Chapter 9

Question 1

Final goods

Answer 1

those sold to a final user

Question 2

We only count the prices of

Answer 2

final goods

Question 3

Intermediate goods

Answer 3

those not sold to a final user

Question 4

We do not count the prices of

Answer 4

intermediate goods

Question 5

GDP

Answer 5

Gross domestic product is the current market value of all final goods and services produced within the country’s borders in one year.

Question 6

GDP tells us

Answer 6

how big the economy is.

Question 7

The U.S. GDP is

Answer 7

over $16.8 trillion

Question 8

Bads

Answer 8

unwanted phenomena such as disease, crime and garbage

Question 9

The expenditure approach is

Answer 9

the usual approach that is discussed on the news and in the most referenced government reports. With this approach, we add up the current market values of all final goods and services

Question 10

The income approach

Answer 10

Adds up all the payments to factors of production-the wages, interest, rents, and profits- generated by production. Government uses this method because they gather these data as people pay taxes.

Question 11

Government statistics are calculated using

Answer 11

the income approach

Question 12

What is the order of the groups of GDP from most spent to least spent?

Answer 12

Consumption, government spending, investment, net exports

Question 13

What is Real GDP?

Answer 13

What GDP would be if prices had remained the same as they were in a base year.

Question 14

Economic growth is

Answer 14

the percentage change in Real GDP

Question 15

A recession is

Answer 15

two successive quarters of negative economic growth

Question 16

We spend___% of our time in a recession and ___% not in recession

Answer 16

9; 91

Question 17

The business cycle

Answer 17

describes the ups and downs of the economy

Question 18

at the peak of the business cycle

Answer 18

real GDP is at a temporary high

Question 19

An increase in real GDP is called

Answer 19

an expansion

Question 20

When real GDP falls, the economy is

Answer 20

suffering a contraction

Question 21

At the trough of the business cycle

Answer 21

Real GDP is at a temporary low

Question 22

As real GDP grows from the trough,

Answer 22

a recovery is occuring

Question 23

Per Capita GDP

Answer 23

GDP divided by the population

Question 24

In the question “How much value is created in a year?” the words “how much value is created in a year” could be replaced by

Answer 24

How much income is earned in a year

Question 25

T/F We actually measure income as the social gain from production

Answer 25

false, though the true measure of income is social gain, we measure how much is paid for output that is produced

Question 26

T/F The value of crystal meth production is not included in GDP

Answer 26

True; we don’t have reliable records of production

Question 27

T/F Sales of used goods are not counted in GDP

Answer 27

True; they have been previously counted, you can’t double count

Question 28

T/F The value of a newly issued share of stock is counted in GDP

Answer 28

False; the money that comes from the stock sale will purchase capital, and to count both transactions would double count

Question 29

What are 2 approaches to calculating GDP?

Answer 29

expenditure and income

Question 30

Which approach does the government use?

Answer 30

Income because they get info from tax records

Question 31

What are the 4 components of the expenditure approach?

Answer 31

consumption, government purchases, investment and net exports

Question 32

What is the definition of investment as regards to expenditure approach?

Answer 32

production of capital goods, new residential housing, changes in inventories

Question 33

T/F we measure real GDP to reflect that though illegal goods may be destructive, they have value to those who buy them.

Answer 33

False, we measure real GDP to adjust for inflation