Econ Chapter 12 Notes

Question 1

What is GDP? What does it help determine? What does a rising GDP mean for the economy?

Answer 1

• The dollar value of all goods and services produced in the US for a given year
• GDP helps determine the health of the economy
• Rising GDP = healthy economy

Question 2

What are the four Economic Sectors?

Answer 2

Household, Investment, Government, and Foreign

Question 3

What does the Household Sector consist of?

Answer 3

Individuals and families
- Responsible for 75% of spending in our economy

Question 4

What does the Investment Sector consist of?

Answer 4

All businesses

Question 5

What does the Government Sector consist of?

Answer 5

federal, state, local (Ex: cities)

Question 6

What does the Foreign Sector consist of?

Answer 6

consumers and producers in other nations

Question 7

What are the Two Ways of Calculating GDP?

Answer 7

Expenditure Approach
Income Approach

Question 8

What is the Expenditure Approach?

Answer 8

Consumer Goods + Producer Goods + Government Goods + Net Exports = GDP ($)

Question 9

What is the Income Approach?

Answer 9

Wages + Interest + Rents + Profits = GDP ($)

Question 10

What are the Four Types of Exclusions?

Answer 10

Intermediate Products
Secondhand Sales
Nonmarket Transactions
Underground Economy

Question 11

What are Intermediate Products?

Answer 11

Goods used to produce other goods or services

Question 12

What are Secondhand Sales?

Answer 12

Sales of used goods (not from a store)

Question 13

What are Nonmarket Transactions?

Answer 13

services that are not paid for

Question 14

What is the Underground Economy?

Answer 14

activities not reported for legal or tax reasons

Question 15

What is Current GDP?

Answer 15

GDP that includes inflation

Question 16

What is Real GDP

Answer 16

GDP where inflation has been removed

Question 17

What are the characteristics of GDP Per Capita?

Answer 17

• Adjusting GDP for populations
• Crude measure on how well a society is doing

Question 18

What are the Limitations of GDP? (3)

Answer 18

• Does not tell how output occurs
• Does not tell impact on quality of life
• GDP can hide distortions

Question 19

What is GDP?

Answer 19

total dollar value of all goods and services produced in the U.S. in a year, even if the owners live somewhere else
Ex: Japanese auto plants in Ohio still count for U.S. GDP

Question 20

What is GNP?

Answer 20

total dollar value of all goods and services produced anywhere in the world by labor and properly owned by US residents in one year
Ex: U.S. owned factories in China or Guatemala count for U.S. GNP