Chapter 10 Study Guide

Gross domestic product can be measured as the sum of A. consumption, investment, government purchases, and net exports B. consumption, transfer payments, wages, and profits C. investment, wages, profits, and intermediate production D. final goods and services, intermediate goods, transfer payments, and rent E. net national product, gross national product, and disposable personal income

A

If U.S. GDP exceeds U.S. GNP, then A. foreigners are producing more in the United States than Americans are producing in foreign countries B. Americans are producing more in foreign countries than foreigners are producing in the United States C. real GDP exceeds nominal GDP D. real GNP exceeds nominal GNP E. intermediate production exceeds final production

A

Which contributes more when measuring GDP, a new diamond necklace purchased by a wealthy person or a soda purchased by a thirsty person? Why?

A diamond necklace because GDP measures market value

How is your purchase of a $40,000 BMW automobile that was produced entirely in Germany recorded in the U.S. GDP accounts? A. Investment increases by $40,000, and net exports increase by $40,000 B. Consumption increases by $40,000, and net exports decrease by $40,000 C. Net exports decrease by $40,000 D. Net exports increase by $40,000 E. there is no impact because this transaction does not involve domestic production

B

If your grandparents buy a new retirement home, this transaction would affect A. consumption B. investment C. government purchases D. net exports E. none of the above

B

Real GDP is measured in ___ prices while nominal GDP is measured in ___ prices A. current year; base year B. base year; current year C. intermediate; final D. domestic; foreign E. foreign; domestic

B

The value of a plant and equipment worn out in the process of manufacturing goods and services is measured by A. consumption B. depreciation C. net national product D. investment E. intermediate production

B

If a cobbler buys leather for $100 and thread for $50 and uses them to produce and sell $500 worth of shoes to consumers, the contribution to GDP is A. $50 B. $100 C. $500 D. $600 E. $650

C

U.S. gross domestic product (in contrast to gross national product) measures the production and income of A. American and their factories no matter where they are located in the world B. people and factories located within the borders of the United States C. the domestic service sector only D. the domestic manufacturing sector only E. none of the above

C

Total expenditure

Consumption, investment, government purchases, and net exports

GDP would include which of the following? A. housework B. illegal drug sales C. intermediate sales D. consulting services E. the value of taking a day off from work

D

If nominal GDP in 2016 exceeds nominal GDP in 2015, then the production of output must have A. risen B. fallen C. stayed the same D. risen or fallen because there is not enough information to determine what happened to real output

D

U.S. GDP would exclude which of the following? A. lawyer services purchased by a home buyer B. lawn care services purchased by a homeowner C. a new bridge purchased by the state of Texas D. cotton purchased by Lee Jeans E. the purchase of a new Mazda produced in Illinois

D

Which of the following would be excluded from 2016 GDP? The sale of A. a 2016 Honda made in Tennessee B. a haircut C. a realtor's services D. a home built in 2015 and first sold in 2016 E. All of the above should be counted in 2016 GDP

D

An example of a transfer payment is A. wages B. profit C. rent D. government purchases E. unemployment benefits

E

Gross domestic product is the sum of the market value of the A. intermediate goods B. manufactured goods C. normal goods and services D. inferior goods and services E. final goods and services

E

Explain the difference between GDP and GNP. If the residents of United States generate as much production in the rest of the world as the rest of the world produces in the United States, what should be true about U.S. GDP and GNP?

GDP is the production within the borders of the United States. GNP is the production of AMericans no matter where the production takes place. They should be equal

If your neighbor hires you to mow her lawn instead of doing it herself, what will happen to GDP? Why? Did output change?

GDP will rise because the mowing of the lawn was a market transaction. However, output didn't really rise

Define GDP and explain the important terms in definition

Market value of all final goods and services produced within a country in a given period of time.

If you buy a $20,000 Toyota what was produced entirely in Japan, does this affect U.S. GDP? Show how this transaction would affect the appropriate expenditure categories that make up GDP

No. Consumption would increase by $20,000 and net exports would decrease by $20,000. As a result, U.S. GDP is unaffected.

If real GDP in 2016 exceeds real GDP in 2015, did real output rise? Did prices rise?

Real output rose because the value of output in each year in measured in constant base-year prices. We have no information on prices.

Provide an example of a transfer payment. Do we include it in GDP? Why or why not?

Social Security payments. No, because the government received no good or service in return.

If nominal GDP in 2016 exceeds nominal GDP in 2015, did real output rise? Did prices rise?

We can't be certain which rose, prices or real output, because an increase in either prices or real output will cause nominal output to rise

GDP deflator

a measure of the price level calculated as the ratio of nominal GDP to real GDP then multiplied by 100

"of all"

all legel production

Why does income=expenditure=GDP?

because the income of the seller equals the expenditure of the buyer and GDP can be measured with either one

What are the components of expenditure? Proved an example of each.

consumption(food) investment(factory) government purchases(military equipment) net exports(sale of Ford to France minus purchase of a Toyota produced in Japan)

Transfer payment

expenditures by government for which they receive no goods or services

Final production

finished products sold to the end user

Intermediate production

goods that are produced by one firm to be further processed by another firm

"goods and services"

includes services

"within a country"

inside borders

Gross National Produce (GNP)

market value of all final goods and services produced by a nation's residents in a given period of time

Gross Domestic Produce (GDP)

market value of all final goods and services produced within a country in a given period of time

"produced"

no used items

"in a given period"

per quarter or year

Unemployment

percent of the labor force that is out of work

Recession

period of decline in GDP

"market value"

price paid

Consumption

spending by households on goods and services, excluding new housing

Investment

spending on business capital, residential capital, and inventories

Net exports

spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports)

Government purchases

spending on goods and services by all levels of government

Real GDP

the production of goods and services valued at base-year prices

Nominal GDP

the production of goods and services valued at current prices

Inflation

the rate at which prices are rising

Macroeconomics

the study of economy wide phenomena

Microeconomics

the study of how households and firms make decisions and how they interact in markets

Base year

the year from which prices are used to measure real GDP

"final"

to end users

Depreciation

value of worn-out equipment and structures

Total income

wages, rent, and profit