Chapter 7 macro

A recession occurs when an economy

A decrease in total production

What are the four main categories of expenditures

Consumption, investment, government purchases, and net exports

In the circular flow of expenditures and income, why must the total value of production in an economy equal the total value of income

Every penny spent on a good or service must end up as someone's income

The circular-flow diagram shows that all sources of income are owned by

Households

When examining the circular-flow diagram

Households can use some of their income to purchase goods from foreigners as imports

One major component of GDP that can be negative is

Net exports

Gross domestic product (GDP) is

The market value of all final goods and services produced in a country during a period of time

What is the difference between the value of a firms final product and the value added by the firm to the final product

The value of a firms final product is the sale price; value added is the difference between the sale price and the price of intermediate goods

The circular-flow diagram shows that __ should equal ___

Total expenditure; total income

The business cycle exists because

Total production experiences periods of increases and periods of decreases

What are the four categories of income

Wages, interest, rent, and profit

Which of the following equations sums up the components of GDP

Y=C+I+G+NX