MACROECONOMICS CH.7
If gross domestic product is $13 billion and consumption of fixed capital is $2 billion, then what does net domestic product equal?
$11 billion
a gross domestic product of $5 billion and consumption of fixed capital of $1 billion yields a net domestic product of
$4 billion
The value of the GDP price index will be ______ for the base year.
100
If the price of a market basket of goods in year 1 is $10 and $25 in year 3 and the base year is year 1, the price index for year 3 is
250
If a market basket of household goods was priced at $200 in the year 2000 and rose to $600 in the year 2020, what is the price index for the year 2020?
300
Which of the following is not an example of a personal consumption expenditure?
A fighter jet
What is a final good?
A good directly consumed by individuals or businesses A good that is counted as part of GDP
What is an intermediate good?
A good used only in the production of other products
If C represents consumption expenditure, Ig represents gross investment, In represents net investment, G represents government expenditure, Xn represents net exports, and Xg represents gross exports, GDP is ______.
C + Ig + G + Xn
Using the expenditure approach, which of the following most closely defines the composition of GDP?
C + Ig + G + Xn
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.
Government consumption expenditures and gross investment include which of the following?
Expenditures on final goods Direct purchases of resources
True or false: GDP is a perfect and complete measure of the well-being of a country.
False
True or false: Government purchases are limited to federal expenditures on final goods.
False
True or false: In general, GDP includes unpaid work.
False
Because members of the underground economy do not report their full income to the Internal Revenue Service, their economic activities are not included in the calculation of _________-
GDP
Which of the following are components of the expenditure approach to measuring GDP?
Government purchases Gross private domestic investment Personal consumption expenditures
Which of the following is equal to net investment?
Gross investment minus depreciation
What creates a problem in using money to value GDP?
Inflation
Which of the following of true of GDP as a measure?
It fails to capture the full value of improvements in product quality.
Which of the following statements are true of a price index?
It measures the price of a set of goods of services in a given year. It is expressed in terms of a base, or reference, year.
What happens to the size of the capital stock when gross investment and depreciation are equal?
It stays the same.
By ignoring the value of leisure time, how does national income accounting affect our well-being?
It understates our well-being.
What do economists use to calculate GDP under the income approach?
National income
Which are examples of negative gross domestic by-products?
Noise Polluted water Congestion
As a measurement of economic output and the nation's wealth, GDP fails to account for which of the following?
Nonmarket activities Leisure time Improved product quality The underground economy
Why are transfer payments excluded from government purchases in GDP accounting?
Nothing is being produced in return for the payment.
What are reasons that the underground economy exists?
People want to avoid taxes. People are engaged in illegal activities.
True or false: GDP reveals nothing about the way output is distributed.
True
What are noneconomic sources of well-being that are not considered in a country's GDP?
Reduction of crime Reduction of drug and alcohol abuse Peaceful international relations
In national income accounts, what does value added refer to?
The difference in the market value and cost of inputs purchased from other firms
True or false: When gross investment and depreciation are equal, the value of net investment is zero.
True
Why are sales of secondhand goods are excluded from the calculation of GDP?
They do not contribute to current production.
GDP does not reveal if the current product mix of goods and services is enriching or potentially detrimental to society because ______.
all products are assigned the same weight if they sell for the same price
the GDP price index is always 100 for the ____ year
base
Gross domestic product (GDP) may be calculated as the sum of ______
consumer spending, investment spending, government purchases of goods and services, and net exports
Transfer payments are not included in GDP because they do not generate ______.
current output
If net investment is negative, the capital stock has ______. If net investment is positive, the capital stock has ______.
decreased; increased
The amount of income that households have left over after paying their personal taxes is ______ income.
disposable
A country's gross domestic product (GDP) is a measure of ______ produced within an economy during a specific period of time.
dollar value of all final goods and services
One of the flaws of GDP is that it ______.
ignores transactions that takes place in illegal markets or nonmarkets
True or false: Consumers are free to divide their income between saving and investment. True false question.
false
The market value of all final goods and services produced within the borders of a given country during a given period of time is the definition of ______.
gross domestic product
GDP can be measured using the ______ approach, which adds up all of the items that make up national earnings.
income
Nominal GDP is not an accurate measure of the real level of economic activity in a country because ______.
inflation distorts the real value of all goods and services produced
goods and services that are used up in the production of final goods
intermediate goods
When gross investment is ______ depreciation, net investment is negative.
less than
Income earned through the use of American-owned resources for services and production is called ______ income.
national
income earned through the use of American-owned resources for services and production is called
national income
Disinvesting (when the economy is using up more capital than it is producing) is one effect of ______ net investment.
negative
When gross investment is less than depreciation, net investment is ______.
negative
Real GDP is equal to ______.
nominal GDP divided by a price index (in hundredths)
GDP may be understated because ______.
nonmarket activities are not included in GDP
the term that covers all expenditures by households on goods and services is known as
personal consumption expenditures
all income received by households, wether earned or unearned, is called
personal income
Disposable income equals ______.
personal income minus personal taxes
The price of a market basket of goods in a specific year divided by the price of the same market basket of goods in the base year multiplied by 100 is called ______.
price index
a _________ ________ is a measure of a specific collection of goods and services in a given year as compared to the value of a highly similar collection of goods and services in a reference year
price index
GDP does not capture the full value of improvements in product quality because GDP is a(n) ________instead of a qualitative measure.
quantitative
In order to determine whether increases or decreases in nominal GDP are the result of changes in prices, changes in output, or some combination of those two factors, economists calculate______GDP
real
Dividing nominal GDP by the price index is one way of calculating _________
real GDP
Nominal GDP divided by price index (in hundredths) equals ______.
real GDP
The main reason to participate in the underground economy is to avoid ______.
reporting actual income and paying income taxes
consumers are free to divide their income between consumption and
saving
the ________ costs of negative gross domestic by-products reduce a nation's economic well-being
social
More abundant leisure increases ______, but it ______ real GDP.
social welfare; decreases
One of the shortcomings of GDP is that it doesn't reveal anything about which of the following?
the distribution of output
The formula for calculating a price index is ______.
the price of a market basket in a specific year divided by the price of the same market basket in the base year multiplied by 100
The use of money as a common denominator to sum output into a meaningful measure of GDP creates a problem because ______ changes.
the value of money itself
The ______ sector of the economy is hard to track and therefore not included in ______.
underground; GDP
The sale of ______ goods is excluded from the calculation of GDP because they contribute nothing to current production.
used
The market value of a firm's output minus the value of the inputs the firm has bought from others is called ______.
value added
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.
weights
Net private domestic investment is defined as ______.
what is left over from total new private investment after depreciation
