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

microeconomics

Answer 2

the study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices

Question 3

macroeconomics

Answer 3

the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth

Question 4

business cycle

Answer 4

alternating periods of economic expansion and economic recession

Question 5

expansion

Answer 5

the period of a business cycle during which total production and total employment are increasing

Question 6

recession

Answer 6

the period of a business cycle during which total production and total employment are decreasing

Question 7

economic growth

Answer 7

the ability of the economy to produce increasing quantities of goods and services

Question 8

inflation rate

Answer 8

the percentage increase in the price level from one year to the next

Question 9

who compiles the data to determine GDP

Answer 9

the bureau of economic analysis in the department of commerce

Question 10

When does the BEA issue reports on GDP

Answer 10

every 3 months

Question 11

how do we measure production

Answer 11

taking the value, in dollar terms of all the goods and services produced

Question 12

GDP includes _____ but not _______

Answer 12

final goods and services; intermediate goods and services

Question 13

final good or service

Answer 13

a good or service purchased by a final user

Question 14

intermediate good or service

Answer 14

a good or service that is an input into another good or service, such as a tire on a truck

Question 15

calculating GDP

Answer 15

1. multiply the amount of goods by the price of each

2. add together

Question 16

firms sell goods and services to what three groups

Answer 16

domestic households, foreign firms and households,and the government

Question 17

exports

Answer 17

expenditures by foreign firms and households on domestically produced goods and services

Question 18

factors of production

Answer 18

firms use them to produce goods, they are: labor, capital, natural resources, and entrepreneurship

Question 19

households supply the factors of production to firms in exchange for

Answer 19

income

Question 20

the four categories of income are

Answer 20

wages, interest, rent, and profit

Question 21

firms pay wages to households in exchange for

Answer 21

labor service

Question 22

firms pay interest for the use of

Answer 22

capital

Question 23

firms pay rent for

Answer 23

natural resources such as land

Question 24

profit

Answer 24

the income that remains after a firm had paid wages, interest, and rent, the return to entrepreneurs and business owners for bearing the risk of producing and selling goods and services

Question 25

transfer payments

Answer 25

payments by the government to households for which the government does not receive a new good or service

Question 26

imports

Answer 26

spending on foreign produced goods and services

Question 27

the four categories of GDP

Answer 27

consumption, investment, government purchases, and net exports

Question 28

consumption

Answer 28

spending by households on goods and services not including spending on new houses (services, durable goods, non-durable goods) not new houses

Question 29

investment

Answer 29

spending by firms on new factories, office buildings, machinery, and additions to inventories, plus spending by households and firms on new houses

Question 30

government purchases

Answer 30

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

Question 31

net exports

Answer 31

exports minus imports

Question 32

GDP equation

Answer 32

Y=C+I+G+NX

Question 33

spending on research and development is including in

Answer 33

the investment part of GDP

Question 34

value added

Answer 34

the market value a firm adds to a product

Question 35

what two types of production does GDP not include

Answer 35

household production and the underground economy

Question 36

the underground economy

Answer 36

buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are illegal

Question 37

why is GDP not a good measure of well being

Answer 37

the value of leisure is not included in GDP, GDP is not adjusted for pollution or other negative effects of production, GDP is not adjusted for crime and other social problems, GDP measure the size of the pie but not how the pie is divided

Question 38

nominal GDP

Answer 38

the value of final goods & services evaluated at current year prices

Question 39

real GDP

Answer 39

the value of final goods and services evaluated at base year prices

Question 40

price level

Answer 40

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

Question 41

GDP deflator

Answer 41

a measure of the price level

Question 42

GDP deflator formula

Answer 42

(nominal/real) x 100

Question 43

national income accounting

Answer 43

the methods the BEA uses to track total production and total income in the economy

Question 44

gross national product

Answer 44

the value of final goods and services produced by the residents of the united states, even if the production takes place outside the U.S

Question 45

national income

Answer 45

subtracting consumption of fixed capital from GDP

Question 46

personal income

Answer 46

income received by households

Question 47

disposable personal income

Answer 47

equal to personal income minus personal tax payments