Macroeconomics Chapter 7

Government transfer payments include the following

-Direct welfare payments to low-income households -Payments to the elderly from Social Security -Direct payments to Veterans

Depreciation

A reduction in the value of an asset with the passage of time, due in particular to wear and tear

Gross Domestic Product may be calculated as the sum of

Consumer spending, investing spending, government purchases of goods and services, and exports minus imports.

GDP can be calculated by summing:

Consumption, investment, government purchases, and net exports.

Comparing market values over time has the:

Disadvantage that prices change over time

All the final purchases of machinery, equipment, and tools by business enterprises, including construction, and changes in inventories make up gross private __________ investment.

Domestic

Disposable income equals:

Personal income minus personal taxes

the GDP price index is:

a measure of the price of a specified collection of goods and services compared to the price of a highly similar collection of goods and services in a reference year.

Depreciation:

a reduction in the value of an asset with the passage of time, due in particular to wear and tear

Gross domestic product does not include the value of stocks and bonds sold because these sales and purchases are not economic

investments and should not be counted as production of final goods and services

Real GDP refers to:

GDP data that have been adjusted for changes in the price level

What happens to the size of the capital stock when gross investment and depreciation are equal?

It stays the same.

A country's exports are included in GDP when the goods and services are:

Produced within the borders of said country.

__________ GDP, or adjusted GDP, reflects changes in the price level.

Real

The view of GDP as the sum of money spent on purchases is called:

The expenditure approach.

Economic output is equal to economic income because

The value of everything that is produced is also the value of everything sold

The market value of a firm's output minus the value of the inputs the firm has bought from others is called

Value Added

Transfer payments are:

excluded when calculating GDP because they do not reflect current production

The three types of private domestic investment include all final purchases of machinery, equipment, and tools; all construction; and changes in business __________

inventories

the amount of income that households receive, whether earned or unearned, is called ________ income.

personal

Undistributed corporate profits are called _________ __________

retained earnings

Aggregate output

the primary measure of the economy's performance is its -annual total output of goods and services -The dollar value all final goods and services produced within the borders of a country during a specific time period.

The expenditures or output approach to GDP measures it by summing up:

the total spending for consumption, investment, net exports, and government purchases.

Gross domestic product calculations count only final goods and services because:

Counting all intermediate goods and services would lead to Double-counting of many activities

Which approach to GDP adds up all the spending on final goods and services that has taken place throughout the year?

Expenditure approach

The dollar value of all final goods and services produced within the borders of a given country during a given period of time is the definition of:

Gross Domestic Product

Foreign goods or ________ purchased by consumers, firms, or the government should be subtracted from GDP because the goods were not produced in the United States.

Imports

Viewing GDP in terms of earning derived or created by producing something is called the ________ approach

Income

When gross investment is __________ depreciation, net investment is negative

Less that

National income accounting

Measures the economy's overall performance

GDP is the

Monetary value of all final goods and services produced within the borders of a nation in a particular year

Measures the economy's overall performance

National income accounting

The system that measures the economy's overall performance is formally known as:

National income accounting

The difference between the income Americans earn abroad and the income they earn in the United States is called ________ ________ factor income

Net Foreign

when dealing with international trade, economists include ________ as a component of GDP

Net exports

Transfer payments are not included in GDP because they generate __________.

No output

The term that covers all expenditures by households is _________ __________ expenditures

Personal Consumption

Net exports

are the difference between a country's total value of exports and the value of imports.

Statistics derived form National income accounting

are useful to assess the health of an economy and formulate policies to maintain and improve that health.

Economists include only final goods in measuring GDP for a particular year because if intermediate goods were

counted, then multiple counting would occur

The consumption of fixed capital in each year's production is called:

depreciation

In national income accounts, value added refers to:

the difference in the market value and the cost of inputs purchased from other firms

The agency responsible for compiling the National income product Accounts for the U.S. economy is the:

Bureau of Economic Analysis.

The price of a market basket of goods in a specific year divided by the price of the same market basket of goods in the base year multiplied by 100 is called a:

price index

A country's exports are included in GDP when the goods and services are

produced within the borders of said country

final goods

products that are purchased by their end users

intermediate goods

products that are purchased for resale or further processing or manufacturing.

Net exports are:

Exports less imports Exports minus imports

consumption goods, capital goods and services purchased by their ultimate users are called _____ goods

Final

__________ is the income received by households and businesses that supply property resources.

Rents

Public transfer payments

Social security, welfare, veterans' payments. --not included in GDP

The following are part of taxes on production and imports

-Business property taxes -General Sales Tax -License fees -Customs duties -Excise taxes

Gross private domestic investment includes

-Final purchases of machinery, equipment, and tools by business enterprises, all construction, and changes in inventories

What are the three categories of personal consumption expenditures?

-Nondurable consumer goods -Durable consumer goods -Services

The following are included in compensation of employees?

-Payments by employers into private pension plans for employees -wages and salaries -payments by employers into social insurance for employees

The national accounts keep track of:

-Spending by consumers and government. -Business investment -the sales of producers

__________ market transactions are not included in measuring GDP

-Stock -Second Hand -Black

National income accounting enables economists and policymakers to:

-assess the health of the economy by comparing levels of production at regular intervals -track the long-run course of the economy to see whether it has grown, been constant, or declined. -formulate policies that will safeguard and improve the economy's health

The following are components of government purchases in GDP

-expenditures for goods and services that the government consumes in providing public services -expenditures and government receipts that consist of transfer payments to households

For the purpose of GDP accounting, government purchases include __________

-spending on highway construction -the purchase of new military equipment

Private domestic investment expenditures consist of:

-spending on new plant and equipment. -newly produced housing. -any increase in inventories

The following items comprise national income:

-taxes on production and imports -proprietors' income -Compensation of employees -interest -rents -American salaries earned abroad -corporate profits

For the purposes of GDP accounting, government purchases include _________.

-the purchase of new military equipment -spending on highway construction

the primary measure of the economy's performance is its annual total output of goods and services, which is called its:

Aggregate output

National income accountants compare the market value of the total output in various years rather than actual physical volumes of production because

It is impossible to add oranges and computers.

IF you were to determine net domestic product (NDP) through the expenditures approach, the correct measure of investment spending to use is:

Net private domestic investment because it excludes depreciation

Viewing GDP in terms of earnings derived or created by producing something is called:

The income approach

Goods and services that are used up in the production of final goods are called ________ goods

intermediate

A nation's gross domestic product (GDP):

is the dollar value of all final output produced within the borders of the nation during a specific period of time.

When measuring GDP for a particular year, economists exclude the value of used furniture bought and sold because

it was counted in GDP in some previous year.