Test 2 Assignment 5

In the equation GDP = C+I+G+X-M the G is

local, state, and federal government expenditure on goods and services but does not include transfer payments

An example of a price floor is a

minimum wage

Depreciation is subtracted from gross domestic product to determine directly

net domestic product

Personal consumption expenditures does not include

new housing

This causes reported GDP to increase when total production is unchanged

legalization of things, or household to market production

Pollution is a by-product of some production processes, so on this count real GDP as measured

tends to overstate economic welfare

A price floor

A result in a surplus if the floor price is higher than the equilibrium price

Consumer surplus for a single exchange is defined as the demand price minus the supply price

False

Income taxes are

Indirect taxes

Components of income approach to measuring U.S. GDP include:

Interest earned on savings deposits Income earned by businesses that export goods profits made by businesses, NOT investments

GDP expenditure includes

Inventory Industry cars Home But NOT a different company's stock

Gross domestic product is the total _______ produced within a country in a given time period

Market value of all final goods and services

Expenditure approach GDP uses

Personal consumption expenditures net exports of goods and services gross private domestic investment, But NOT net interest

A price floor

Results in a surplus if the floor price is higher than the equilibrium price

Recession begins at the peak and expansion begins at the trough

True

The government sets a price floor for corn which is above the equilibrium price of corn, as a result

a deadweight loss will be created

The use of purchasing power parity prices

accounts for differences in the prices of the same goods in different countries when measuring real GDP

If Nike, an American corporation, produces sneakers in Thailand this would

add to Thailand's GDP but not to US GDP

The underground economy exists to

avoid taxes production of illegal goods avoidance of government reg's

The largest component of national income is

compensation of employees

Deadweight or welfare loss is the decrease in _________ from producing an inefficient amount of product

consumer surplus and producer surplus

Goods that are pruduced this year, stored in inventories and then sold to consumers next year

count in this year's GDP

The difference between gross investment and net investment is

depreciation

Economics distinguish real GDP from nominal GDP to

determine whether real production has changed

Net exports of goods and services equal the

exports of goods and services minus the imports of goods and services

The business cycle refers to

fluctuations in the level of real GDP around potential GDP

Governments often intervene in agricultural markets by

granting subsidies

Net investment equals

gross investment minus depreciation

The two methods of measuring GDP are

income approach and expenditure approach

In the national income accounts the purchase of a new house counts as

investment

Purchase of corporate stock

is not included in consumption expenditure

Real GDP can be criticized as measure of economic welfare because

it doesn't take account of the degradation of environmental quality. it does not include the value of products produced in the household it does not include leisure time available to a society.

When using the income approach of GDP, the largest share is generally

labor income

The productivity growth slowdown refers to the

period during the 70s and for some years afterwards

In the Expenditure approach to GDP the largest component is

personal consumption expenditures

The largest component of GDP in the Expenditure approach is

personal consumption expenditures

Real GDP does not included

production in the home

Depreciation is defined as

the decrease in the stock of capital due to wear and tear

Producer surplus for a single exchange is

the exchange price minus the supply price

Potential GDP is

the maximum amount of GDP that can be produced ceteris paribus assuming all resources

GDP declines during

the movement from peak to trough

Real GDP decreases during

the movement from peak to trough

When calculating GDP underground economic activity is

the part of the economy purposely hidden

Potential GDP is

the value of production when all the nation's resources are fully employed

Intermediate goods are excluded from GDP because

their inclusion would involve double counting

In the computation of GDP, social security payments count as

transfer payments and are not included in GDP