ECON 200 LS Measuring Output & Income

Nominal GDP is the sum of all

expenditures GDP = C + I + G + NX

Goods, services, or resources produced domestically and sold abroad are called ________________.

exports

Net exports equals _____________ minus _____________.

exports; imports

Only _______________ goods and services are included in GDP so that expenditures are not counted twice.

final

If business fixed investment is equal to $35 billion, residential investment is equal to $15 billion, and inventories have increased by $5 billion, then gross investment is $_____ billion.

55

Gross domestic product equals the total sum of four categories

consumption, gross investment, government purchases, and net exports.

Economists prefer real GDP to nominal GDP because

they want to measure the actual production that occurred, not the current dollar amount of that production.

The two largest components of GDP are

-consumption. -government purchases.

Roughly, how much of gross domestic product is used for investment?

1/5/ or less

In the United States, imports constitute about

1/6 of nominal GDP.

Suppose that at the beginning of the year, there are ten cranes in the economy. During the course of the year, two cranes wear out. At the same time, we invest in capital and purchase three new cranes. Gross investment is equal to _____ cranes, and depreciation is equal to ____ cranes, so net investment is equal to ____ cranes.

3; 2; 1

Suppose that last year a total of $12 billion in goods and services was exported to other countries, while $8 billion was imported. Net exports equals $_______ billion.

4 Net Exports = Exports - Imports

Suppose that at the beginning of the year there are ten cranes in the economy. During the course of the year, three cranes wear out and are replaced. At the same time, net investment is equal to three cranes. Gross investment is equal to ___ cranes.

6 (Gross Investment = Net Investment + Depreciation; 3 + 3 = 6)

_____________________ includes all expenditures made by households on goods and services, such as clothing, food, electronics, and recreation.

Consumption

Consumption is the sum of

Durable Goods, Nondurable Goods, and Services Consumption = Durable Goods + Nondurable Goods + Services

Determine whether the following expenditure is transfer payments or part of government purchases. A fighter jet. This expenditure falls under:

Government Purchases

Determine whether the following expenditure is transfer payments or part of government purchases. Salaries of Secret Service agents. This expenditure falls under:

Government Purchases

Real GDP per __________ is the same as real GDP per person.

capita

__________________ goods are not part of GDP because their prices are included in the final price of the product.

Intermediate

____________________ refers to spending by firms on capital goods designed to improve the future productivity of the firm.

Investment

Nominal gross domestic product (GDP) measures the dollar value of

all the final goods and services that are produced during a fixed period of time.

For the situation described, first determine the reason why GDP would fail to capture the productive activity. Second, describe a similar transaction that would be counted in GDP. Lee and Kelly are both vendors at a neighborhood farmer's market. At the end of the day, if they haven't sold all of their goods, Lee trades some of her homemade pots for some of Kathy's homemade scarves. GDP would fail to capture the productive activity because it is _______________________________________. A similar transaction that would be included in GDP would be ________________________________.

barter; selling the items to one another

Real GDP uses prices from a __________ year, also referred to as constant prices.

base

State and local government purchases combined are now ______________ than federal government purchases, which is a change from decades ago.

greater

Net investment equals

gross investment minus depreciation.

The more productive a nation, the _____________________ the wages and standards of living.

higher

Transactions that happen either as a result of barter or illegal activity are not included in GDP because they are _____________________.

intangible

In economics, ________________ occurs when firms use funds to buy goods and services that will enhance productivity and increase output.

investment

More imports mean

more competition from foreign firms.

By dividing _____________ GDP by ________________ GDP, we allow the quantities to cancel out, leaving a ratio of prices between the two years, creating a price ______________________.

nominal; real; index

For the situation described, first determine the reason why GDP would fail to capture the productive activity. Second, describe a similar transaction that would be counted in GDP. You clean your own house. GDP would fail to capture the productivity because it is _________________________________________. A similar transaction that would be included in GDP would be ________________________________________.

not a formal transaction; hiring a cleaning service

increases in _____________ GDP represent true increases in production.

real

When two countries specialize in producing the goods for which they have a comparative advantage and

trade with each other, total production and consumption increases.

Which of the following statements is true?

-Capital wears out and needs to be replaced. -In general, having more capital is desirable.

In economics, consumption is classified into one of three categories.

-Consumer durables -Consumer nondurables -Services

When measuring GDP, we classify expenditures into four categories. Identify the four expenditure categories.

-Consumption -Net Exports -Government Purchases -Gross Investment

Which of the following statement(s) is true?

-Exports generally exceeded imports before 1975. -After 1975, imports have exceeded exports.

Which of the following measures the broadest of all possible price ranges in the economy?

-The GDP deflator -The GDP price index (GDP deflator aka GDP price index)

Since the Great Recession, the U.S. economy has experienced a significant decline in the labor force. This could be because

-more workers went into the underground economy. -members of the Baby Boom generation are starting to retire. -some people who lost jobs during the recession simply gave up looking for another job.

Real GDP tells

-whether more was produced in one year relative to another. -how much output was produced in a country.

Suppose that expenditures by the federal government are $45 billion, expenditures by the state governments are $52 billion, and expenditures by the local governments are $26 billion. Government purchases of goods and services equal $_____ billion.

123 (45 + 52 + 26)

Suppose real GDP is roughly $750 billion, and the population is approximately 50 million people. Real GDP per capita is $______________.

15,000 (Real GDP per capita = real GDP/Population; Real GDP per capita = $750 billion/50 million)

Suppose that in the last year consumers spent $12 billion on durable goods, $34 billion on non-durable goods, and $44 billion on services. Consumption equals $____ billion.

90 (Consumption = Durable goods + Non-durable Goods + Services; C = 12 + 34 + 44

Consider this transaction and determine whether it is included in nominal GDP. Thirsty Bar and Grill buys 100 pounds fo ground beef for its burgers from Fast Food Supplier Company.

Because the Thirsty Bar and Grill will later sell the beef to its customers, the beef is an intermediate input. As a result, it is not included in nominal GDP.

Match the GDP category with the description. Consumption= Gross Investment= Government Purchases= Net Exports=

Consumption = Purchases by households Gross Investment = Purchases of capital goods made by firms Government Purchases = Purchases made by local, state, and federal governments Net Exports = Net international sales

Net Exports is equal to

Exports minus Imports Net Exports = Exports - Imports

Net Investment is the difference between

Gross Investment and Depreciation of Capital Net Investment = Gross Investment - Depreciation of Capital

Suppose, at the beginning of the year, there are ten cranes in the economy. During the course of the year, two cranes wear out and are replaced. At the same time, net investment is equal to two cranes. Calculate gross investment from the given information.

Gross investment is equal to four cranes.

Gross Investment is the sum of

Nonresidential Fixed Investment, Residential Fixed Investment, and Inventory Investment Gross Investment = Nonresidential Fixed Investment + Residential Fixed Investment + Inventory Investment

___________________ GDP measures the constant dollar value of all final goods and services produced in a country during a fixed period of time.

Real

In the presence of inflation, why do we use real GDP instead of nominal GDP?

Real GDP adjusts for inflation.

Consider this transaction and determine whether it is included in nominal GDP. The U.S. military buys tanks from Toyota.

This is part of the government purchases category of GDP because the tanks will be used by the military.

Consider this transaction and determine whether it is included in nominal GDP. Whirlpool, situated in Germany, builds a new factory where it will make appliances that it will sell to Mexico.

This is part of the investment category of GDP because it is a factory.

Consider this transaction and determine whether it is included in nominal GDP. You buy land with a pond on which you will, years later, build a home for your extended family.

This transaction is not part of GDP because the land is not produced.

Determine whether the following expenditure is transfer payments or part of government purchases. Unemployment payments. This expenditure falls under:

Transfer Payments

For the situation described, first determine the reason why GDP would fail to capture the productive activity. Second, describe a similar transaction that would be counted in GDP. Suppose betting is banned by law. You bet $100 on the World Series with a local bookie, and the bookie collects a $10 fee for his provision of a gambling service. GDP would fail to capture the productive activity because it is _______________________________________. A similar transaction that would be included in GDP would be ________________________________.

an illegal activity; betting in a Las Vegas casino

Salaries of government employees such as police officers, teachers, and judges, ________ included in nominal GDP within government purchases. Salaries in the private sector _________ included in nominal GDP as a part of government purchases.

are; are not

A change in purchasing power can be determined by

comparing the percentage change in income with the percentage change in the price level.

The GDP price index is calculated by

dividing the nominal GDP in a given year by the real GDP in a given year.

If a transaction happens in a(n) _____________ market - that is, sold by a licensed seller - it will be included in GDP; if the transaction happens instead in a(n) ___________ market - one that is either illegal or otherwise untraceable - it will not be included in GDP.

formal; informal

Since 1975, the United States has

imported more than it has exported.

For the situation described, first determine the reason why GDP would fail to capture the productive activity. Second, describe a similar transaction that would be counted in GDP. A teenager shovels snow for his family and is paid in cast by his parents. GDP would fail to capture the productive activity because it is _______________________________________. A similar transaction that would be included in GDP would be ________________________________.

not a formal transaction; hiring a snow-removal service

Gross investment includes purchases of

offices, factories, tools, and machinery.

If we relied on nominal GDP to tell us how the economy was doing. It would almost always ________-state the truth.

over

Investment can be

positive, negative, or zero.

Secondhand sales represents the

reallocation of past production that was already counted as part of GDP in another year.

Economic activity in which goods and services are exchanged for payment but are not counted as part of GDP are exchanged in the __________________ economy.

underground

When measuring GDP, we classify expenditures into four categories because

we like to know who is consuming what.