Macroeconomics Chapter 7
____ income consists of the money paid by private businesses to the suppliers of loans used to purchase capital.
Interest
Residential construction is counted as ______. -net private domestic investment -consumption spending -net public investment -gross private domestic investment
gross private domestic investment
Among the three domestic sectors of the economy, the government has inflow from taxes, whereas ____ have inflows from investment.
business
Net domestic product (NDP) is equal to GDP minus _____. -depreciation -savings -amortization -transfer payments
depreciation
Net domestic product is gross domestic product less ______. -imports -net exports -taxes -depreciation
depreciation
The estimate of how much of the private capital equipment is being used up each year is called ____
depreciation
The estimated amount of capital being used each year is called ______. -net foreign factor income -depreciation -gross investment -net investment
depreciation
The amount of income that households have left over after paying their personal taxes is ______ income. -gross -disposable -personal -national
disposable
The after-tax profits that are distributed to stockholders are called ____
dividends
GDP can be measured using the ______ approach, which adds up all of the items that make up national earnings. -total -national -expenditure -income
income
National ____ accounting measures the overall performance of the economy.
income
Select all that apply What are the three domestic sectors of the economy? -trade -government -firms -households
government firms households
The market 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 ______. -national income -gross domestic product -gross private domestic investment -gross national product
gross domestic product
The market value of a firm's output minus the value of the inputs the firm has bought from others is called ______. -multiple counting -value added -total profit -depreciation
value added
Government transfer payments include all of the following except: -direct welfare payments to low-income households -wage payments to police officers -direct payments to veterans -payments to the elderly from Social Security
wage payments to police officers
Net private domestic investment is defined as ______. -what is left over from total new private investment after depreciation -the total amount of new private investment purchases -the total amount of private investment purchases, whether new or previously existing -the wear and tear on private investment
what is left over from total new private investment after depreciation
Inflows of disposable income and outflows of consumption spending and saving take place ______, while inflows of revenue from taxes and outflows in the form of purchases and transfers take place ______. -within government; within households -in the resource market; in the product market -within households; within government -in the product market; in the resource market
within households; within government
When gross investment is ______ depreciation, net investment is negative. -equal to -greater than -less than -rising faster than
less than
If a market basket of household goods was priced at $200 in the year 2000 and rose to $600 in the year 2020, what is the price index for the year 2020? -300 -800 -100 -400
300
Which of the following is not an example of a personal consumption expenditure? -Clothing -A restaurant meal -A fighter jet -A television set
A fighter jet
Select all that apply What is a final good? -A good that is counted as part of GDP -A good directly consumed by individuals or businesses -A good that is counted twice while calculating GDP -A good used only in the production of other products
A good that is counted as part of GDP A good directly consumed by individuals or businesses
What creates a problem in using money to value GDP? -Inflation -Personal income -Nonmarket activities -The underground economy
Inflation
What is an intermediate good? -A good that is counted as part of GDP -A good directly consumed by individuals -A good used only in the production of other products -A good that is considered a final product
A good used only in the production of other products
If C represents consumption expenditure, Ig represents gross investment, In represents net investment, G represents government expenditure, Xn represents net exports, and Xg represents gross exports, GDP is ______. -C + Ig + P + Xn -C + Ig + G + Xn -C + In + G + Xn -C + Ig + G + Xg
C + Ig + G + Xn
Which of the following would accurately characterize the portion of a firm's profit paid to the owner for holding one share of its stock? -Dividend -Interest -Stock -Bond
Dividend
Select all that apply National income accountants subdivide corporate profits into which categories? -Rents -Dividends -Undistributed corporate profits -Interest on savings -Corporate income taxes
Dividends Undistributed corporate profits Corporate income taxes
Select all that apply Which of the following are part of taxes on production and imports? -Income taxes -Excise taxes -License fees -Customs duties -Rental taxes -General sales taxes -Business property taxes
Excise taxes License fees Customs duties General sales taxes Business property taxes
Which approach to GDP adds up all the spending on final goods and services that has taken place throughout the year? -Expenditures approach -Income approach -Selling approach -Capital approach
Expenditures approach
Select all that apply Which of these are components of government purchases in GDP? -Expenditures for publicly owned capital -Expenditures and government receipts that consist of transfer payments to households -Expenditures for goods and services that the government consumes in providing public services -Expenditures for intermediate goods
Expenditures for publicly owned capital Expenditures for goods and services that the government consumes in providing public services
True or false: Unlike final goods, intermediate goods are included in the calculation of GDP.
False
______ goods are included in the calculation of GDP, while ______ goods are not included. -Intermediate; final -Final; intermediate -Durable; nondurable -Hard; soft
Final; intermediate
GDP is equal to C + Ig + ____ + Xn.
G
Which of the following is equal to net investment? -GDP minus final sales -Gross investment minus depreciation -Gross investment minus final sales -Depreciation plus GDP
Gross investment minus depreciation
Select all that apply Which of the following statements are true of a price index? -It measures the price of a set of goods of services in a given year. -It selects goods for comparison at random from one year to the next. -It is expressed in terms of a base, or reference, year. -It measures production efficiency for a base year.
It measures the price of a set of goods of services in a given year. It is expressed in terms of a base, or reference, year.
What happens to the size of the capital stock when gross investment and depreciation are equal? -It decreases. -It stays the same. -It increases.
It stays the same.
What do economists use to calculate GDP under the income approach? -Personal consumption -Exports minus imports -Government spending -National income
National income
Which of the following measures the economy's overall performance? -The stock market -Gross state product -National income accounting -Private accounting
National income accounting
What is gross rental income minus depreciation of the rental property? -Interest -Dividends -Net rent -Gross rent
Net rent
Select all that apply Which of the following are types of private domestic investment expenditures? -Resale of existing housing -Newly produced housing -Spending on new plants and equipment -Any increase in inventories
Newly produced housing Spending on new plants and equipment Any increase in inventories
Select all that apply Which of the following are components of the expenditure approach to measuring GDP? -Personal consumption expenditures -Government purchases -Gross private domestic investment -Personal and business savings
Personal consumption expenditures Government purchases Gross private domestic investment
____ transfer payments are excluded from GDP because they produce no output and are simply a transfer of funds from one private individual to another.
Private
What is it called when there is a transfer of funds from one private individual to another? -Private transfer payment -Value added -Stock market transaction -Public transfer payment
Private transfer payment
____ ____ consists of the net income of sole proprietorships, partnerships, and other unincorporated businesses.
Proprietor income
What is the net income of sole proprietorships, partnerships and other unincorporated businesses? -Rent -Proprietor's income -Compensation of employees -Corporate profits
Proprietor's income
Select all that apply Which of the following items are calculated as part of national income? -Rents -Compensation of employees -Net receipts from abroad -Consumption of fixed capital -Corporate profits -Interest -Taxes on production and imports -Proprietors' income
Rents Compensation of employees Corporate profits Interest Taxes on production and imports Proprietors' income
Which of the following is counted as gross private domestic investment? -Residential construction -Investing in stocks and bonds -Spending on legal services -Spending on automobiles
Residential construction
In national income accounts, what does value added refer to? -The cost of inputs at the first stage of production -The difference in the market value and cost of inputs purchased from other firms -The value of all the inputs used by the final producer -The value added to the production process by labor only
The difference in the market value and cost of inputs purchased from other firms
Select all that apply For the purposes of GDP accounting, what do government purchases include? -Social security payments -The purchase of new military equipment -Unemployment insurance payments -Spending on highway construction
The purchase of new military equipment Spending on highway construction
True or false: Net domestic product is gross domestic product minus consumption of fixed capital (or depreciation).
True
True or false: When gross investment and depreciation are equal, the value of net investment is zero.
True
Select all that apply Which of the following are the domestic sectors of the U.S. economy? -U.S. technology industry -U.S. government -U.S. businesses -Foreign spending -U.S. households
U.S. government U.S. businesses U.S. households
Select all that apply Which of the following are included in compensation of employees? -Wages and salaries -Payments by employers into private pension plans for employees -Payments by employees into private pension plans -Payments by employers into social insurance for employees
Wages and salaries Payments by employers into private pension plans for employees Payments by employers into social insurance for employees
The primary measure of the economy's performance is its annual total output of goods and services, which is called its ______. -balance of trade -aggregate output -gross investment -net exports
aggregate output
Gross domestic product (GDP) may be calculated as the sum of ______. -consumer spending, investment spending, government purchases of goods and services, and net exports -consumer spending, investment spending, government purchases of goods and services, and exports -exports and imports only -consumer spending, investment spending, government transfer payments, and exports minus imports
consumer spending, investment spending, government purchases of goods and services, and net exports
The depreciation charge made against private and publicly owned capital each year is called ______. -consumption expenditures -consumption of durable goods -consumption of fixed capital -consumption of variable capital
consumption of fixed capital
National income is the sum of compensation of employees, rents, interest, proprietors' income, taxes on production and imports, and ______. -dividends -taxes on exports -corporate profits -capital appreciation
corporate profits
Retained earnings are a category of ______. -proprietors' income -interest -corporate profits -rent
corporate profits
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 -it is difficult to measure the prices of intermediate goods produced -these are the only goods and services that are purchased in an economy -one cannot calculate the quantities of intermediate goods produced
counting all intermediate goods and services would lead to double-counting of many activities
Consumption of fixed capital is the portion of GDP that is set aside to pay for the ultimate replacement of the capital goods that have suffered ____
depreciation
Gross rental income minus ____ equals net rent
depreciation
NDP is GDP adjusted for ____
depreciation
A country's gross domestic product (GDP) is a measure of ______ produced within an economy during a specific period of time. -the aggregate output of intermediate goods -dollar value of all final goods and services -the aggregate output of final and intermediate goods -dollar value of all final and intermediate goods and services
dollar value of all final goods and services
All the final purchases of plants, machinery, and equipment by business enterprises; residential construction; and changes in inventories make up gross private ____ investment
domestic
Under the income approach to GDP, the wages, salaries, and benefits paid by businesses and government fall under the category of compensation of ____
employees
Goods that are produced in a particular period but not sold in that period ______. -go into inventories and are called consumption -are finally included in depreciation when they are sold -end up in inventories and are included in investment -are classified as intermediate goods
end up in inventories and are included in investment
The view that GDP is the sum of money spent on buying final goods and services is called the aggregate ____ approach
expenditure
The statistical discrepancy added to the GDP figure derived from the income method arises from the difference between the income method and the ______ method. -expenditures -revenue -net balance -net differences
expenditures
The view of GDP as the sum of money spent on purchases is called the ______ approach. -capital -buying -expenditures -income-based
expenditures
Consumption goods, capital goods and services purchased by their ultimate users are called ______ goods. -intermediate -substitute -investment -final
final
In order to determine GDP using the expenditures approach, all spending on ______ goods and services, not intermediate goods, is added up. -final -nondurable -nominal -real
final
The three domestic sectors of the economy are households, government, and ______ -financial institutions -individuals -municipalities -firms
firms
Nominal GDP is not an accurate measure of the real level of economic activity in a country because ______. -base year prices are likely to experience substitution bias -taxes distort the real value of all the goods and services produced -inflation distorts the real value of all goods and services produced -the GDP deflator constantly underestimates the real cost of living
inflation distorts the real value of all goods and services produced
The money paid by private business to the suppliers of loans used to purchase capital or money that households receive on savings accounts is called ______. -profit -interest -net income -rent
interest
Goods and services that are used up in the production of final goods are called ____ goods
intermediate
Including the value of ____ (one word) goods along with the value of final goods in the calculation of GDP would amount to multiple counting of goods and distort GDP.
intermediate
Gross ____ income includes all income earned from American-owned resources plus government revenue from taxes on production and imports.
national
Income earned through the use of American-owned resources for services and production is called ____ income
national
Income earned through the use of American-owned resources for services and production is called ______ income. -investment -derived -national -net
national
All the income that is earned from American-owned resources is called ______. -trade surplus -national income -balance of payments -government tax revenue
national income
When gross investment is less than depreciation, net investment is ______. -rising -zero -positive -negative
negative
In calculating gross private domestic investment, a ______ change in ______ must be subtracted from the total investment for that particular year. -negative; demand -negative; inventories -positive; inventories -negative; the balance of payments
negative; inventories
Depreciation is subtracted from GDP to determine ______. -net imbalance on exports -net domestic product (NDP) -net national product (NNP) -net income
net domestic product (NDP)
When dealing with international trade, economists include ______ as a component of GDP. -totals imports -net imports -net exports -total exports
net exports
The income Americans gain from supplying resources abroad minus the income foreigners gain by supplying resources in the United States is called ____ ____ factor income
net foreign
The difference between the income Americans earn abroad and the income foreigners earn in the United States is called ______ income. -net foreign factor -national -total foreign factor -proprietors'
net foreign factor
All income received by households, whether earned or unearned, is called ____ income
personal
The amount of income that households receive, whether earned or unearned, is called ______ income. -national -personal -disposable -net
personal
The term that covers all expenditures by households on goods and services is known as ____ ____ expenditures
personal consumption
Disposable income equals ______. -personal income minus personal taxes -national income minus transfer payments -national income minus taxes plus government spending -personal income minus transfer payments
personal income minus personal taxes
Residential construction, R&D expenditures, and changes in inventories are all items in the category of gross ____ domestic investment.
private
A country's exports are included in GDP when the goods and services are ______. -produced outside the borders of said country -available for purchase by citizens of all countries, including the producing nation -available for purchase by citizens of the producing nation produced within the borders of said country
produced within the borders of said country
When considering national income, general sales taxes, business property taxes, license fees, and custom duties are all included in the account called taxes on ____ and imports.
production
In order to determine whether increases or decreases in nominal GDP are the result of changes in prices, changes in output, or some combination of those two factors, economists calculate ____ GDP
real
Undistributed corporate profits are called ____ earnings
retained
The amount accountants add to national income to make the income approach match the outcome of the expenditure approach is called ____ discrepancy
statistical
The formula for calculating a price index is ______. -the price of a market basket in a specific year divided by the price of the same market basket in the base year multiplied by 100 -real GDP minus nominal GDP -the price of the market basket in the base year divided by the price of the same market basket in a specific year multiplied by 100 -real GDP divided by nominal GDP
the price of a market basket in a specific year divided by the price of the same market basket in the base year multiplied by 100
The use of money as a common denominator to sum output into a meaningful measure of GDP creates a problem because ______ changes. -the circular flow of money -the amount of production -the value of money itself -the exchange rate
the value of money itself
Aggregate output is the primary measure of the economy's ______. -total output of goods and services adjusted for inflation -total output of goods and services -marginal output of goods and services -total output of goods and services expressed in real terms
total output of goods and services
Social Security payments, welfare payments, and veterans' payments that the government makes directly to households are called government public ____ payments
transfer
Retained earnings are defined as ______ profits. -distributed sole proprietors' -undistributed corporate -distributed corporate -undistributed sole proprietors'
undistributed corporate