more than three years

Question 9

Nodurable consumer goods

Answer 9

Consumer goods that are used up within three years

Question 10

Services

Answer 10

Mental or physical labor or help purchased by consumers. Examples are the assistance of physicians, lawyers, dentists, repair personnel, house cleaners, educators, retailers, and wholesalers; things purchased or used by consumers that do not have physical characteristics

Question 11

Gross private domestic investment

Answer 11

The creation of capital goods, such as factories and machines, that can yield production and hence consumption in the future. Also included in this definition are changes in business inventories and repairs made to machines or buildings

Question 12

Investment

Answer 12

Any use of today’s resources to expand tomorrow’s production or consumption

Question 13

Producer durables or capital goods

Answer 13

Durable goods having an expected service life of more than three years that are used by business to produce other goods and services

Question 14

Fixed investment

Answer 14

Purchases by businesses of newly produced producer durables, or capital goods, such as production machinery and office equipment

Question 15

Inventory investment

Answer 15

Changes in the stocks of finished goods and goods in process, as well as changes in the raw materials that businesses keep on hand. Whenever inventories are decreasing, inventory investment is negative; whenever they are increasing, inventory investment is positive

Question 16

Depreciation

Answer 16

Reduction in the value of capital goods a one-year period due to physical wear and tear and also to obsolescence; also called capital consumption allowance

Question 17

Net domestic product (NDP)

Answer 17

GDP minus depreciation

Question 18

Capital consumption allowance

Answer 18

Another name for depreciation, the amount that businesses would have to save in order to take care of the deterioration of machines and other equipment

Question 19

Net investment

Answer 19

Gross private domestic investment minus an estimate of the wear and tear in the existing capital stock. Net investment therefore measures the change in the capital stock over a one-year period

Question 20

Gross domestic income (GDI)

Answer 20

The sum of all income-wages, interest, rent, and profits-paid to the four factors of production

Question 21

Indirect business taxes

Answer 21

All business taxes except the tax on corporate profits. Indirect
Business taxes include sales and business property taxes

Question 22

Nonincome expense items

Answer 22

The total of indirect business taxes and depreciation

Question 23

National income (NI)

Answer 23

The total of all factor payments to resource owners. It can be obtained from net domestic production (NDP) by subtracting indirect business taxes and transfers and adding net U.S. Income earned abroad and other business income adjustments.

Question 24

Personal income (PI)

Answer 24

The amount of income that households actually receive before they pay personal income taxes

Question 25

Disposable personal income (DPI)

Answer 25

Personal income after postal income taxes have been paid

Question 26

Nominal values

Answer 26

The values of variables such as GDP and investment expressed in current dollars, also called money values; measurement in terms of the actual market prices at which goods and services are sold

Question 27

Real values

Answer 27

Measurement of economic values after adjustments have been made for changes in the average of prices between years

Question 28

Constant dollars

Answer 28

Dollars expressed in terms of real purchasing power using a particular year as the base or standard of comparison, in contrast to current dollars.

Question 29

Foreign exchange rate

Answer 29

The price of one currency in terms of another

Question 30

Purchase power parity

Answer 30

Adjustment in exchange rate conversions that takes into account differences in the true cost of living across countries