Econ Test 2

What are the two ways to adjust nominal GDP to reflect price changes?

Divide nominal GDP by the price index. Multiply the current year's output by price of the output in the base year.

GDP is a perfect and complete measure of the well-being of a country.

False

GDP is equal to C + Ig + ___________ + Xn. (Insert one variable in the blank.)

G

Match each domestic sector of the economy with its description. . Household Government Business

Has an inflow of disposable income and outflows of consumption spending and savings Has an inflow of revenue from various types of taxes and an outflow of disbursements in the form of purchases and transfers Has inflows from three major sources of funds for investment and an outflow of investment expenditures

What creates a problem in using money to value GDP?

Inflation

__________income consists of the money paid by private businesses to the suppliers of loans used to purchase capital.

Interest

Assume that a grower of flower bulbs sells its annual output of bulbs to an Internet retailer for $70,000. The retailer, in turn, brings in $110,000 from selling the bulbs directly to final customers. What amount would these two transactions add to personal consumption expenditures and thus to GDP during the year?

$110,000=retailer's income + grower's income(110,000-70,000)+70,000 = 160,000

Suppose that in 1994 the total output in a single-good economy was 7,000 buckets of chicken. Also suppose that in 1994 each bucket of chicken was priced at $15. Finally, assume that in 2015 the price per bucket of chicken was $20 and that 22,000 buckets were produced. a. What is the GDP price index for 1994, using 2015 as the base year? b. By what percentage did the price level, as measured by this index, rise between 1994 and 2015? percent c. What were the amounts of real GDP in 1994 and 2015? In 1994, real GDP = $ In 2015, real GDP = $

A. Considering 2015 as base year, GDP in year 1994 = (($15/$20)x100) = 75 B. Rise in price level = ($20 - $15)*100/15 = 33.3% C. = (7,000*$15)/.75 = 140,000 D. ((22,000 * 20) /1.0 = 440,000

Using the expenditure approach, which of the following most closely defines the composition of GDP?

C + Ig + G + X − M

Which of the following items are calculated as part of national income?

Compensation of employees Interest Taxes on production and imports Proprietors' income Corporate profits Rents

Which are examples of negative gross domestic by-products?

Congestion Noise Polluted water

Which of the following are part of taxes on production and imports?

Customs duties Excise taxes License fees General sales taxes Business property taxes

True or false: GDP reveals nothing about the way output is distributed.

True

Which of the following are the domestic sectors of the U.S. economy?

U.S. businesses U.S. government U.S. households

National income accountants subdivide corporate profits into which categories?

Undistributed corporate profits Dividends Corporate income taxes

Which of the following of true of GDP as a measure?

It fails to capture the full value of improvements in product quality.

Which of the following statements are true of a price index?

It measures the price of a set of goods of services in a given year. It is expressed in terms of a base, or reference, year.

By ignoring the value of leisure time, how does national income accounting affect our well-being?

It understates our well-being.

What do economists use to calculate GDP under the income approach?

National income

What is gross rental income minus depreciation of the rental property?

Net rent

Which of the following are included in compensation of employees?

Payments by employers into social insurance for employees Wages and salaries Payments by employers into private pension plans for employees

What are noneconomic sources of well-being that are not considered in a country's GDP?

Peaceful international relations Reduction of drug and alcohol abuse Reduction of crime

What are reasons that the underground economy exists?

People are engaged in illegal activities. People want to avoid taxes.

____________ ____________ consists of the net income of sole proprietorships, partnerships, and other unincorporated businesses. (Enter one word in each blank.)

Proprietors'' income

For the purposes of GDP accounting, what do government purchases include?

Spending on highway construction The purchase of new military equipment

One of the shortcomings of GDP is that it doesn't reveal anything about which of the following?

The distribution of output

Dividing nominal GDP by the price index is one way of calculating _____ _________

real GDP

Net domestic product is gross domestic product less ______.

deprecation

Gross rental income minus ________equals net rent. (Use one word per blank.)

depreciation

Net domestic product (NDP) is equal to GDP minus _____.

depreciation

The amount of income that households have left over after paying their personal taxes is ______ income.

disposable

Under the income approach to GDP, the wages, salaries, and benefits paid by businesses and government fall under the category of compensation of ________________

employees

True or false: In general, GDP includes unpaid work

false

One of the flaws of GDP is that it

ignores transactions that do not take place in organized markets

One of the flaws of GDP is that it ______.

ignores transactions that takes place in illegal markets or nonmarkets

As a measurement of economic output and the nation's wealth, GDP fails to account for which of the following?

improved product quality Leisure time The underground economy Nonmarket activities

The use of money as a common denominator to sum output into a meaningful measure of GDP creates a problem because ______ changes.

the value of money itself

GDP can be measured using the ______ approach, which adds up all of the items that make up national earnings.

income

The money paid by private business to the suppliers of loans used to purchase capital or money that households receive on savings accounts is called ______.

interest

The main reason to participate in the underground economy is to avoid ______.

reporting actual income and paying income taxes

The (social/opportunity) costs of negative gross domestic by-products reduce a nation's economic well-being.

social

More abundant leisure increases ______, but it ______ real GDP

social welfare; decreases

Gross _______________income includes all income earned from American-owned resources plus government revenue from taxes on production and imports. (Use one word for the blank.)

national

All the income that is earned from American-owned resources is called ______.

national income

GDP may be understated because ______.

nonmarket activities are not included in GDP

All income received by households, whether earned or unearned, is called ___________ income.

personal

The amount of income that households receive, whether earned or unearned, is called ______ income.

personal

Disposable income equals ______.

personal income minus personal taxes

A(n)___________ _______is a measure of a specified collection of goods and services in a given year as compared to the value of a highly similar collection of goods and services in a reference year.

price index

When considering national income, general sales taxes, business property taxes, license fees, and custom duties are all included in the account called taxes on _______________ and imports

production

What is the net income of sole proprietorships, partnerships and other unincorporated businesses?

proprietors' income

GDP does not capture the full value of improvements in product quality because GDP is a(n) instead of a qualitative measure.

quantitative

Under the income approach to GDP, the wages, salaries, and benefits paid by businesses and government fall under the category of compensation of

compensation of employees

Gross domestic product (GDP) may be calculated as the sum of ______.

consumer spending, investment spending, government purchases of goods and services, and net exports

National income is the sum of compensation of employees, rents, interest, proprietors' income, taxes on production and imports, and ______.

corporate profits

Retained earnings are a category of ______.

corporate profits

The market value of a firm's output minus the value of the inputs the firm has bought from others is called ______.

value added

In order to construct a reliable price index, government accountants must assign a ______ to each of several categories of goods and services.

weight

The real-world, more complex GDP price index used in the United States is called the chain-type _________ annual price index.

weights