ECO/372 - Output, Income, and Economic Growth
Real GDP refers to _____.
GDP data that have been adjusted for changes in the price level.
Real GDP refers to:
GDP data that have been adjusted for changes in the price level.
What is not included in gross domestic private investment, as defined in national income accounts?
Government construction of new highways and dams
What is a primary use for national income accounts?
To measure changes in the value of production and income in the economy
Which of the following is a primary use for national income accounts?
To measure changes in the value of production and income in the economy
Which of the following will not increase a nation's real GDP?
average price level
Given the annual rate of economic growth, the "rule of 72" allows one to
calculate the number of years required for real GDP to double.
Currently, the largest component of aggregate spending in the United States is _____.
consumption
GDP can be calculated by summing:
consumption, investment, government purchases, and net exports
The consumption of fixed capital in each year's production is called _____.
depreciation
The number of years required for real GDP to double can be found by
dividing 72 by the annual growth rate.
Real GDP per capita is found by:
dividing real GDP by population
Government purchases include spending on _____.
government purchases of final goods and government salaries
Personal consumption expenditures consist of _____.
household and individual purchases of services and durable and nondurable goods
Economists refer to the talents, training, and education of workers as
human capital.
"Net foreign factor income" in the national income accounts refers to the difference between the _____.
income Americans gain from supplying resources abroad and the income that foreigners earn by supplying resources in the U.S.
Alpha has $40,000 of capital per worker, while Beta has $5,000 of capital per worker. In all other respects, the two countries are the same. According to the principle of diminishing returns to capital, an additional unit of capital will ______ in Alpha compared to Beta, holding other factors constant.
increase output less
Providing a constant number of workers with additional capital with which to work will ______ labor productivity at a(n) ______ rate.
increase; decreasing
The benefits of economic growth are _____, while the costs of economic growth are _____
increased output per person; the consumption sacrificed in exchange for capital formation
The benefits of economic growth are _____, while the costs of economic growth are _____.
increased output per person; the consumption sacrificed in exchange for capital formation
Which of the following is a measure of economic growth that is most useful for measuring changes in the overall size of an economy?
increases in real GDP
Which of the following is a measure of economic growth that is most useful for comparing changes in standards of living?
increases in real GDP per capita
The U.S. produces and sells millions of different products. To aggregate them together into a single measure of domestic output, the quantity of each good produced is weighted by its _____.
market price
If real GDP declines in a given year, nominal GDP _____
may either rise or fall
The gross domestic product (GDP) concept accounts for society's valuation of the relative worth of goods and services by using a _____.
monetary measure
The GDP price index equals
nominal GDP divided by real GDP
The GDP price index equals _____
nominal GDP divided by real GDP
The major difference between nominal GDP and real GDP is:
nominal GDP measures the value of output in current-year prices, while real GDP measures output using constant prices.
In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are _____.
not counted.
The sale of a used automobile would not be included in GDP of the current year because it is _____.
not current production
To avoid multiple counting in national income accounts _____
only final goods and services should be counted
Economic growth can best be portrayed as a(n)
outward shift of the production possibilities frontier.
What measures is most often used to compare the standards of living in different countries
per capita income
Which of the following measures is most often used to compare the standards of living in different countries?
per capita income
When a firm builds a new factory, this is an example of an investment in
physical capital.
Henry and his girlfriend ate dinner at the new Thai restaurant that recently opened in his neighborhood. This expenditure would be included in:
services.
If labor becomes more productive, the production possibilities frontier will
shift to outward away from the origin.
The broadest measure to adjust Nominal GDP for price changes is
the GDP price index
Between the U.S. and Nepal, Nepal invests less in new factories and equipment. This will likely cause
the U.S.'s production possibilities frontier to shift outward faster than Nepal's.
physical capital
the factories and machinery used to produce other goods and services.
The principle of diminishing returns to capital states that if the amount of labor and other inputs employed is held constant, then the greater the amount of capital in use the
the less an additional unit of capital adds to production.
Human capital is
the talents, training, and education of workers.
If net exports is negative, it must be the case that _____.
the value of goods, services, and resources exported is less than the value imported
Which of the following is not included in the sum of national income?
Depreciation or consumption of fixed capital
Which of the following is not a component of GDP in the expenditures approach?
Workers' wages and other compensation
The cost of a higher living standard in the future is giving up
current consumption.
Net exports are equal to
exports minus imports.
Net exports is a positive number when a nation _____.
exports more goods and services than it imports
Final goods and services refer to _____.
goods and services purchased by ultimate users, rather than for resale or further processing
A distinguishing characteristic of public transfer payments is that they _____.
involve no contribution to current production in return for the payment
The application of new technologies to the production process will increase
labor productivity.
The key variable in determining changes in a country's standard of living is the
long-run rate of economic growth.
The base year is 2005, and the GDP price index in 2004 is 92.0. This implies that the _____.
prices in 2005 were higher than in 2004
GDP measured using base year prices is called _____.
real GDP
One common measure of the "standard of living" in a nation is _____.
real GDP per capita
To increase future living standards by pursuing higher current rates of investment spending, an economy must
reduce current rates of consumption spending.
Physical capital is
the factories and machinery used to produce other goods and services.
GDP excludes most nonmarket transactions. Therefore, GDP tends to _____.
underestimate the amount of production in the economy
Before the Industrial Revolution, living standards in the world
were relatively stagnant for long periods of time.
Suppose that real GDP per capita in the United States is $49,000. If the long-term growth rate of real GDP per capita is 1.6% per year, how many years will it take for real GDP per capita to reach $98,000?
45 years - If real GDP per capita is $49,000, then $98,000 would represent a doubling of real GDP per capita. With the rule of 72, if we divide 72 by the growth rate in a variable, it will tell us how long it will take for that variable to double. In this case, we would like to know how long it will take for real GDP per capita to double if the growth rate is 1.6%. Therefore, take 72/1.6 = 45, which means it will take 45 years for real GDP per capita to double (or reach $98,000).
Which of the following expenditures is an example of a consumer durable good?
Arti buys a new refrigerator from Sears.
National income accounts are compiled by the
Bureau of Economic Analysis
Consumption expenditures
Consumption expenditures are purchases of new goods and services by households. Consumption expenditures are broken into three categories: durable goods, nondurable goods, and services. Services are the direct output of another person and are often intangible. Restaurant meals fall under the category of service.
GDP does not include which of the following activities?
Couples remodeling their own homes (with their own labor).
Human capital refers to the
Education, training, and skills of workers
What are the two ways of looking at GDP?
Expenditures approach and income approach
Which of the following statements correctly explains exports versus net exports?
Exports are goods, services, or resources produced domestically and sold abroad, while net exports are equal to exports minus imports.
Which of the following does not correctly characterize modern economic growth?
It has not affected the average lifespan of human beings.
The equation for net investment is written as:
Net Investment = Gross Investment - Depreciation While gross investment tells us how much was spent on investment in a fixed amount of time, net investment tells us the additional amount of investment that was added to the economy. Because some of the capital in the economy wears out, is used up, or becomes obsolete, some investment simply acts as a replacement and does not add any additional amount to the economy. Therefore, to find net investment, we subtract out depreciation (worn out or used up capital) from the amount of gross investment.
GDP measured using current prices is called:
Nominal GDP
What is the largest expenditure component of GDP?
Personal consumption spending
The GDP price index measures changes in the _____.
Prices of the output produced in the nation
What do government purchases include in national income accounting?
Purchases by federal, state, and local governments
In the second quarter (three-month period) of 2016, U.S. nominal GDP increased but U.S. real GDP declined. What can we conclude?
The price level rose by more than nominal GDP.
Which of the following is included in GDP?
The value of a haircut
Which of the following statements about economic growth is accurate?
The world's sustained economic growth has only been occurring over the last 300 to 400 years.