ECON Chapter 19

CPI

(cost of basket using current year prices/cost of basket using base year prices)*100

How is the Consumer Price Index similar to the GDP​ deflator?

A. The general form of the formulas used to construct the indexes are nearly indistinguishable.

What important factors do GDP estimates leave​ out? ​(Check all that apply​.)

Capital depreciation. The production of illegal professions. Leisure. Home production.

Which of the following will be considered a final good in the calculation of U.S.​ GDP? ​(Check all that apply​.)

Defense equipment and golf outings

What is an accounting identity?

It is a statement that by definition must be true. It is an equality that must be true regardless of the value of its variables.

Why is it essential to differentiate between real and nominal growth rates of​ GDP?

It is the real growth rate that is meaningful since it indicates the change in the production of goods and​ services, a very significant source of improved living standards. The nominal growth rate combines the effect of price changes along with changes in the production of goods and services and thus gives a less clear indication of the impact on living standards.

A​ firm's value added refers to the dollar value of​ ____________.

a​ firm's sales revenue minus the​ firm's purchases of intermediate products from other firms.

Items are classified as final goods only if they are the ________________ in a chain of production.

end product

When government statisticians gather and analyze data on the purchases of goods and services produced in the domestic​ economy, they are measuring GDP using the​ ____________.

expenditure-accounting method

expenditure method of calculating GDP

household consumption+gross private investment+government purchases+(exports-imports)

When government statisticians gather and analyze data on the income of various agents in the domestic​ economy, they are measuring GDP using the​ ____________.

income-based accounting method

You decide to hire a lawn care company rather than mow your own lawn. As a​ result, GDP estimates will _______________ .

increase

Which one of the sets of terms given below would correctly complete the following definition of​ GDP? "Gross Domestic Product is the​ ____ value of the​ ____ goods and services produced​ _____ of a country during a particular period of​ time."

market, final, within the borders

The government (G) component of aggregate expenditure includes​ ____________. ​(Check all that apply​.)

military hardware purchases, infrastructure such as highways and bridges, and salaries to teachers, firefighters and cops

A​ country's gross national product would exceed its gross domestic product when the​ ____________.

production of domestically​-owned factors operating abroad exceeds the production of foreign​-owned factors operating in the United States.

When government statisticians gather and analyze data on the value added by the firms in the domestic​ economy, they are measuring GDP using the​ ____________.

production-based accounting method

Production-based accounting is used to estimate GDP by​ ____________.

summing each​ firm's value added to the production process. computing for each firm the difference between sales revenue and the purchase of intermediate​ products, then summing this difference across all firms.

GDP Deflator

(Nominal GDP/Real GDP)*100

Share of total consumption expenditures

(PCDG+PCND/PCEC)*100

Change in price inflation (deflator)

(New-Old/old)*100

Suppose U.S. drivers purchased ​$80 billion of​ ExxonMobil-produced gasoline during a recent​ year, with​ one-half purchased directly from​ ExxonMobil-owned gas stations and​ one-half from independent​ (or third-party) gas stations. Suppose further that ExxonMobil purchased the oil​ (which it refined into​ gasoline) from foreign producers for ​$30 billion and that it receives 60 percent of the sales revenue that independent stations generate from selling ExxonMobil gasoline. Value added by ExxonMobil to US GDP is

$34 billion

calculation of GNP

GDP+residents working abroad-foreigners working in Magnolia

Why might one consider the value of depreciation in estimates of national​ income?

Including depreciation gives a more complete picture of economic production. Failing to do so overstates what society can consume​ (in the broadest sense of the​ term).

The accounting identity that is used to estimate the gross domestic product of a country is given by

Production=Expenditure=Income

Which one of the following is not in the circular flow diagram as one of the three systems of GDP​ measurement?

Taxes are shown as a flow from the private sector to the public sector.

What is meant by capital​ depreciation?

The reduction in the value of physical capital due to obsolescence or wear and tear.

What is the key difference between the Consumer Price Index​ (CPI) and the GDP​ deflator?

The two indexes measure price changes for different​ "baskets" of products.

Which of the following news stories​ (all published in early​ 2014) would typically be studied in​ macroeconomics? ​(Select all that apply​.)

What if Econ growth is no longer possible, We believe inflation should rule, and Expectations high for March employment

The national income accounting identity associated with the​ expenditure-based accounting method is represented by​ ___________.

Y=C+I+G+X-M

Nobel laureate Simon​ Kuznets, who did significant work on national income accounts back in the​ 1930s, said that the welfare of a nation can scarcely be inferred from a measurement of national income. Would you agree with​ him? Why or why​ not?

Yes and no. The improved methods of national income accounting available today do allow general assessments of a​ nation's welfare, even though they are undoubtedly imperfect.

The level of economic activity is calculated using the income method by​ ____________.

adding together the income payments received by the various agents in the economy. tracking the flow of funds from firms to the owners of the factors of production. summing labor income and capital income.

If the level of aggregate expenditure was​ $16.8 trillion in​ 2013, the level of aggregate income in the economy during 2013 was​ ___________.

also​ $16.8 trillion because of the identity between aggregate expenditure and income.

The investment (I) component of aggregate expenditure includes​ ____________. ​(Check all that apply​.)

business structures, residential houses, and business inventories

As a result of the production and sale of the loaf of​ bread, the category of GDP that increased is

consumption

The category of expenditure that accounts for the highest share of GDP in the United States is

consumption