Chapter 8 Terms

According to the notes, what are some examples of final goods?

Bread, a house, a Boeing 787 and ammunition for the war in Afghanistan

What is the Underground Economy?

Buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are illegal

What is the equation used to calculate GDP via purchases?

C+I+G+NX= GDP

What is the United State's GDP per capita?

$50,700

How many types of investment would a "household" be likely to make?

1

What are the four GDP components by purchases?

1. Consumption (C) 2. Investment (I) 3. Government purchases (G) 4. Net exports (NX)

What is the business cycle?

Alternating periods of economic expansion and regression

What are government purchases?

Any spending by federal, state, and local governments

According to the BEA, what are the shares of total GDP in the U.S. in terms of purchases?

C: 69% I: 16% G: 19% NX: -3%

According to chapter 8, what is capital?

Capital are manufactured goods to produce goods and services

Are credit cards considered money?

No.

Does GDP count intermediate goods and services?

No.

What are Transfer Payments?

Payments by the government to households for which the government does not receive a new good or service in return

What are Government purchases?

Spending by federal, state, and local governments on goods and services

What is an Investment?

Spending by firms on new factories, office buildings, machinery, and additions to inventories, plus spending by households and firms on new houses

What is Business fixed investment?

Spending by firms on new factories, offices, and machinery, which are used by firms in producing other goods.

What is consumption?

Spending by households on goods and services, not including spending on new houses

What is Residential investment?

Spending by households on new housing.

Que es economic growth?

The ability of an economy to produce increasing quantities of goods and services

What is depreciation?

The consumption of fixed captial.It is subtracted from GNP to get the NNP

What are Net exports?

Exports minus imports

T/F: Every time a dollar is used to make a purchase in a country, this will show up in GDP

False

T/F: In the United States and other industrial countries there has been a continuing trend towards the production of goods and away from the production of services

False

T/F: Nominal GDP is the value of all final goods and services, evaluated at base year prices

False

T/F: One difference between a capital good and an intermediate good is that an intermediate good is used up or transformed in the production process & a capital good is not.

False

T/F: Investment is manufactured goods used to produce other goods and services

False. Capital

T/F: Consumption is about 30% of GDP

False. It is about 70%

T/F: The flow of funds from GOVERNMENT AND FIRMS into the financial system makes it possible for governments and firms to borrow

False. households

According to the notes, what are some examples of intermediate goods?

Flour for making bread and wood for making a house

What is the difference between GDP and GNP?

Foreign owned domestic production is in GDP but not GNP. If this is large, then GDP will be larger than GNP

According to the lecture notes, what are government expenditures?

Government purchases + transfers + interest payments on its debt

Which country has the lowest GDP per capita?

Haiti

How many types of investment would a "household" be likely to make? a. 0 b. 1 c. 2 d. 3

b. Houses do not buy capital goods, they do not add inventories, but they can buy a house

Gross Domestic Product is best defined as a. the total quantity of goods and services produced in a country during a period of time b. the total value of all goods that can be found in a country c. the market value of all final goods and services produced in a country during a period of time d. the amount of all incomes earned by all citizens of a country, including those living overseas

c.

Household production and the underground economy a. are fully accounted for in GDP figures gathered by the Commerce Department b. are not considered formal production of goods and services and, therefore, are not included when calculating GDP. c. are important but unaccounted for in the Commerce Department's estimate of GDP d. are irrelevant because they constitute only a very small fraction of GDP for most countries

c.

How many of the following things would be counted as investment? -United Airlines buys a new Boeing 787 -United Airlines buys fuel for its jets -me buying a new house -me buying a house built in 1916 -putting money in the bank for spring break - a person on their first job investing in stocks for retirement -a ski store stocking up for winter -a factory A. 1 B. 2 C. 3 D. 4 E. 5

c.

If Americans still worked sixty hour weeks, as they did in 1890, a. both GDP and the well-being of the typical person would be much higher than they are b. both GDP and the well-being of the typical person would be lower than they are c. GDP would be higher but the well-being of the typical person would not necessarily be higher d. GDP would be lower than it is, but the well-being of the typical person would be higher

c.

If Americans still worked sixty hour weeks, as they did in 1890... a. both GDP and the well-being of the typical person would be much higher than they are b. both GDP and the well-being of the typical person would be lower than they are. c. GDP would be much higher than it is, but the well-being of the typical person would not necessarily be higher d. GDP would be lower than it is, but the well-being of the typical person would be higher

c.

Suppose that the base year is 200, and we want to calculate real GDP for 2011. Which procedure would you use? a. Multiply the quantities in 2000 by the prices in 2011, and add up the results b. Multiply the quantities in 2011 by the prices in 2011, and add up the results c. Multiply the quantities in 2011 by the prices in 2000, and add up the results d. Multiply the quantities in 2011 by the prices in 2011, and subtract them from nominal GDP in 2000.

c.

The difference between the price the firm sells a good for and the price it paid other firms for intermediate goods is called a. producer surplus b. fixed investment c. value added d. profit

c.

What happens if we measure GDP by adding up the value of every good and service produced in the economy? a. This is the accurate measure of nominal GDP but not real GDP b. This is the accurate measure of real GDP but not nominal GDP c. GDP is overestimated because of double counting d. GDP is underestimated because of double counting

c.

When a consumer purchases a new computer, how is that purchase counted in GDP? a. by adding the value of the various components of the computer to the final price paid for the computer by the consumer b. by subtracting the value of the components from the price paid by the consumer c. by counting only the value of the computer and ignoring the value of the components d. None of the above. The production and sale of the computer would not be counted in GDP

c.

Which of the following is not a component of GDP from the expenditure point of view? a. consumption b. investment c. government taxes d. net exports

c.

Which of the following is not a shortcoming of GDP as a measure of welfare? a. It does not include the value of leisure b. It is not adjusted for the effects of pollution caused by the production of goods and services c. It only counts final goods and services and not intermediate goods d. It is not adjusted for crime and other social problems

c.

Which of the following is counted in the gross private domestic investment category used by the Bureau of Economic Analysis when measuring GDP? a. business fixed investment b. residential investment c. changes in business inventories d. all of the above

d.

Value Added is what?

The market value a firm adds to a product.

What is the definition of GDP, according to the lecture notes?

The market value of all final goods and services produced domestically in that year

What is Gross Domestic Product (GDP)?

The market value of all final goods and services produced in a country during a period of time, typically one year

When GDP's hair cut component is computed, what data is needed?

The number of haircuts (quantity) and the price of the haircuts

What is Inflation Rate?

The percentage increase in the price level from one year to the next

What is a Recession?

The period of a business cycle during which total production and total employment are decreasing

Que es expansion?

The period of a business cycle during which total production and total employment are increasing

What is Macroeconomics?

The study of the economy as a whole

What's Real GDP?

The value of final goods and services evaluated at base-year prices

What are Nominal GDP?

The value of final goods and services evaluated at current-year prices

Why don't economists include purchases of stock or rare coins or deposits in savings accounts in the definition of investment?

These activities do not result in the production of new goods

T/F: An intermediate good is used up or transformed in the production process

True

T/F: Because changes in relative prices are not reflected in the fixed prices from the base year, the estimate of real GDP is somewhat distorted

True

T/F: Consumer spending on services is greater than the the sum of spending on durable and nondurable goods.

True

T/F: Government purchases are smaller than government expenditures

True

T/F: Macroeconomics looks at what determines the total level of production of goods and services and the total levels of employment and unemployment. It also looks at what determines the inflation rate, or how fast prices in general are increasing

True

T/F: Nominal GDP uses current prices and real GDP uses base year prices

True

T/F: The most important use of GDP is to measure how the economy is performing over short periods of time

True

Does GDP exclude the production of a country's citizens living overseas?

Yes

According to most economists, is not counting household production or production in the underground economy a serious shortcoming of GDP? a. Most economists would answer "no" because these types of production do not affect the most important use of the GDP measure, which is to see how the economy is performing over short periods of time b. Most economists would answer "yes" because these types of production are likely to grow significantly from one year to the next. c. No because the purpose of measuring GDP is to see how the economy performs over fairly long periods of a decade or more d.Yes because these types of production are likely to be a large component of the economy, especially in countries like the United States

a.

As the value of a country's GDP increases, the country is likely to a. devote more resources to pollution reduction b. devote fewer resources to pollution reduction c. include the value of pollution in calculating GDP d. exclude the value of pollution in calculating GDP.

a.

In an economy with rising prices, compared to the base year, a. nominal GDP is larger than real GDP in years after the base year b. nominal GDP is equal to real GDP in years after the base year c. nominal GDP is larger than real GDP in years before the base year d. nominal GDP is equal to real GDP in years before the base year

a.

In the circular-flow-diagram, who supplies factors of production in exchange for income? a. households b. firms c. the government d. all of the above

a.

Using the year 2010 as the base year, and assuming that prices during 2000 were lower on average than prices in 2010, we can conclude that a. nominal GDP was lower than real GDP in 2000 b. nominal GDP was higher than real GDP in 2000 c. nominal GDP was equal to real GDP during 2000. d. neither nominal GDP nor real GDP were good measures of GDP

a.

What is the largest component of GDP? a. consumption b. investment c. government purchases d. exports

a.

When accounting for exports and imports in GDP, which of the following is correct? a. Exports are added to the other categories of expenditures b. Imports are added to the other categories of expenditures c. Both exports and imports are added to other categories of expenditures. d. both exports and imports are subtracted from the other categories of expenditures

a.

Which of the following is counted in this year's GDP? a. only this year's production of goods and services b. only goods that are both produced and sold within the united states c. new goods and services sold this year plus the value of used goods resold this year d. this year's production of goods and services added to the value of GDP last year

a.

Which of the following is included in the economists' definition of investment? a. The purchase of new machines, factories, or houses b. the purchase or share of a stock c. the purchase of a rare coin or a deposit in a savings account d. all of the above

a.

Which of the following is true about the consumption component of U.S. GDP in 2010? a. Consumer spending on durable and nondurable goods was greater than consumption of services b. Consumer spending of durable goods was greater than the sum of spending on nondurable goods and on services. c. Consumer spending on nondurable goods was greater than the sum of spending on nondurable goods and on services d. Consumer spending on services was greater than the sum of spending on durable and nondurable goods

d.

Which of the following would be considered a factor of production? a. capital b. natural resources c. entrepreneurship d. all of the above

d.

For the GDP component by purchases, what are net exports (NX)?

exports - imports

Complete the following sentence: Total income in the economy equals the sum of wages, interest,______ and _____. a. dividends; transfer payments b. rent; profit c. taxes; transfer payments d. disposable income; net exports

b.

Growth in the economy is almost always measured as a. growth in nominal GDP b. growth in real GDP c. growth in net national product d. the growth of personal disposable income

b.

How does the Bureau of Economic Analysis of the U.S. Department of Commerce measure GDP? a. by adding the quantities produced of every good and service in the economy b. by adding the value in dollar terms of all of the final goods and services produced domestically c. by ascribing a historic value to all of the quantities produced in the economy d. in some cases, by adding quantities, and in others by adding the value of goods and services produced

b.

In calculating GDP, which levels of government spending are included in government purchases? a. spending by the federal government only b. spending by federal, state, and local governments c. spending by the federal government and some state governments, but not local governments d. spending by governments only as they relate to national security, social welfare, and other national programs

b.

In many developing countries, the informal sector is ______ because taxes are ________ and government regulations are _______. a. large; low; minimal b. large; high; extensive c. small; low; minimal d. small; low; extensive

b.

Over time, prices may change relative to each other. To allow for this, the Bureau of Economic Analysis calculates a. nominal GDP using chain weights b. real GDP and the price deflator using chain weights c. real GDP and nominal GDP using only base-year prices d. real GDP using the prices in the current year

b.

Real GDP is a. the value of goods and services evaluated at current year prices b. the value of goods and services evaluated at base year prices c. equal to the value of nominal GDP in every year except for the base year d. a measure of output that was replaced by nominal GDP some time ago

b.

When a significant fraction of domestic production takes place in foreign owned facilities, a country's difference between GDP and GNP is as follows: a. GNP will be a more accurate measure of the level of production within the country's borders b. GDP will be much larger than GNP c. GNP will be almost identical to GDP d. GNP will be closer to zero

b.

Which measure of GDP represents changes in the quantity of goods and services produced in the economy, holding prices constant? a. nominal GDP b. real GDP c. net national product d. None of the above. All GDP measures represent changes in both prices and quantities

b.

Which of the following is not true of GDP? a. GDP is measured by adding up the market values of goods produced, not the quantities of goods produced b. GDP includes both intermediate and final goods c. GDP includes only current production d. GDP is calculated by the Bureau of Economic Analysis (BEA)

b.

Which of these is not a definition of investment? a. the purchase of a new house or apt. b. a goods that is used up or transformed in the production process c. the addition of inventories d. the purchase of capital goods

b.

What are the three methods of calculating GDP?

purchases, production and income

What are the four characteristics that money has?

1. Medium of exchange 2. A store of value 3. A unit of account 4. Standard of deferred payment

What are the three definitions of investment?

1. The purchase of capital goods 2. The addition of inventories by a business 3. The purchase of a new house or apartment

If just 2 things are produced: doctor visits and cars 2011: 100M visits @ $50 each & 10M cars @ $20000 each 2012: 103M visits @ $53 each & 11M cars @ $20,500 each base year: 2011 real GDP in 2012 would be what?

103M * $50 + 11M * $20,000

How many of the following things would be money in the U.S.? -corporate stock -U.S. savings bonds -capital owned by Boeing -investment by Ford in a factory -funds in a checking account -U.S. currency (cash)

2

How many methods are there to calculate GDP?

3

How many of the following things would be included in GDP when measured by production? -a used car that was just sold -prostitution -a machine purchased by Boeing to manufacture jets -NASA buys a launcher from SpaceX -me getting my hair cut -cement that is poured for a new building -iTunes song sold on-line to a boy in Iraq

4

What is Final good or service?

A good or service purchased by a final user

What's an Intermediate good or service?

A good or service that is an input into another good or service, such as a tire on a truck

What is a final good?

A good that is purchased by the final user

According to the lecture notes, what are some examples of capital?

A hammer and manufacturing plant

What's the Price Level?

A measure of the average prices of goods and services in the economy

What is a GDP deflator?

A measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100

What is double counting?

Double counting is the addition of the value of every good and service which includes intermediate goods

When referring to the definition of money, what do M1 and M2 stand for?

M1 is cash and checkable deposits ($2.6 trillion). M2 is M1 and savings accounts ($10.8 trillion)

Which of the following is a macroeconomic study? a. the study of how households and businesses make choices b. the study of how households and businesses interact in markets c. the study of how government attempts to influence the choices of households and businesses d. the study of how fast prices in general are increases

d.

For the GDP components by purchases, purchases by households is called what?

consumption (C)

If the GDP deflator in 2010 has a value of 98.0, then a. the inflation rate in 2010 is 2% b. the inflation rate in 2010 is -2% c. prices have increased 9.8 percent between the base year and 2010. d. prices have decreased 2% between the base year and 2010.

d

An important conclusion to draw from the circular-flow diagram is that: a. personal consumption expenditures are equal to the value of GDP b. only the value of total income equals the value of GDP, not the value of expenditures c.only the value of expenditures equals the value of GDP, not the value of income d. we can measure GDP by calculating the total value of expenditures on final goods and services or we can measure GDP by calculating the value of total income

d.

If we add up the value of every good and service produced in the economy, we must get a total that is equal to the value of what? a. investment b. net national product c. disposable personable income d. all of the income in the economy

d.

Which of the following are not considered as final goods, as used in the definition of GDP? a. consumption goods b. investment goods c. exports d. intermediate goods

d.

Which of the following do we subtract from GNP to obtain NNP? a. the production of fixed capital b. consumption c. investment d. depreciation

d.

Which of the following goods and services would be excluded from personal consumption expenditures in the Bureau of Economic Analysis statistics? a. medical care b. education c. a haircut d. a new house

d.