Krugman Textbook Chapter 7

Question 1

National Income and Product Accounts (National Accounts)

Answer 1

A method of calculating and keeping track of the different flows of money between different sectors of the economy, such as a consumer and investment spending, or government purchases.

Question 2

Consumer Spending (Consumption)

Answer 2

This is household spending on goods and services from domestic and foreign firms.

Question 3

Stock

Answer 3

A share in the ownership of a company held by a shareholder.

Question 4

Bonds

Answer 4

A legal document based on borrowing in the form of an IOU that pays interest.

Question 5

Government Transfers

Answer 5

These are payments that government makes to you where to don’t need to trade something back.

Question 6

Disposable Income

Answer 6

The total amount of household income available to spend on consumption and save, after government transfers have been added and taxes have been deducted.

Question 7

Private Savings

Answer 7

Disposable income that goes into financial markets, such as a bank, to be saved for later use instead of spent immediately on goods and services.

Question 8

Financial Markets

Answer 8

These are banking, stock, and bond markets that channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing.

Question 9

Government Borrowing

Answer 9

The total amount of funds borrowed by federal, provincial, and local governments in financial markets to buy goods and services.

Question 10

Government Purchases of Goods and Services

Answer 10

The total purchases by federal, provincial, and local governments on goods and services.

Question 11

Inventories

Answer 11

Stocks of goods and raw materials held to facilitate business operations.

Question 12

Investment Spending (Investment)

Answer 12

The spending on productive physical capital, such as machinery or construction of buildings, and on changes to inventories.

Question 13

Final Goods and Services

Answer 13

These are goods and services sold to the final, or end, user.

Question 14

Gross Domestic Product (GDP)

Answer 14

The total value of all final goods and services produced in the economy during a given period, usually a year.

Question 15

Aggregate Expenditure

Answer 15

The sum of consumer spending, investment spending, government purchases of goods and services, exports minus imports is the total spending on domestically produced final goods and services in the economy.

Question 16

Value Added

Answer 16

The value of a producer’s sales minus the value of its purchases of intermediate goods and services.

Question 17

Factor Incomes

Answer 17

Incomes earned by factors of production, which include wages, interest, rent, dividends, and profits.

Question 18

Non-Factor Payments

Answer 18

The difference between the prices paid for final goods and services and the amount received by factors of production, which include net indirect taxes and capital depreciation.

Question 19

Net Exports

Answer 19

The difference between the value of exports and the value of imports. You have a positive net export when you export more goods than you import, and you have a negative net export when you import more goods than you export.

Question 20

Aggregate Output

Answer 20

The total quantity of final goods and services the economy produces for a given time period, usually a year. Real GDP is the numerical measure of aggregate output typically used by economists.

Question 21

Real GDP

Answer 21

The total value of all final goods and services produced in the economy during a year, calculated using the prices of selected base year.

Question 22

Nominal GDP

Answer 22

The value of all final goods and services produced in the economy during a given year, calculated using the current prices in the year in which the output is produced.

Question 23

Chained Dollars

Answer 23

Method of calculating real GDP using the average between the growth rate calculated using an early base year and the growth rate calculated using a late base year.

Question 24

GDP per Capita

Answer 24

GDP divided by the size of the population; equivalent to average GDP per person.

Question 25

Aggregate Price Level

Answer 25

A single number that represents the overall price level for final goods and services in the economy.

Question 26

Market Basket

Answer 26

A hypothetical consumption bundle of consumer purchases of goods and services, used to measure changes in the overall price level.

Question 27

Price Index

Answer 27

A measure of the cost of purchasing a given market basket in a given year, where the cost is normalized so that it is equal to 100 in the selected base year; a measure of overall price level.

Question 28

Inflation Rate

Answer 28

The annual percent change in a price index, typically the consumer price index. The inflation rate is positive when the aggregate price level is raising (inflation) and negative when the aggregate price level is falling (deflation).

Question 29

Consumer Price Index (CPI)

Answer 29

A measure of prices, calculated by surveying market prices for a market basket intended to represent the consumption of a typical Canadian family. The most commonly used measure of prices in Canada.

Question 30

Industrial Producer Price Index (IPPI)

Answer 30

An index that measures the changes in prices of goods purchased by producers.

Question 31

GDP Deflator

Answer 31

A price measure for a given year that is equal to 100 times the ratio of nominal GDP to real GDP in that year.