Econ 252 Ch 6

GDP is meant to measure ______________, so the sale of used goods do not count. However, the salaries of consultants or salespeople for the products do count because their labor was produced within the year GDP is calciulated

production

A ________ variable is one that corrects for inflation, namely a general increase in price over time.

real

GDP only counts __________ goods

finished

To calculate % change in GDP, use this formula:

((Current GDP - Old GDP) / Old GDP) x 100 = GDP growth rate for current year

Circular flow through markets (image 1)

(see image 1)

Circular flow of income (image 2)

(see image 2)

The national spending approach is good for studying business _________________, because net exports behave differently over time.

fluctuations

The four parts of factor income approach are: 1) E____________ C_____________ 2) R_______ 3) I____________ 4) P__________

1) Employee Compensation 2) Rent 3) Interest 4) Profit

When a consumer spends money, that money is received by: 1) 2) 3) 4)

1) workers (wages/benefits) 2) landlords (rent) 3) owners of capital (interest) 4) businesses (profit)

Personal Consumption (C) is broken into 3 sub-accounts: 1. ______________ ____________ 2. _____-_____________ ___________ 3. ______________

1. Durable goods (goods that last for more than 1 year, doesn't include homes, homes are investments) 2. Non-durable goods (lasts for short period of time-less than one year, like clothes) 3. Services

Government (G) includes the following: 1. 2.

1. Government Consumption Expenditures 2. Government Gross Investment

Investments (I) are broken into 3 sub-accounts: 1. ______-_________________ 2. __________________ 3. _________________ _________________

1. Non-residential (business capital- the sum of spending by businesses on things such as new plants, buildings, and equipment) 2. Residential (construction on new residential housing, counted as cost of construction if housing is not yet sold) 3. Inventory Investment

Investment is (private/public) spending on ___________, ____________, and _________________.

private tools, plant, and equipment

True or false: Government payments to social security, disability, unemployment, and Medicare count towards GDP

False! If this were the case, the money would be counted twice. For example: Social security checks go towards GDP when it is spent by the person who got paid, not when it is distributed AND spent.

The calculation of GDP for expenditure approach is GDP= _____________________

C + I + G + (X-M)

Which is more stable, consumption or investment spending?

Consumption spending/expenditures, because it is easier to delay investment rather than consumption.

Net Investment = (Gross Investment - _________________)

Depreciation

_________________ is the wear and tear of capital as it is used in production (1)

Depreciation (1)

In the GDP formula for expenditure approach, G stands for _______________

Government

Do government spending on public investment items (new roads) get categorized as investments? Or government purchases?

Government purchases

GDP (does/does not) measure the health of nations or distribution of income.

does not

In the GDP formula for expenditure approach, I stands for _______________

Investment (Gross Private Domestic)

In the GDP formula for expenditure approach, (X-M) stands for _______________

Net Exports: Exports (X) - Imports (M)

NX is ______________ - _______________

Net Exports: Exports - Imports

Gross Investment - Depreciation = _______ _________________

Net Investment

______________ GDP is calculated using prices at the time of the sale

Nominal

_______________ production (is/is not) counted and occurs when valuable goods and services are produced but no monetary payment is made (such as a kid mowing his parents' grass or someone volunteering)

Nonpriced; is not

In the GDP formula for expenditure approach, C stands for _____________ _________________

Personal Consumption

________________ GDP is calculated using all the same prices. For example, you'd use 2018 prices x 2018 quantities and 2018 prices x 2017 quantities to measure change in GDP.

Real

GDP (does/does not) subtract the value of negatives in the country. Pollution, loss of animal/plant species, bad population health, and depletion of natural resources are examples of this.

does not

Injections are _____________

exports

_________________ _________________ are payments by the government to individuals for which the government does not receive a good or service in return

Transfer payments

True or False: "Purchased goods" include finished goods bought by governments, citizens, AND foreigners

True

True or false: The income approach to GDP gives roughly the same answer as the spending approach.

True (in theory), because every dollar that someone earns in income is a dollar of income that someone else has spent

The national spending approach to GDP is y= ___ + ___ + ___ + ___

`C + I + G + (Net Exports (NX) or Exports-Imports)

A finished good is one that is sold to the end user and then _____ or held in personal inventories. consumed processed with other goods for sale at a later stage resold bundled with other goods for sale at a later stage

a

Intermediate goods are: goods that are sold to firms and then bundled or processed with other goods or services for sale at a later stage. services that are sold to the general public. goods that are still on the assembly line and that have not yet been sold. goods that are sold to the general public.

a

Which statement is TRUE? Investment spending is private spending on tools, plant, and equipment that are used to produce future output. Consumption is private spending on intermediate goods and services. The national spending approach to measuring GDP states that GDP equals C + I + G + Exports − Imports, which implies that trade is bad for a country. The factor income approach to measuring GDP states that GDP equals the sum of consumption, investment, government purchases, and net exports.

a

Which statement is TRUE? The national spending approach to measuring GDP states that GDP equals C + I + G + Exports − Imports, but the subtraction of imports does not by itself determine whether trade is good or bad for an economy. Investment spending is public spending on tools, plant, and equipment that are used to produce future output. The factor income approach to measuring GDP states that GDP equals the sum of consumption, investment, government purchases, and net exports. Consumption is private spending on intermediate goods and services.

a

Based on the transactions that take place in the scenario that follows, how much would be added to U.S. GDP for 2017? Scenario: In October 2016, you preordered a Chevy Volt for $50,000. It was manufactured in the United States in January 2017 and delivered to you in February 2017. You traded it in for $41,000 in March 2017. You are a permanent U.S. resident located in the United States, and the dealership is located in the United States and owned by permanent U.S. residents. $50,000 $91,000 $9,000 $41,000

a: The car was manufactured in 2017 and has a market value of $50,000.

Some of the goods that we (the U.S.) produced domestically are not included in "national spending: (C+I+G)" because they were bought by foreigners. This is why we have to add _____________ at the end of the GDP equation

exports

True or false: Buying stock is counted towards GDP as purchasing "investments"

false

Imported goods (are/are not) included in the U.S. GDP

are not

The growth rate of GDP tells us how rapidly the country's: employment rate is rising or falling over time. production is rising or falling over time. standard of living is rising or falling over time. prices are rising or falling over time.

b

Non-priced labor and production introduces __________ over time and __________across nations. Example: U.S. GDP is higher today, but that is in part because most women work outside the home, and also outsource childcare and cleaning. 50 years ago, women typically provided these services for their families and were not compensated. This can make the GDP of less-developed countries seem lower than it actually is because women are discouraged from joining the workforce. "Household production" is especially important in poorer countries and rural areas and are not captured by GDP statistics.

biases; biases

Most investment spending is made by ________________

business

Business cycles are also called: the long-term GDP trend. nominal GDP cycles. business fluctuations. GDP deflations.

c

Suppose your weekly earnings (the number on your paychecks) decrease by 2 percent over the course of a year and prices in the economy fall by 3 percent. In this case, your nominal earnings have _____ and your real earnings have _____. fallen; fallen risen; risen fallen; risen risen; fallen

c

The equation Y = employee compensation + rent + interest + profit represents the: national spending approach to GDP calculation. average income approach to GDP calculation. factor income approach to GDP calculation. GDP per capita approach to GDP calculation.

c

Child care conducted in the home is not included in GDP because it: is of lower quality than child care outside the home. is not really a production. does not add any value. does not involve a market transaction.

d

Gross domestic product (GDP) is the market value of all: intermediate goods and services produced globally in a year. intermediate goods and services produced within a country in a year. finished goods and services produced globally in a year. finished goods and services produced within a country in a year.

d

The market value of the output produced in another country by a permanent resident of that country but sold and consumed in the United States would be included in: U.S. GNP only. U.S. GDP only. both U.S. GDP and U.S. GNP. neither U.S. GDP nor U.S. GNP.

d

Which statement is TRUE? A recession is an insignificant, localized decline in real income and employment. The National Bureau of Economic Research (NBER), a research organization based in Cambridge, Massachusetts, is considered the least authoritative source on identifying U.S. recessions. Business fluctuations, or business cycles, are the long-run movements in real GDP around its long-term trend. Real GDP can grow at a negative rate.

d

Suppose that in a certain economy, the real GDP growth rate is 4 percent and the real GDP growth per capita is 2.4 percent. The growth rate of the population must be equal to: 6 percent. −1.6 percent. 6.4 percent. 1.6 percent.

d: 4 percent − 2.4 percent = 1.6 percent.

If GDP for a certain economy is $1,200 billion at the end of year 1 and $1,440 billion at the end of year 2, the economy's growth rate between the two years is: 12 percent. 24 percent. 2 percent. 20 percent.

d: [($1,440 − $1,200) ÷ $1,200] × 100 = ($240 ÷ $1,200) × 100 = 20 percent.

Net exports < 0 implies an aggregate trade _______________

deficit

Government purchases (do/do not) include transfer payments.

do not

The factor income approach is useful for thinking about how economic ___________ (GDP) is divided between compensation, rent, interest, and profits.

growth

When we add C+I+G, we are adding up all national spending, but some of that money was spent on ___________, so we have to subtract it at the end of the GDP equation

imports

Withdrawals are _____________

imports

Net Domestic product (is/is not) the same as Gross Domestic Product

is not

GDP does not count illegal goods/services, health, or (for example) clean air because it is difficult to determine their ____________ __________.

market values

GDP is only _____________ or _____________ spending

national domestic

Factors of production, along with goods and services, flow in ______ direction(s)

one

Money/payments flow in the _______________ direction of factors of productions (goods or services)

opposite

Sales tax creates a difference between what is ________ and what is _______________.

paid; received

Consumption is (private/public) spending on finished goods and services

private

GDP counts goods and _____________ by multiplying cost of each x quantity sold, and adding totals

services

The national spending approach is useful for the analysis of ________-_____ economic fluctuations

short-run

Net exports > 0 implies an aggregate trade ________________

surplus

Use real GDP to calculate change over _________

time

True or False: Consumption of healthcare includes out-of-pocket payments AND insurance company/government payments

true

GDP does not count the ____________ economy, like illegal drugs and counterfeit bags. Even some legal goods sold "under the table" to avoid taxes do not show up in GDP.

underground

Consumption of durable goods, like cars and major appliances, is the most ____________ part of consumption.

volatile