Chapter 27: Measuring Domestic Output and National Income

Which of the following is not an example of a personal consumption expenditure?

A fighter jet

Which of the following are part of taxes on production and imports?

Business property taxes Excise taxes Customs duties License fees General sales taxes

Which of the following items are calculated as part of national income?

Corporate profits Taxes on production and imports Rents Interest Compensation of employees Proprietors' income

What are the two ways to adjust nominal GDP to reflect price changes?

Divide nominal GDP by the price index. Multiply the current year's output by price of the output in the base year.

National income accountants subdivide corporate profits into which categories?

Dividends Undistributed corporate profits Corporate income taxes

Which approach to GDP adds up all the spending on final goods and services that has taken place throughout the year?

Expenditures approach

What effect does quality improvement have on GDP?

It improves GDP.

By ignoring the value of leisure time, how does national income accounting affect our well-being?

It understates our well-being.

As a measurement of economic output and the nation's wealth, GDP fails to account for which of the following?

Leisure time The underground economy Nonmarket activities Improved product quality

Which of the following measures the economy's overall performance?

National income accounting

What is gross rental income minus depreciation of the rental property?

Net rent

___ is computed using current prices.

Nominal GDP

Which of the following are included in compensation of employees?

Payments by employers into social insurance for employees Payments by employers into private pension plans for employees Wages and salaries

What is the net income of sole proprietorships, partnerships and other unincorporated businesses?

Proprietor's income

Dividing nominal GDP by the price index is one way of calculating ____ ___

REAL GDP

For the purposes of GDP accounting, what do government purchases include?

Spending on highway construction The purchase of new military equipment

Interest is the price that borrowers pay to a lender so that they can purchase goods and services today rather than in the future.

T

True or false: GDP reveals nothing about the way output is distributed.

T

True or false: Net domestic product is gross domestic product minus consumption of fixed capital (or depreciation).

T

In national income accounts, what does value added refer to?

The difference in the market value and cost of inputs purchased from other firms

One of the shortcomings of GDP is that it doesn't reveal anything about which of the following?

The distribution of output

The primary measure of the economy's performance is its annual total output of goods and services, which is called its ______.

aggregate output

Gross domestic product (GDP) may be calculated as the sum of ______.

consumer spending, investment spending, government purchases of goods and services, and net exports

Retained earnings are a category of ______.

corporate profits

Gross domestic product calculations count only final goods and services because ______.

counting all intermediate goods and services would lead to double-counting of many activities

Gross rental income minus ____ equals net rent

depreciation

Gross rental income minus ____ equals net rent.

depreciation

Net domestic product is gross domestic product less ______.

depreciation

Under the income approach to GDP, the wages, salaries, and benefits paid by businesses and government fall under the category of compensation of

employees

In order to determine GDP using the expenditures approach, all spending on ______ goods and services, not intermediate goods, is added up.

final

One of the flaws of GDP is that it ______.

ignores transactions that takes place in illegal markets or nonmarkets

Net exports equals exports minus

imports

Nominal GDP measures the value of all goods and services ____.

in dollars of the GDP year

GDP can be measured using the ______ approach, which adds up all of the items that make up national earnings.

income

national ____ accounting measures the overall performance of the economy.

income

What creates a problem in using money to value GDP?

inflation

_ is the price that is paid for the use of borrowed money.

interest

The difference between the amount of goods sold abroad and goods that are purchased from abroad is known as ___.

net exports

GDP may be understated because ______.

nonmarket activities are not included in GDP

All income received by households, whether earned or unearned, is called ___ income

personal

The amount of income that households receive, whether earned or unearned, is called ______ income.

personal

The term that covers all expenditures by households on goods and services is known as ____ expenditures.

personal consumption

___, ___ consists of the net income of sole proprietorships, partnerships, and other unincorporated businesses. (Enter one word in each blank.)

proprier income

GDP does not capture the full value of improvements in product quality because GDP is a(n) _____ instead of a qualitative measure.

quantitative

The main reason to participate in the underground economy is to avoid ______.

reporting actual income and paying income taxes

Depreciation of capital is _____.

the annual amount allocated to wear and tear on private investment

Real GDP is gross domestic product measured

to reflect changes in the price level.

Aggregate output is the primary measure of the economy's ______.

total output of goods and services

Social Security payments, welfare payments, and veterans' payments that the government makes directly to households are called government public____payments

transfer

The market value of a firm's output minus the value of the inputs the firm has bought from others is called ______.

value added Reason: Total profit is a firm's total revenues minus its total costs of production.

Government transfer payments include all of the following except:

wage payments to police officers

In order to construct a reliable price index, government accountants must assign a ______ to each of several categories of goods and services.

weight

The real-world, more complex GDP price index used in the United States is called the chain-type annual ____ price index

weight