Chapter 5 Review

Which of the following identities defines GDP using the product approach?

GDP = Business production + Household and institution production + Government production

Which of the following identities defines GDP using the income approach?

GDP = National income Net income payments from the foreign sector + Depreciation

Net national product is defined as

GDP minus depreciation

In the traditional macroeconomic model investment is assumed to be done by which sector?

Business sector

Suppose that an economy is growing at a real rate of 3% per year. About how long will it take for this economy to double in size?

24 years

According to the text, what is the difference between a closed economy and an open economy?"

A closed economy has no foreign sector while an open economy includes a foreign sector.

A motor vehicle manufactured in Europe but sold in the United States would represent an addition to the gross domestic product of the United States.

False

Gross domestic product is defined as the value of all final and intermediate goods newly produced in an economy in a given period of time.

False

In the traditional macro model government spending is assumed to be primarily investment expenditures.

False

Net national product is defined as GDP minus net exports.

False

The largest component of GDP attributed to the government sector is spending on Social Security.

False

The three methods for calculating GDP are

"the spending approach, the income approach, and the product approach."

Suppose nominal GDP in an economy is $11 trillion and real GDP is $10 trillion. What would be the implicit price deflator?

110

Which one of the following statements is TRUE about the traditional macroeconomic model ?

It assumes that government expenditures are generally used for consumption rather than investment.

How is the value-added approach to measuring GDP calculated?

The difference between the selling price and the cost of intermediate inputs

Which one of the following would, in principle, be counted in an estimate of the gross domestic product of the United States?"

The value of a new CD you buy from a store.

Consumer durable goods are those goods that are expected to last longer than

Three years

Another name for nominal GDP is current-dollar GDP.

True

In an open economy, the foreign sector must be included when GDP is calculated using the spending approach."

True

The identity used to represent the economy in the traditional macro model is

Y = C + I + G + NX