Macroeconomics Review Chapter 14

A restaurant buys fish to offer as a daily menu special. The purchase of the fish by the restaurant is

an intermediate good

How are final goods and services valued when measuring nominal GDP?

at current market prices

How long must a recession, where GDP has had a continual decrease, last to be deemed a recession.

at least 6 months

Economists define investment to include purchases of

capital goods and inventories

Expenditures on US produced steaks, shoes, and doctor visits are most likely classified as

consumption expenditure

The largest expenditure category in the US is

consumption expenditure

If a firm does not sell all of the goods that it produces in a given time period, then the goods

count positively in GDP as inventory investment

What are the two ways to measure GDP?

expenditure approach and income approach

Because of the circular flows of expenditure and income in the economy, total _____ equals total ______ equal total _______.

expenditure, income, value of production

The purchase of a new Boeing fighter jet by Israel is classified in the US GDP accounts as

export expenditure

Net exports of goods and services is equal to the value of

exports minus the value of imports

Gross domestic product is equal to the market values of all final goods and services ______ in a given period of time.

produced within a country

The business cycle has two phases. What are they?

recession and expansion

Last year US net exports of goods and services was negative. This means that

the value of exports were less than the value of imports

To calculate GDP it is necessary to

use the market price of a good

Which of the following is NOT included in the expenditure approach to calculating GDP? A) government expenditures on goods and services B) investment C) net exports of goods and services D) wages E) consumption expenditure

wages

The income approach measure to measuring GDP is based on summing

wages, interest, rent, and profit

Where are the final goods and services produced that are included in Germany's GDP?

within Germany

Gross Domestic Product is defined to be the market value of all the final goods and services produced during a given time period...

within a country

True or False: GDP includes environmental quality

False

True or False: The value of used goods are counted as part of GDP.

False

True or False: things provided by the government and vacation time accumulated by workers are consumption goods and services.

False

True or False: Investment is greater than government expenditure on goods and services, when using the expenditure method.

False: less than

Although imperfect, which of the following is used as a measure of the standard of living? A) real GDP ÷ population B) real GDP × population C) nominal GDP × population D) nominal GNP ÷ population E) nominal GNP × population

A

Expenditures in GDP do not include ________. A) used goods or financial assets B) financial assets or investments C) investment, stocks, or bonds D) government expenditures on goods and services

A

Real GDP measures the value of goods and services produced in a given year using A) base year prices. B) prices of that same year. C) no prices. D) future prices. E) government approved prices.

A

The difference between nominal GDP and real GDP is A) the indirect taxes used in their calculations. B) the prices used in their calculations. C) that nominal GDP includes the depreciation of capital and real GDP does not. D) that nominal GDP includes net exports of goods and services and real GDP includes net imports. E) that real GDP includes the depreciation of capital and nominal GDP does not.

B

Which of the following describe the United States economy in 2008 and and the start of 2009? A) The economy was in an expansion. B) The economy was in a recession. C) Real GDP per person increased. D) Real GDP reached a peak. E) None of the above answers is correct.

B

The business cycle describes A) the change in potential GDP over time. B) the change in the standard of living across countries. C) the behavior of real GDP over time. D) the behavior of nominal GDP over time. E) the behavior of GNP over time.

C

When calculating real GDP, the reference base year A) allows us to account for changes in GNP compared to GDP. B) always reduces the value of GDP compared to GNP. C) allows us to calculate the value of the goods and services in terms of prices of that base year. D) usually increases the value of GNP compared to GDP. E) allows us to increase the value of goods and services.

C

Excluding household and underground production leads to A) underestimation of real GDP but not nominal GDP. B) overestimation of real GDP but not nominal GDP. C) overestimation of both real GDP and nominal GDP. D) underestimation of both real GDP and nominal GDP. E) underestimation of real GDP an an overestimation of nominal GDP.

D

If nominal GDP increases this year, then real GDP A) must decrease. B) must increase. C) must not change. D) could increase, decrease, or not change. E) could either increase or not change but cannot decrease.

D

The business cycle is defined as A) changes in the stock market. B) changes in financial markets. C) persistent growth in potential GDP. D) irregular ups and downs in production and jobs. E) the period of time during which the unemployment rate is rising.

D

True or False: A business buys items to use in the selling of their goods and services. These items are final goods.

False

Can net exports of goods and service be positive or negative for GDP?

Yes

In the circular flow, how are the value of production, income, and expenditures related?

They are all equal

True or False: GDP equals Y = C + I + G + NX

True

True or False: Gross National Product includes things made outside of the country.

True

True or False: If something is handled through underground production or during leisure time, it's not included in GDP

True

True or False: In calculating GDP, we must add the market value of exports and subtract the market value of imports.

True

True or False: In measuring GDP, the value of increases in business inventories is included.

True

True or False: In the years after 1998, the most severe recession occurred during 2008-2009.

True

True or False: Investment is defined as the purchase of new capital goods and additions to inventories.

True

True or False: No matter what method an economy uses, the GDP should be equal for both approaches.

True

True or False: Total expenditure equals total income because firms pay out everything they receive as income to the factors of production.

True

To calculate GDP it is necessary to add up the market value of all the _____ produced within a country during a year.

final goods and services

Investment is the expenditure done by

firms

A measure of a country's production is its

gross domestic product

Which of the following correctly describes a final good? i.) A final good is bought by its final consumer ii.) A final good can be used by a firm as a component of another good or service iii.) Investment goods cannot be final goods

i

An increase in nominal GDP could result from an increase in i. production. ii. prices. iii. subsidies

i and ii

The circular flow shows that GDP measures i.) total income ii.) total expenditures iii.) price changes

i and ii

Which of the following is included as investment in GDP? i.) cars produced during the year but unsold at the end of the year ii.) new capital equipment produced and purchased during the year iii.) purchases of a company's stocks and bonds

i and iii

Which of the following is included in US GDP? i.) the rental value of homes owned by US citizens ii.) the production of Surburban SUVs by GM in its plant in Mexico iii.) Tickets sold by U2 for concerts hend in the US.

i and iii

As measured, GDP omits which of the following? i. illegal sales of goods and services ii. changes in the amount of leisure time iii. household production of goods and services

i, ii, and iii

Government expenditures on goods and services include i.) the NYC Library's purchase of new books ii.) DC's purchase of gas for its city buses iii.) California's payment of wages to prison guards

i, ii, and iii

In a circular flow diagram, which of the following are true? i.) value of production = income ii.) value of production = expenditure iii.) expenditure = income

i, ii, and iii

Which of the following is classified as an intermediate good? i.) the purchase of a Big Mac ii.) McDonald's purchase of pickles iii.) a McDonald's restaurant owner's interest payment for the loan on her building.

ii

Which of the following is classified as a final good or service? i.) tires bought by GM to put on new Tahoes ii.) mustard bought by Subway to put on its sandwiches iii.) your purchase of online access to the Wall Street Journal

iii

Is the market value of jet fuel bought by Delta to use for its flights in 2010 a final or intermediate good?

intermediate good

Real GDP can increase if the i. quantities of goods and services produced decrease and prices fall by a smaller percentage. ii. quantities of goods and services produced decrease and prices fall by a larger percentage. iii. quantities of goods and services produced decrease and prices do not change. iv. quantities of goods and services produced increase.

iv

Has net exports of goods and services been negative or positive in recent years?

negative

When calculating GDP, purchases of used goods are

not included

A business cycle has two turning points. What are they?

peak and trough

Nominal GDP measures the value of goods and services produced in given year valued using

prices of the same year