Chapter 5 (Gross Domestic Product

expenditure approach, GDP

equals the total amount spent on final goods and services.

Compensation of employees:

is the largest component of GDP.

To construct GDP, exports:

must be included and imports must be subtracted.

Exhibit 5-2 Gross domestic product data National income account Billions of dollars Personal consumption expenditures (C) $500 Exports (X) 65 Federal government spending (G) 100 State and local government spending (G) 200 Imports (M) 15 Gross private domestic investment (I) 65 Using the expenditure approach in Exhibit 5-2, gross domestic product (GDP) is:

$915 billion

Income Approach

GDP equals the sum of compensation of employers, rents, profits, net interest, indirect business taxes, and depreciation. Other measures of the economy include: National Income (NI), Personal Income (PI), and Disposable Personal Income (DI).

4.

The sums the four major spending components of GDP consisting of: consumption, investment, government, and net exports.

2. Intermediate goods

To avoid double counting, GDP does not include ___________.

Goods Included in GDP

only new and final goods and services are used in calculating GDP

National Income Accounting

provides the foundation for understanding macroeconomics.

grossdomestic product (GDP)

standard measure of the economy's output

Total spending (GDP) is broken down into four parts:

consumption (C), investment (I), government spending (G), and net exports (X-M)

All changes in nominal GDP are due to price changes.

False

Gross domestic product is the total dollar value at current prices of all final and intermediate goods produced by a nation during a given time period.

False

Net exports equal imports minus exports.

False

3. Circular Flow Model

The is a diagram representing the flow of products and resources between businesses and households in exchange for money payments.

A GDP price chain price index number of 120.0 for a given year indicates that prices in that year are 20 percent higher than prices in the base year.

True

The government (G) category of gross domestic product (GDP) excludes welfare and other transfer payments.

True

1. Gross Domestic Product

___________ is the most widely used measure of a nation's economic performance and is the market value of all final goods produced in the United States during a period of time.

To get personal income from national income, one must:

subtract corporate profits and Social Security taxes, and add in transfer payments and other income.

Nominal gross domestic product is based on:

the existing prices at which final goods and services are actually sold