Midterm 1 Flashcards
Calculating the value of an economy is harder than just adding up the value of every single thing that is produced because:
that would lead to overcounting, as the value of intermediate products would be counted twice.
The field of macroeconomics studies ______ and microeconomics studies ______.
economic aggregates; individual markets
GDP:
per capita gives us a sense of the average economic well-being in a country.
Gross domestic product (GDP) is:
the sum of the market values of all final goods and services produced within a country in a given period of time.
Canadian car dealers sell both used cars and new cars each year. However, only the sales of the new cars count toward GDP. The sale of used cars does not count because:
the used cars had been previously counted in the GDP of the year in which they were built.
There is a saying, “You can’t compare apples and oranges.” When economists calculate GDP, they:
are able to ‘compare apples and oranges’ by converting production to its dollar value.
When Canadians buy a good produced in the U.S., Americans earn income from Canadian expenditures. The value of this American output and Canadian expenditure is counted under the GDP of:
the U.S. because it is produced in the U.S.
Economists sometimes describe the economy as having a circular flow. In the most basic form of the circular flow model, companies hire workers and pay them wages. Workers then use these wages to buy goods and services from companies. The circular flow model explains the equivalence of the expenditure and income methods of valuing an economy because:
the revenues of all firms are turned into wages (income method), and all wages are spent on the firms’ products (expenditure method).
Determine whether each of the following counts as consumption, investment, government purchases, net exports, or none of these, under the expenditure approach to calculating GDP.
The construction of a court house:
Government Purchases
Determine whether each of the following counts as consumption, investment, government purchases, net exports, or none of these, under the expenditure approach to calculating GDP.
A taxicab ride
Consumption
Determine whether each of the following counts as consumption, investment, government purchases, net exports, or none of these, under the expenditure approach to calculating GDP.
The purchase of a taxicab by a taxicab company
Investment
Determine whether each of the following counts as consumption, investment, government purchases, net exports, or none of these, under the expenditure approach to calculating GDP.
A student buying a textbook:
Consumption
Determine whether each of the following counts as consumption, investment, government purchases, net exports, or none of these, under the expenditure approach to calculating GDP.
The trading of municipal bonds (a type of financial investment offered by city governments).
N/A
Determine whether each of the following counts as consumption, investment, government purchases, net exports, or none of these, under the expenditure approach to calculating GDP.
A company’s purchase of foreign minerals:
Net exports
In a press conference, the president of a small country displays a chart showing that GDP has risen by 10 percent every year for five years. He argues that this growth shows the brilliance of his economic policy. However, his chart uses nominal GDP numbers.
This chart might be wrong because it:
relies on nominal GDP which might have increased because of price increases and not output increases
In a press conference, the president of a small country displays a chart showing that GDP has risen by 10 percent every year for five years. He argues that this growth shows the brilliance of his economic policy. However, his chart uses nominal GDP numbers.
If you are a reporter at the press conference and want to get a more accurate picture of the country’s economic growth, you should ask for the:
growth rate of real GDP which excludes price changes
Suppose the GDP deflator grew by 10 percent from last year to this year. That is, the inflation rate this year is 10 percent.
This means that overall:
prices in the economy have risen by 10 percent
Suppose the GDP deflator grew by 10 percent from last year to this year. That is, the inflation rate this year is 10 percent.
This inflation rate implies that the growth rate in real GDP is 10 percent:
less than the growth rate in nominal GDP
Given the following information about each economy, either calculate the missing variable or determine if it can be calculated:
a. Suppose C = $20.1 billion, I = $3.5 billion, G = $5.2 billion, and NX = −$1 billion.
Total Income is
$27.8 billion
Suppose C = $20.1 billion, I = $3.5 billion, G = $5.2 billion, and NX = −$1 billion.
Total Income is…
$27.8 billion
Suppose total income is $1 trillion, G = $0.3 trillion, and C = $0.5 trillion.
I is…
Indeterminate
Suppose total expenditure is $675 billion, C = $433 billion, I = $105 billion, and G = $75 billion.
NX is…
$62 billion
The circular flow model illustrates the crucially important idea of macroeconomics, which is that:
every expenditure of someone in the economy is exactly equal to the income of another.
Which approach to calculating GDP best highlights the relative importance of different factors of production?
The income approach