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Macroeconomics > Module 5 > Flashcards

Module 5 Flashcards

1
Q

The difference between GDP and GNP is likely to be what?

  1. Insignificant, if a lot of domestic workers find employment in other countries
  2. Very small, if a large number of foreign companies are located in the country
  3. Very large, if many foreign citizens are employed within a country
  4. Very large, if nearly all of the country’s citizens are employed within the country
A

3

Output produced by foreign citizens working with in a country is counted in GDP, but is not counted in GNP.

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2
Q

Which would be counted in GDP, but not in GNP?

  1. Cars produced in a Japanese owned factory located in Detroit
  2. Cell phones produced by a US firm located in Malaysia
  3. Services provided by Canadian doctors treating US citizens in Canada
  4. Financial services provided by the US consultant working in Italy
A

1

GDP includes the value of output produced by a foreign owned plant located within the US.

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3
Q

True or false. In the United States, gross domestic product (GDP) is currently the most widely used measure of total output.

A

True

News articles and reports about the US economy most often referred to GDP.

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4
Q

Dannon purchased plastic containers for $20,000 and fruit for $30,000, and then added $40,000 in value by producing individual yogurts. Based on this data, Dannon’s activities caused GDP to increase by how much?

$20,000

$30,000

$40,000

$90,000

A

$90,000

GDP includes the value of the final good, which includes the value added at each stage of production, or $20,000 plus $30,000 plus $40,000.

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5
Q

True or false. Most US output is produced by the government sector, including federal, state, and local government entities.

A

False

Government produce output is roughly 20% of GDP in the United States.

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6
Q

Consumption expenditures are divided into

  1. Consumer durables, nondurables, and services
  2. Fixed investment (plants and equipment), residential construction, and changes in inventory
  3. Federal, state, and local levels
  4. Exports and imports
A

1

Consumer durables are long-lasting items like refrigerators and washing machines. Consumer nondurables are items that have a very short life, like a loaf of bread or shirt. Examples of consumer services include haircuts and dining out.

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7
Q

True or false. Consumption expenditures refers to spending on goods but not services.

A

False

Consumption expenditure includes expenditures on consumer durables, nondurables,and services.

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8
Q

Gross private domestic expenditures include

  1. Consumer durables, nondurables, and services
  2. Exports and imports
  3. Federal, state, and local levels
  4. Fixed investments such as plant and equipment, residential construction, and changes
A

4

Investment occurs when someone starts a new business or grows an existing business. Investment activities include building factories or stores, purchasing equipment, and adding inventory. Residential construction is also counted as an investment.

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9
Q

True or false. If John uses his savings to purchase stock in Coca-Cola, he’s making an investment expenditure as defined in the national income accounts.

A

False

Investment expenditure referred to the purchase of plant and equipment, residential construction, and changes in inventory.

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10
Q

True or false. The value of government expenditure included in GDP is smaller than the true amount spent by government, because it does not include transfer payments.

A

True

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11
Q

True or false. When net exports are negative, imports exceed exports.

A

True

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12
Q

Everything that is produced in a year must be purchased by

  1. Households
  2. Households, business, firms, the government, or foreign entities
  3. Household or business firms
  4. The foreign sector
A

2

The sum of spending by the four buying sectors is GDP.

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13
Q

Which is the correct formula for GDP?

  1. GDP = C + I + G + X - M
  2. GDP = C + I + G + X + M
  3. GDP = C + I + G
  4. GDP = C + I + G - X - M
A

1

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14
Q

If personal consumption expenditures equal $10,000, gross private domestic investment equals $2000, government purchases of goods and services equals $3000, exports equal $2200, and imports equal $2800, then GDP is equal to what?

A

$14,400

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15
Q

True or false. A negative value for net exports causes GDP to increase.

A

False

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16
Q

Income earned by the resources, land, labor, capital, and entrepreneurship.

A

National income

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17
Q

The sum of rent, wages and salaries, interest, and profits.

A

National income

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18
Q

GDP minus depreciation.

A

Net national product (NNP)

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19
Q

True or false. In the process of producing GDP, income is generated.

A

True

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20
Q

GNP minus depreciation

A

NNP (Net national product)

GMP includes gross private domestic investment, but NLP includes net private domestic investment. The difference between gross and net private domestic investment is depreciation, or the value of capital that has been used up, worn out, or become obsolete.

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21
Q

The income earned by resources, consisting of wages, rent, interest, profit, and proprietors net income.

  1. GDP
  2. GNP
  3. NI
A

3

Several adjustments have been made to convert GDP to NI and measure only income payments to resources.

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22
Q

Total market value of all final product produced within a country during a given period of time.

  1. GDP
  2. GNP
  3. NNP
A

1

GDP is output produced on US soil and includes production by foreign owned businesses and foreign workers.

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23
Q

Total market value of all final products produced by a nations citizens during a given time period.

  1. GDP
  2. GNP
  3. NNP
A

2

GNP is output produced by US resources, whether production happens in the United States or in a foreign country.

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24
Q

Income received by households.

A

Personal income

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25
Q

Income the household sector has left after taxes.

A

Disposable income

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26
Q

Which is not one of the major differences between NI and PI?

  1. Depreciation of capital equipment
  2. Transfer payments, such as unemployment benefits
  3. Payments by workers and employers into the Social Security system
  4. Corporate income taxes and undistributed corporate profits
A

1

Depreciation is the difference between GNP and NNP.

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27
Q

True or false. Disposable income is the income households earned before income taxes are deducted.

A

False

Disposable income is the income in the household sector has left after taxes. DI can be spent on consumption or saved.

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28
Q

True or false. The amount of income households receive is equal to the amount of income households earn.

A

False

PI is the amount of income households receive and NI is the amount of income households earn.

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29
Q

The flow out that occurs when resource income is received but not spent directly on purchases from domestic firms. Examples are saving, taxes, and purchases of imported goods.

A

Leakages

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30
Q

The flow in that represents spending not paid for out of resource income. Examples are Business investment, government expenditures, and sales of exported goods.

A

Injections

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31
Q

What happens to the size of the income flow when leakages are greater than injections?

A

It will shrink.

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32
Q

What happens to the size of the income flow when injections are larger than leakages.

A

It increases.

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33
Q

Which is an example of a leakage from the income stream?

  1. Purchases of imported goods
  2. Government expenditures
  3. Investment spending by business firms
  4. Sales of exported goods
A

1

Leakages occur when income is received, but not spent directly on purchases from domestic firms.

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34
Q

Which is an example of an injection into the income stream?

  1. Savings by households
  2. Purchases of imported goods
  3. Taxes paid by households
  4. Investment spending by business firms
A

4

Injections are additions to the circular flow that represent spending not paid for out of resource income.

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35
Q

True or false. If leakages are greater than injections, the size of the income flow will shrink.

A

True

Think of a bathtub; if a lot of water is being drained, but only a little is being added, the water level falls.

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36
Q

A government that spends more than the revenue it takes in is running a what?

A

A deficit

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37
Q

A government that collects more in taxes then it spends on wages and purchases is showing a what?

A

A surplus

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38
Q

When government spends more than the revenue it takes in, it must

  1. Borrow funds in the credit market to cover the deficit
  2. Borrow funds in the credit market to cover the surplus
  3. Lend funds in the credit market to cover the deficit
  4. Lend funds in the credit market to cover the surplus
A

1

A government that spends more than the revenue it takes in is running a deficit.

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39
Q

True or false. Government takes funds out of the stream by taxing households and by borrowing in the credit market.

A

2

Government taxes and borrowing are leakages from the income flow.

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40
Q

Purchases from foreign firms

A

Imports

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41
Q

Goods and services sold to foreign buyers

A

Exports

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42
Q

The difference between exports and imports for a given country for a given year

A

Balance on goods and services

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43
Q

What happens to the balance on goods and services when injections from the foreign market exceed the leakages?

A

A surplus

44
Q

What happens to the balance on goods and services when foreign market leakages are greater than injections?

A

A deficit

45
Q

Purchases from foreign firms are

  1. Imports
  2. Exports
A

1

Purchases of imports are flows out of the stream or leakages.

46
Q

Goods and services sold to foreign buyers are

  1. Imports
  2. Exports
A

2

Exports are injections into the income stream.

47
Q

Which of the following activities is counted as part of GDP?

  1. Teacher giving piano lessons to a mechanic in exchange for oil change
  2. A couple illegally paying a young woman $100,000 for her newborn baby
  3. A homeowner mowing her own lawn
  4. Baker purchasing power to use as an ingredient for cookies to be sold to the bakers customers
A

4

The value of the final product (cookies) includes the value of intermediate products like flour.

48
Q

True or false. If Emily puts her son into the local daycare, GDP increases. If she stays home and cares for her son, GDP does not increase.

A

True

If Emily pays a child care provider, this is considered in market transaction and is counted in GDP. If Emily cares for her son herself, this is a non-market transaction and is not counted in GDP.

49
Q

Which of the following accurately describes the types of production not included in GDP and how the non-included production affects GDP and the economy.

  1. It makes a big difference in year-to-year comparisons within a country
  2. It probably does not make a big difference in year to year comparisons within a country
  3. It makes a big difference in comparisons of similar countries, such as the United States and Canada
  4. It probably does not make a big difference in comparisons of dissimilar countries, such as the United States and India
A

2

Changes from one year to the next are not likely to be significant.

50
Q

True or false. The omission of barter, or under-the-table transactions, understates GDP.

A

True

If an accountant trades services with a dentist, production has increased for both of these individuals, yet this would not be reflected in GDP because GDP excludes barter transactions.

51
Q

If rising GDP comes at the expense of leisure time,

  1. There is no change in overall well-being
  2. GDP may be overstating the increase in well-being
  3. GDP maybe understating the increase in well-being
  4. GDP will not actually go up because reductions and leisure time offset rising output
A

2

Although there is more output, the reduction in leisure time causes the quality of life to fall.

52
Q

True or false. If the price of a washing machine increases because of an improvement in durability, GDP should not reflect this change.

A

False

Unless a specific feature can’t be separated out and assigned a price tag, GDP accountants have no good way of correcting for quality improvements.

53
Q

True or false. How to account for environmental damage is an easy issue the GDP accountants are working to exclude.

A

False

How to account for environmental damage is a difficult issue that GDP accounts are working to include.

54
Q

What is an example of a non-economic condition that would increase GDP but not the standard of living?

  1. Serving fresh catfish in a restaurant
  2. Using workers to build housing
  3. An outbreak of the SARS virus leading to large increase in the production of healthcare products to prevent SARS
  4. Producing alcohol to be sold in night clubs
A

3

The production of preventive health care products would increase GDP. Citizens would be better off if there was no virus and the resources used to produce these healthcare products could be used to produce something else.

55
Q

True or false. Although GDP is used as a proxy for living standards or economic well-being, there are reasons why GDP is not a perfect proxy.

A

True

56
Q

A country’s crime rate has dropped significantly and is expected to stay low for the foreseeable future. What effect will that have on the economy?

  1. It will lead to a higher living standard
  2. It will lead to an increase in GDP
  3. It will lead to a slower rate of economic growth
A

1

Even if the reduced crime rate had no effect on GDP, people per for a living safely.

57
Q

True or false. A hurricane that destroys businesses can have a positive effect on GDP.

A

True

In the short run, destruction can increase GDP because of the rebuilding that occurs. In the long run, it does not create economic growth because of the broken window fallacy.

58
Q

EPA regulations that prevent irrigation of farms in order to protect the smelt fish cause the GDP and standard of living to

  1. Increase
  2. Decrease
  3. Stay the same
A

2

Fewer fruits and vegetables are produced, which decreases GDP. This increases the price, leading households to buy less and puts farmworkers out of work. Both effects decrease the standard of living.

59
Q

True or false. Non-economic conditions can affect the economy both positively and negatively.

A

True

60
Q

Market transactions are

  1. Equally important in developed and less developed countries
  2. More important in less developed countries than in developed countries
  3. More important in developed countries than in less developed countries
A

3

In developed countries, families are more likely to purchase services like cleaning, childcare, and repairs.

61
Q

If GDP is growing at a faster rate in country A than the in country B,

  1. Living standards are definitely improving more in country B
  2. Living standards are not changing in either country
  3. It is likely that living standards are improving more in country A, but this may not be the case
  4. Living standards are definitely improving more in country A
A

3

It is possible that living standards are improving more in country B, yet GDP is not reflecting this because of omitted transactions, changes in leisure, or in accurate data.

62
Q

True or false. GDP and price indexes are computed the same way in all countries.

A

False

Each country develops its own methods for computing national statistics, although the methods are very similar.

63
Q

In the United States, GDP is about twice as large now as it was 20 years ago. What does this indicate?

  1. Total spending has doubled, but part of this increase reflects higher prices
  2. Prices have doubled since output has not changed
  3. Output has doubled since prices have not changed
  4. Both output and the price level have doubled
A

1

Increases in GDP reflect both higher output and higher prices.

64
Q

True or false. Comparing current GDP with last year’s GDP provides more accuracy than comparing current GDP with GDP 20 years ago.

A

True

Many changes have occurred over the past 20 years, such as the introduction of new products. These changes are not always reflected in GDP estimates.

65
Q

True or false. If China’s economy is growing at a faster rate than Canada’s economy, people living in China are better off than people living in Canada.

A

False

There are many reasons why GDP growth may not exactly coincide with individual well-being, including income distribution and economic bads.

66
Q

In the first year, the real GDP per population of 200 people is $50,000 and in the second year, the real GDP for a population of 202 people is $51,400. The growth rate of the real GDP from year 1 to year 2 is

A

2.8%

The growth rate of the real GDP over the air is 2.8% this is calculated as follows: real GDP for year 2 minus real GDP for year 1 divided by real GDP for year 1 * 100 = 2 .8%

67
Q

Real GDP is a measure of the value of economic output adjusted for

  1. Changes in the price level
  2. Unemployment
  3. Changes in leisure time
  4. Population changes
A

1

Nominal GDP is adjusted for changes in the price level to arrive at real GDP.

68
Q

True or false. A higher price level causes an increase in nominal GDP, but not an increase in real GDP.

A

True

When real GDP is calculated, the increase in the price level is removed.

69
Q

Real GDP per capita for the year for a population of 50,000 and the real GDP of 5,000,000 is

A

100

Real GDP / capita = real GDP / population = 5,000,000 / 50,000 = 100.

70
Q

Real GDP is a more accurate measure of output than nominal GDP because

  1. Real GDP measures the production of goods, while nominal GDP measures the production of services
  2. Changes in nominal GDP reflect changes in both output and product prices
  3. Nominal GDP measures the production of goods, while real GDP measures the production of services
  4. Changes in real GDP reflect changes in both output and product prices
A

2

Nominal GDP is adjusted for changes in the price level to arrive at real GDP.

71
Q

True or false. Economic growth is not associated with technological changes.

A

False

Technological change increases productivity and is associated with economic growth.

72
Q

Economic growth cannot be measured by

  1. The credit market
  2. GNP
  3. GDP
A

1

The credit market is the broad market for companies looking to raise funds through debt issuance. The credit market encompasses both investment grade bonds and junk bonds, as well as short term commercial paper. Economic growth cannot be measured by the credit market.

73
Q

True or false. Aggregate income could be measured to calculate economic growth.

A

True

Aggregate income is the component of GDP, which is the measure of a country’s economic growth.

74
Q

For the United States, the average rate of growth from 1950 to 2011 has been

  1. About 3.3%
  2. Zero
  3. Impossible to measure
  4. About -3.3%
A

1

75
Q

What is the decrease in the capital stock that results from the wear and tear and obsolescence called?

  1. Investment
  2. Depreciation
  3. Wealth
  4. Stock consumption
A

2

Depreciation decreases the stock of the capital.

76
Q

Which of the following are benefits of economic growth?

  1. Higher income
  2. Inflation
  3. Improved private services
  4. Boom and bust economic cycle
A

1

This enables consumers to enjoy more goods and services, as well as better standards of living.

77
Q

Lower government borrowing is a ___________ economic growth.

  1. Cost
  2. Benefit
A

2

Economic growth creates higher tax revenues and there’s less need to spend money on benefits, such as unemployment.

78
Q

Which of the following is a cost of economic growth?

  1. More money for protecting the environment
  2. An increase in investment
  3. A reduction in equality
  4. A deficit on the current account
A

4

Increased economic growth tends to cause an increase in spending on imports, causing a deficit on the current account.

79
Q

True or false. Lower unemployment is a benefit of economic growth.

A

True

With higher output firms tend to employ more workers creating more employment.

80
Q

True or false. Environmental cost is a benefit of economic growth.

A

False

Increased economic growth will lead to increased output and, therefore, increased pollution and congestion. This will cause health problems such as asthma, reducing the quality of life.

81
Q

GNP is defined as

  1. The total value of consumer spending by the citizen in a given time period
  2. The market and non-market value of all goods and services produced in a one year time period
  3. The final sales of goods and services produced in a one-year time period
  4. The final sales of goods and services produced in a one year time period within a nation’s borders
A

4

82
Q

If a country has more investment abroad, but few foreigners are investing locally it’s GNP is _____________ is then the GDP.

  1. Less
  2. More
A

2

83
Q

If a country has less investment abroad, but more foreigners are investing locally, it’s GNP is ___________ than the GDP.

  1. Greater
  2. Less
A

2

84
Q

True or false. There’s more injection in a circular flow model if there are more imports than exports.

A

False

With more imports, more will be paid out of the economy and, therefore, there is more leakage than injection.

85
Q

Which of the following is not included in the expenditure approach to GDP?

  1. Households
  2. The government
  3. Financial institutions
  4. Private investment
A

3

Financial institutions are involved in the income side of the GDP.

86
Q

In the production process of the national output, firms _________ factors of production and households ___________ factors of production.

  1. Supply / demand
  2. Demand and demand
  3. Demand and supply
  4. Supply and supply
A

3

87
Q

True or false. Construction income of undocumented workers is accounted for in the GDP.

A

False

The department of labor and the IRS have no record of undocumented workers, so it is difficult for GDP accountants to track these payments.

88
Q

Which statement about production activities that are not included in the GDP is true?

  1. Cause the GDP to be overstated
  2. Provide investment and expanded production in informal sector’s
  3. The informal economy is not accounted for in the GDP and is much larger in the US and Europe than in developing countries
  4. Contribute to the economic well-being of the society
A

3

89
Q

When outputs are for preferred more to less, they are ____________, and when these goods and services are preferred less to more, they are __________________.

  1. Economic goods and economic bads
  2. Economic bads and economic goods
  3. Economic goods and economic goods
  4. Economic bads and economic bads
A

1

Economic goods are preferred more because they have a positive marginal utility, so their increased consumption increases the GDP.

Economic bads are preferred less because they have a negative marginal utility, so their decreased consumption decreases the GDP.

90
Q

True or false. Comparing the GDP across countries is complicated because each country uses its own currency.

A

True

Each country uses its own currency to measure the GDP, and because exchange rates often fluctuate, it is difficult to compare the GDP among countries.

91
Q

Real GDP is the

  1. Value of goods and services produced as of a particular point in time
  2. Change in the quantity of goods and services produced over 2 periods of time
  3. Value of final output in one year after adjusting for inflation for the same year
  4. Amount of goods and services available to each individual per period of time
A

3

92
Q

With economic growth, ___________ decreases, and ______________ increases.

  1. Unemployment and inflation
  2. Employment and deflation
  3. Unemployment and deflation
  4. Employment and inflation
A

1

93
Q

True or false. With economic growth, labor productivity will be improved.

A

True

With economic growth, new technology will be introduced to improve the productive efficiency of labor and capital.

94
Q

True or false. There is no difference between GDP and GNP.

A

Falls

GDP is the market value of total goods and services produced within a nation’s borders, whereas GNP is produced by the citizens of a nation regardless of where the citizens produce.

95
Q

If C=$900, I=$150, G=$250, X=$50, M=$70, foreign investors’ income is $80, and income from foreign investments is $60, then the GDP is ______________.

A

$1260

$900 + $150 + $250 + $50 - $70 -$80 + $60 = $1260.

96
Q

With government taxation of households, there is _____________ and with more exports and then imports, there is ________________ in the circular flow model.

Injection and injection

Leakage and leakage

Injection and leakage

Leakage and injection

A

Leakage and injection

With government taxation, payment will be made from the circular flow and, therefore, there is a leakage instead of injection.

With more exports than imports, more payments will be made to the circular flow and, therefore, there is injection instead of leakage.

97
Q

True or false. Payments for labor and land are included in the investment component of the expenditure in GDP.

A

Falls

Investment is not payment for labor and capital, but is the purchase of final outputs for establishing factories, residential constructions, and equipment.

98
Q

Which statement about national income accounting is incorrect?

The foreign sector of the GDP accounts for only the net export

Transfer payments are accounted for in the government expenditure of the GDP

GDP is the total payment for labor, capital, and natural resources used to produce national outputs

GDP is the market value of final output produced in a country

A

?

99
Q

If the Carpender makes a bookcase for personal use, it ____________ be counted in the GDP come. However, if a Carpender makes and sells bookcases the value of those bookcases ______________ be included in the GDP.

Will and will

Will and will not

Will not and will

Will not and will not

A

Will not and will

The carpenter is not paying himself for the labor to make the bookcase, so it is difficult to account the value in the GDP. When the Carpender sells the bookcase in the market, the exchange of goods is a public record, so it will be accounted for in the GDP.

100
Q

True or false. The cost of maintaining underground activities is much larger than formal economic sectors

A

True

Informal sectors have to pay substantial bribes to government officials to remain in business.

101
Q

Which of the following is not an economic bad that affects the GDP?

Excessive automobiles

Pollution

Productivity

Consumption of cigarettes

A

?

102
Q

When using the GDP to compare countries, economists recommend converting currency values with the ______________ exchange rate, and when comparing GDP across time, it is recommended to use a __________ time period.

US dollar and short

US dollar and long

Purchasing power parity and short

Purchasing power parity and long

A

Purchasing power parity and short.

The local currency exchange rate with the US dollar fluctuates from day today, so the GDP value will also fluctuate. Goods and services produced in an economy may change over time; therefore, The shorter the time. Gap, the more likely it is to compare the same kinds of goods and services.

103
Q

True or false. If the average person in an economy has more goods and services this year than last year, the economy has experienced an increase in real total output.

A

Falls

In that situation, the economy has experience an increase in real per capita output.

104
Q

Which one of the following is not achieved when on economy grows?

Low levels of unemployment

More and better education and health services

An increase in per capita income

A reduction in pollution

A

A reduction in pollution

When the economy grows, you will not see a reduction in production because environmental wastes often increase with a growing economy.

105
Q

Hey successful economy is capable of increasing the production of goods and services __________ then the growth in population and with allocation of more ___________.

Slower and technology

Slower and natural resources

Faster and technology

Faster and natural resources

A

Faster and technology

Macroeconomics (8 decks)

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