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Econ test 2

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Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply. -Federal government paychecks to soldiers -The costs of air and water pollution -The import and sale of illegal drugs from South America -The variety of goods available to consumers

-The costs of air and water pollution -The import and sale of illegal drugs from South America -The variety of goods available to consumers

How do we measure a recession?

1. Declining GDP, 2. Declining Retail Sales, 3. Declining Employment (Rising Unemployment)

What word do economists use to refer to the purchase of goods that will be used in the future to produce more goods and services? A. costs B. investment C. capital D. consumption

B. investment

Inflation Rate Equation

CPI this year - CPI last year / CPI last year x 100

Real GDP Equation

Price of Base Year x Quantity of current year

Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply. -The loss of enjoyment people incur when scenic land is converted to commercial use -The value of babysitting services, when the babysitter is paid in cash and the transaction isn't reported to the government -Expenditures on federal highways -The quality of goods available to consumers

-The loss of enjoyment people incur when scenic land is converted to commercial use -The value of babysitting services, when the babysitter is paid in cash and the transaction isn't reported to the government -Expenditures on federal highways -The quality of goods available to consumers

Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply. -The value produced when you wash your own car at home -Funds spent by city governments to renovate their buildings -The costs of overfishing and other overly intensive uses of resources -The leisure time enjoyed by households

-The value produced when you wash your own car at home -The costs of overfishing and other overly intensive uses of resources -The leisure time enjoyed by households

When an American household purchases a bottle of Italian wine for $100, A. U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change. B. U.S. consumption does not change, U.S. net exports increase by $100, and U.S. GDP increases by $100. C. U.S. consumption increases by $100, U.S. net exports do not change, and U.S. GDP increases by $100. D. U.S. consumption does not change, U.S. net exports decrease by $100, and U.S. GDP decreases by $100.

What is a recession?

A nation-wide prolonged period of declining economic activity

Table 23-1 The table below contains data for Chereaux for the year 2015. GDP $200 Income earned by citizens abroad $9 Income foreigners earn here $5 Losses from depreciation $6 Indirect business taxes $10 Statistical discrepancy $0 Retained earnings $8 Corporate income taxes $12 Social insurance contributions $30 Interest paid to households by government $8 Transfer payments to households from government $55 Personal taxes $60 Nontax payments to government $11 Refer to Table 23-1. The market value of all final goods and services produced within Chereaux in 2015 is A. $200. B. $214. C. $230. D. $204.

A. 200 (BECAUSE THE OTHER THINGS AREN'T MENTIONED #trick question)

When economists refer to intangible items, they are referring to such things as A. hair styling and dental care, and the value of such items is included in GDP. B. illegal goods, and the value of such items is excluded from GDP. C. hair styling and dental care, and the value of such items is excluded from GDP. D. illegal goods, and the value of such items is included in GDP.

A. hair styling and dental care, and the value of such items is included in GDP.

The residents of Ireland earn $200 million of income from abroad. Residents of other countries earn $300 million in Ireland. Therefore, Ireland's A. net factor payments from abroad are negative, and its GDP is larger than its GNP. B. net factor payments from abroad are positive, and its GDP is larger than its GNP. C. net factor payments from abroad are negative, and its GNP is larger than its GDP. D. net factor payments from abroad are positive, and its GNP is larger than its GDP.

A. net factor payments from abroad are negative, and its GDP is larger than its GNP.

Consumption consists of spending by households on goods and services, with the exception of A. purchases of new houses. B. purchases of intangible services. C. purchases of durable goods. D. spending on education.

A. purchases of new houses.

Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply. The value produced when you wash your own car at home The quality of goods available to consumers Expenditures on federal highways The costs of overfishing and other overly intensive uses of resources

All besides expenditures on federal Highways are included

Expenditures on a nation's domestic production

Are equal to its domestic product

GDP per person tells us the income and expenditure of the

Average Person in the economy

Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP. It follows that A. GDP is not a useful measure of society's welfare. B. GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare. C. GDP is still the best measure of society's welfare because these other values cannot actually be measured. D. GDP is still a useful measure of society's welfare because providing these other attributes is the responsibility of government.

Quality Motors is a Japanese-owned company that produces automobiles; all of its automobiles are produced in American plants. In 2010 Quality Motors produced $30 million worth of automobiles, with $17 million in sales to Americans, $9 million in sales to Canadians, and $4 million worth of automobiles added to Quality Motors' inventory. The transactions just described contribute how much to U.S. GDP for 2010? A. $17 million B. $30 million C. $26 million D. $21 million

Which of the following correctly lists what is included in the consumption component of GDP? A. household purchases of nondurable goods and durable goods other than residential construction but not household purchases of services B. household purchases of services, nondurable goods, and durable goods other than residential construction C. household purchases of services, nondurable goods, and all durable goods D. household purchases of services and household purchases of nondurable goods but not any household purchases of durable goods

Which of the following items is included in U.S. GDP? A. the difference in the price of the sale of an existing home and its original purchase price B. goods produced by foreign citizens working in the United States C. known illegal activities D. None of the above is included in U.S. GDP.

One bag of flour is sold for $1.00 to a bakery, which uses the flour to bake bread that is sold for $3.00 to consumers. A second bag of flour is sold for $1 to a grocery store who sells it to a consumer for $2.00. Taking these four transactions into account, what is the effect on GDP? A. GDP increases by $3.00. B. GDP increases by $5.00. C. GDP increases by $6.00. D. GDP increases by $7.00. Hide Feedback

B. GDP increases by $5.00.

Joe and Jim purchase vegetables at a grocery store, but Jim also grows vegetables in his back yard. Regarding these two practices, which of the following statements is correct? A. Only Joe's grocery store purchases are included in GDP. B. Only Joe's and Jim's grocery store purchases are included in GDP. C. Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value. D. Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value, if Jim provides this information

B. Only Joe's and Jim's grocery store purchases are included in GDP.

Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has A. not caused any change in measured GDP. B. caused measured GDP to rise. C. probably changed measured GDP, but in an uncertain direction; the direction of the change depends on the difference in the quality of the cleaning that has resulted. D. caused measured GDP to fall.

B. caused measured GDP to rise.

14. Chapter mank07t, Section .165, Problem 026 Figure 23-1. Refer to Figure 23-1. Which of the following pairs correctly identify W and Y? A. markets for factors of production and markets for goods and services B. firms and households C. expenditures and income D. consumption and investment

B. firms and households

Suppose an economy produces only cranberries and maple syrup. In 2010, 50 units of cranberries are sold at $20 per unit and 100 units of maple syrup are sold at $8 per unit. In 2009, the base year, the price of cranberries was $10 per unit and the price of maple syrup was $15 per unit. For 2010, A. nominal GDP is $2000, real GDP is $1800, and the GDP deflator is 90. B. nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 90. C. nominal GDP is $2000, real GDP is $1800, and the GDP deflator is 111.1. D. nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 111.1.

B. nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 90.

A macroeconomist is interested in A. explaining price changes in a particular market. B. explaining how changes in sellers' behavior affect prices of a particular good. C. explaining why the unemployment rate is higher. D. All of the above are correct.

If total spending rises from one year to the next, then which of the following could not be true? A. the economy is producing a larger output of goods and services, and goods and services are selling at higher prices. B. the economy is producing a larger output of goods and services, and goods and services are selling at lower prices. C. the economy is producing a smaller output of goods and services, and goods and services are selling at lower prices. D. the economy is producing a smaller output of goods and services, and goods and services are selling at higher prices.

In computing GDP, market prices are used to value final goods and services because A. market prices reflect the quantity sold. B. market prices do not change much over time, so it is easy to make comparisons between years. C. market prices reflect the values of goods and services. D. None of the above is correct; market prices are not used in computing GDP.

Rajiv and Simone Redondo live in Swarthmore, PA. Their son, Yakov, owns his own plumbing business. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Transaction Simone gets a new refrigerator made in the United States. The state of Pennsylvania repaves highway PA 320, which goes through the center of Swarthmore. Yakov buys a new set of tools to use in his plumbing business. Rajiv's employer assigns him to provide consulting services to an Australian firm that's opening a manufacturing facility in China. Rajiv buys a bottle of Italian wine.

C G C,I X C,M

Suppose an apartment complex converts to a condominium, so that the former renters are now owners of their housing units. Suppose further that a current estimate of the value of the condominium owners' housing services is the same as the rent they previously paid. What happens to GDP as a result of this conversion? A. GDP necessarily decreases. B. GDP is unaffected because neither the rent nor the estimate of the value owner-occupied housing services is included in GDP. C. GDP is unaffected because previously the rent payments were included in GDP and now the rent payments are replaced in GDP by the estimate of the value of owner occupied housing services. D. GDP necessarily increases.

C. GDP is unaffected because previously the rent payments were included in GDP and now the rent payments are replaced in GDP by the estimate of the value of owner occupied housing services.

Micah buys a used car for $10,000 and spends $200 on a new radio that is made in the U.S. The end result of these two transactions is A. U.S. consumption purchases increase by $10,200 and U.S. GDP increases by $10,200. B. U.S. consumption purchases increase by $200 and U.S. GDP increases by $10,000. C. U.S. consumption purchases increase by $200 and U.S. GDP increases by $200. D. U.S. consumption purchases increase by $10,000 and U.S. GDP increases by $10,200.

C. U.S. consumption purchases increase by $200 and U.S. GDP increases by $200.

If foreign citizens earn less income in the U.S. than U.S. citizens earn in foreign countries, A. U.S. net factor payments from abroad are negative, and its GDP is larger than its GNP. B. U.S. net factor payments from abroad are positive, and its GDP is larger than its GNP. C. U.S. net factor payments from abroad are positive, and its GNP is larger than its GDP. D. U.S. net factor payments from abroad are negative, and its GNP is larger than its GDP.

C. U.S. net factor payments from abroad are positive, and its GNP is larger than its GDP.

In a simple circular-flow diagram, total income and total expenditure are A. equal only when the government purchases no goods or services. B. never equal because total income always exceeds total expenditure. C. always equal because every transaction has a buyer and a seller. D. seldom equal because of the ongoing changes in an economy's unemployment rate.

C. always equal because every transaction has a buyer and a seller.

In order to include many different goods and services in an aggregate measure, GDP is computed using, primarily, A. values of goods and services based on surveys of consumers. B. quantities purchased by a typical urban household. C. market prices. D. profits from producing goods and services.

C. market prices.

In a simple circular-flow diagram, firms A. purchase the output produced by households. B. receive income by selling resources to households. C. purchase resources from households. D. All of the above are correct.

C. purchase resources from households.

Darnell and Eleanor Cohen live in Swarthmore, PA. Eleanor's father, Jacques, lives in Sweden. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Eleanor gets a new refrigerator made in the United States

Consumption

Lorenzo and Neha Strong live in Swarthmore, PA. Their son, Sam, is an artist living in New York City. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Neha gets a haircut

Consumption

Sam and Teresa Lacoste live in Swarthmore, PA. Their son, Andrew, owns his own plumbing business. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Teresa gets a new video camera made in the United States

Consumption

What category of GDP does this fall under?: US consumer pays $20,000 for 2017 US car

Consumption

What category of GDP does this fall under?: US firm pays $20,000 for US car

Consumption

What part of the GDP is this? (Consumption, Investment, Government Purchases, Exports, or Imports): Becky gets a new video camera made in the United States

Consumption

Consumption Imports

What part of the GDP is this? (Consumption, Investment, Government Purchases, Exports, or Imports): Alex buys a bottle of Italian wine?

Consumption and Imports

What category of GDP does this fall under?: US firm pays $20,000 for 2017 Japanese car

Consumption and Imports; does not affect GDP as they cancel out

A Texas household receives a Social Security check for $1500, which it uses to purchase a $40 pair of shoes made in Thailand by a Thai firm, a $1240 television made by a Korean firm in Korea, and $220 on groceries from a local store. As a result, U.S. GDP A. increases by $40. B. increases by $280. C. increases by $1500. D. increases by $220.

GDP does not reflect A. the value of goods and services produced at home. B. the quality of the environment. C. the value of leisure. D. All of the above are correct.

GDP is equal to A. Y. B. the market value of all final goods and services produced within a country in a given period of time. C. C + I + G + NX. D. All of the above are correct.

Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. To do this, GDP makes use of A. statistical estimates of the value of goods and services to consumers. B. prices based on the assumption that producers make no profits. C. the maximum amount consumers would be willing to pay. D. market prices.

Which of the following is included in the consumption component of GDP? A. household purchases of food. B. household purchases of medical care. C. household purchases of appliances. D. All of the above are included in the consumption component of GDP.

Figure 23-1. Refer to Figure 23-1. Which of the following correctly identifies the flow of dollars? A. W, X, Y and Z B. K, M, L and N C. C, K, M and D D. A, L, N and B

D. A, L, N and B

Which of the following is not included in GDP? A. the services of an exterminator B. a can of bug spray C. the honey produced and sold by a beekeeper D. All of the above are included in GDP.

D. All of the above are included in GDP.

Which of the following is included in the investment component of GDP? A. spending to build new houses B. spending to build new factories C. spending on business equipment such as welding equipment D. All of the above are included in the investment component of GDP.

D. All of the above are included in the investment component of GDP.

Which of the following is not an example of a durable good? A. a furnace. B. an automobile. C. a refrigerator. D. a business suit

D. a business suit

GDP includes the value of all A. final goods and services produced within a country using primarily a survey of consumers to measure the value of goods and services. B. goods and services produced within a country using primarily a survey of consumers to measure the value of goods and services. C. goods and services produced within a country using primarily market prices to measure the value of goods and services. D. final goods and services produced within a country using primarily market prices to measure the value of goods and services.

D. final goods and services produced within a country using primarily market prices to measure the value of goods and services.

The value of the housing services provided by the economy's owner-occupied houses is: A. included in GDP, and the actual mortgage payments made on the houses are used to estimate the value of these rental services. B. excluded from GDP since these services are not sold in any market. C. excluded from GDP since the value of these housing services cannot be estimated with any degree of precision. D. included in GDP, and the estimated rental values of the houses are used to place a value on these housing services

D. included in GDP, and the estimated rental values of the houses are used to place a value on these housing services.

If an economy's GDP rises, then it must be the case that the economy's A. income rises and expenditure falls. B. income rises and saving falls. C. income and saving both rise. D. income and expenditure both rise.

D. income and expenditure both rise.

Total income from the domestic production of final goods and services equals A. only household and business expenditures for these goods. B. only household expenditures for these goods. C. only household and government expenditures for these goods. D. the expenditures for these goods whoever buys them.

D. the expenditures for these goods whoever buys them.

What category of GDP does this fall under?: US consumer pays $20,000 for 2016 car

Does not count, not new product

Based on this definition, indicate which of the following transactions will be included in (that is, directly increase) the GDP of the United States in 2014. Scenario Athleticus, a U.S. shoe company, produces a pair of sneakers at a plant in Vietnam on March 14, 2014. Athleticus imports the pair of sneakers into the United States on May 17, 2014. Rotato, a U.S. tire company, produces a set of tires at a plant in Michigan on September 25, 2014. It sells the set of tires to Speedmaster for use in the production of a two-door coupe that will be made in the United States in 2014. (Note: Focus exclusively on whether production of the set of tires increases GDP directly, and ignore the effect of production of the two-door coupe on GDP.) You chop down a cherry tree on your property in California and make a dining room table in 2014. A similar table sells for $800 in a local furniture store. Sofaland, a Swedish furniture company, produces a table at a plant in Virginia on December 1, 2014. It sells the table to a college student on December 20. Awake Cafe, a U.S. coffee company, produces a latte at its location in Minneapolis on January 8, 2014. It sells the latte to a customer immediately.

Excluded Excluded Excluded Included Included

Darnell and Eleanor Cohen live in Swarthmore, PA. Eleanor's father, Jacques, lives in Sweden. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Darnell's employer grades all of its computer systems using U.S.-made parts

Investment

What category of GDP does this fall under?: Chinese consumer pays $20,000 for 2017 US car

Export

Exports

Sam and Teresa Lacoste live in Swarthmore, PA. Their son, Andrew, owns his own plumbing business. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Sam's employer assigns him to provide consulting services to an Australian firm that's opening a manufacturing faculty in China

Exports

What part of the GDP is this? (Consumption, Investment, Government Purchases, Exports, or Imports): Becky's father in Sweden orders a bottle of Vermont maple syrup from the producer's website.

Exports

Expenditure Approach Equation

GDP = C + I + G + (Ex - Im)

Suppose Megan earns $650 per week working as a doctor for the Medical Clinic. She uses $10 to get her car washed at Spotless Car Wash. Spotless Car Wash pays Larry $375 per week to wash cars. Larry uses $350 to purchase medical services from the Medical Clinic. Identify whether each of the following events in this scenario occurs in the market for factors of production or the market for goods and services. Event: Market for Factors of Production OR Market for Goods and Services Megan spends $10 to get her car washed. Larry spends $350 to purchase medical services from the Medical Clinic. Larry earns $375 per week working for Spotless Car Wash.

Goods and services Goods and services Factors of Production

Darnell and Eleanor Cohen live in Swarthmore, PA. Eleanor's father, Jacques, lives in Sweden. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. The state of Pennsylvania repaves highway PA 320, which goes through the center of Swarthmore

Government Purchase

Government Purchases

Sam and Teresa Lacoste live in Swarthmore, PA. Their son, Andrew, owns his own plumbing business. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. The town of Swarthmore puts on a fireworks display for the Fourth of July

Government Purchases

What part of the GDP is this? (Consumption, Investment, Government Purchases, Exports, or Imports): The state of Pennsylvania repaves highway PA 320, which goes through the center of Swarthmore

Government Purchases

What is GDP?

Gross Domestic Production; National Production

Investment

Sam and Teresa Lacoste live in Swarthmore, PA. Their son, Andrew, owns his own plumbing business. For each of the following transactions that occur in their lives, identify whether it is included in the calculation of U.S. GDP as part of consumption (C), investment (I), government purchases (G), exports (X), or imports (M). Check all that apply. Andrew buys a new set of tools to use in his plumbing business.

Investment

What category of GDP does the creation of housing fall under?

Investment

What part of the GDP is this? (Consumption, Investment, Government Purchases, Exports, or Imports): Alex's employer upgrades all of its computer systems using U.S.-made parts.

Investment

When a U.S. company purchases and imports wood from Brazil to use to build new houses within the United States, this purchase increases the ________ component of GDP while also ________ net exports by the same amount. Therefore, the purchase of wood from Brazil causes _______ in U.S. GDP

Investment Decreasing No Overall Change

The gross domestic product (GDP) of the United States is defined as the _______ all ___________ ___________ in a given period of time.

Market value of, Final goods and services produced, within the united states

Is this included in GDP?: Graincorp, a U.S. agricultural company, produces corn syrup at a plant in Iowa on September 19, 2017. It sells the corn syrup to Crunchy's for use in the production of cereal that will be made in the United States in 2017. (Note: Focus exclusively on whether production of the corn syrup increases GDP directly, and ignore the effect of production of the cereal on GDP.)

No; Because Crunchy's uses the corn syrup that Graincorp produces in the production of cereal, the corn syrup is considered an intermediate good, not a final good and, therefore does not directly increase the GDP of the United States. However, the price of the cereal will include the value of the corn syrup. Therefore, the market value of the corn syrup will enter GDP as part of the market value of the final good, the cereal.

Is this included in GDP?: Calculo, a U.S. electronics company, produces a calculator at a plant in Indonesia on March 17, 2017. Calculo imports the calculator into the United States on May 21, 2017.

No; Calculo is a U.S. company, but because it produces the calculator in Indonesia, the output will be part of the GDP of Indonesia, not the GDP of the United States.

Is this included in GDP?: You chop down a cherry tree on your property in California and make a dining room table in 2017. A similar table sells for $800 in a local furniture store.

No; In theory, the market value of the cherry table should be included in GDP, but because estimating the value of do-it-yourself activities is difficult, such items are generally excluded when the Bureau of Economic Analysis calculates the value of U.S. GDP.

GDP Deflator Equation

Nominal GDP/Real GDP x 100

Nominal GDP Equation

Price (year t) x Quantity

What is an inventory?

Raw materials not used in the period

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

Real GDP is not influenced by price changes, but nominal GDP is

GDP is the market value of all final goods and services produced within a country in a given period of time. T/F?

TRUE

If consumption is $4000, exports are $300, government purchases are $1000, imports are $400, and investment is $800, then GDP is $5700. T/F?

TRUE

Is this included in GDP?: Awake Cafe, a U.S. coffee company, produces a latte at its location in Minneapolis on January 9, 2017. It sells the latte to a customer immediately.

Yes; The Awake Cafe example is straightforward and should clearly count as something produced in the United States in 2017.

True or False: For the economy as a whole, expenditures must equal income

True

How do we measure a nation's income?

Using the circular-flow diagram and using an income slice by measuring wages

Which of the elements of this scenario represent a flow from a household to a firm? This could be a flow of dollars, inputs, or outputs. Check all that apply. The $350 Larry spends to purchase medical services from the Medical Clinic The $375 per week Larry earns working for Spotless Car Wash The car wash Megan receives

Yes No No

Is this included in GDP?: Chocolate Express, a Swiss chocolate company, produces a chocolate bar at a plant in Illinois on December 12, 2017. An elementary school student buys the chocolate bar on December 24.

Yes; Although Chocolate Express is a Swiss company, the chocolate bar is produced within the United States and should be included in the GDP of the United States.

If Brazil buys $100 million of tractors from the U.S., then U.S. net exports will decrease. a. TRUE b. FALSE

b. FALSE

Nominal GDP uses constant base-year prices to place a value on the economy's production of goods and services, while real GDP uses current prices to place a value on the economy's production of goods and services. a. TRUE b. FALSE

b. FALSE

Net Exports Equation

exports - imports

The following diagram presents a circular-flow model of a simple economy. The outer set of arrows (shown in green) shows the flow of dollars, and the inner set of arrows (shown in red) shows the corresponding flow of inputs and outputs. Based on this model, households earn income when _______ purchase __________in markets for factors of production.

firms, Labor and capital

What are intermediate goods?

goods used in the production of other goods (ex. eggs sold to consumer and put into a cake sold at a bakery)

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