Macro economics Chapter 10

What is a way to compute GDP?

Add up the marked values of all final goods and services.

When economists talk about growth in an economy, how do they measure growth?

As the percentage change in real GDP from one period to another.

For the purpose of calculating GDP, investment is spending on...

Capital equipment, inventories, and structures, including household purchases of new housing.

In the national income accounts, What is depreciation called?

Consumption of fixed capital.

Government purchases include spending on goods and services by...

Federal, state, and local governments.

What happens to GDP most of the time when production decreases?

GDP likely decreases too.

What is the best single measure of a society's economic well being?

Gross Domestic Product (GDP)

What does GDP measure?

Income and expenditures.

If an American company is operating in another country like France would it be included in America's GDP?

No it would be included in the GDP of the country that it is being ran in, like France in this example.

What do changes in the GDP reflector reflect?

Only changes in prices.

When will real GDP increase?

Only when output increases.

What are transfer payments?

Payments that flow from government to households, alter household income, but they do not reflect the economy's production, are not made in exchange for currently producing goods and services.

The statistical discrepancy that regularly arises in national income accounting refers to the slight difference between what?

The income and expenditure approaches to the circulation of GDP.

National income is defined as

The income that households and noncorporate businesses have left after satisfying all their obligations to the government.

In the equation Y = C + I + G + NX what does Y represent?

Y represents the economy's total expenditure.

What do changes in Nominal GDP reflect?

both changes in prices and changes in the amounts being produced.

Net exports equal

exports minus imports.

When economists refer to intangible items, they are referring to such things as

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

For an economy as a whole...

income must = expenditure.

To encourage formation of small businesses, the government could provide subsidies; these subsidies...

would not be included in GDP because they are transfer payments

What is a recession?

A period during which real GDP declines for 2 consecutive quarters.

Why aren't sales of things that were used included in GDP?

Because GDP only measures the values of goods and services produced in the current year.

Thomas, a U.S. citizen, works only in Canada. The value of the output he produces is...

Included in U.S. GNP, but it is not included in U.S. GDP.

The value of goods added to a firm's inventory in a certain year is treated as...

Investment, since GDP aims to measure the value of the economy's production that year.

How does hiring someone to clean your house or do things like that affect GDP?

It causes it to rise.

In computing GDP, market prices are used to value final goods and service because...

Market prices reflect the values of goods and services.

Is Unemployment compensation included in GDP?

No because it is a transfer payment.

Are things sold by farmers to grocery stores included in GDP?

No because it isn't the final product.

What is the inflation rate?

The percentage change in the price level from one period to another.

Disposable income is

the income that households and businesses have remaining after satisfying their obligations to the government.

Social Security payments are

Excluded from GDP because they do not reflect the economy's production.

What does US GNP include and exclude?

Excludes production of foreigners working in the U.S. but includes production by US. citizens working foreign countries.

Unlike national income, personal income

Excludes retained earnings, indirect business taxes, corporate income taxes and social insurance contributions, and includes interest and transfer payments received by households from the government.

Which of the following examples of household spending is categorized as investment rather than consumption?

Expenditures on new housing

Order income measures from largest to smallest.

Gross national product, net national product,, national income, personal income, and then disposable personal income.

Who are good and services purchased by in the actual economy?

Households, firms and the government.

What would be a reason why something wouldn't be included in GDP?

If it was produced at home (like hair cuts under the table) or if it was produced illegally (like drugs).

What doesn't GDP reflect?

The value of leisure, the quality of the environment, and the value of goods and services produced at home.

What is GDP used for?

To monitor the performance of the overall economy and is the single best measure of a society's economic well-being.