Test #2

when gross investment is less than depreciation, net investment is

negative

which refers to a situation in which demand turns out to be lower than expected

negative demand shock

the difference between the amount of goods that are sold abroad and goods that are purchased from abroad is know as

net exports

when dealing with international trade, economists include ___________________ as a component of GDP

net exports

economic investment spending represents spending on

newly created capital goods

computed using current prices

nominal GDP

GDP may be understated because

nonmarket activities are not included in GDP

transfer payments are excluded from government purchases in GDP accounting because

nothing is produced in return for the payment

as a result in inflexible prices, economies are forced to respond to demand shocks primarily through changes in

output and employment

GDP per capita means GDP

per person

The term that covers all expenditures by households on goods and services is _________ __________ expenditures

personal consumption

the amount of income that households receive, whether earned or unearned is called

personal income

disposable income equals

personal income minus personal taxes

expectations have a large effect on economic growth, since increased ___________ leads to less current investment and, less future consumption.

pessimism

unlike nominal GDP, real GDP is adjusted for ___________ level changes

price

In the short run, the __________ of many goods and services are sticky or inflexible and unable to rapidly change

prices

in the short-run:

prices are sticky

what is it called when there is a transfer of funds from one private individual to another

private transfer payment

when an economy uses its resources in the least costly way to produce goods and services is called

productive efficiency

_______ GDP or adjusted GDP is an important measure of output because it allows valid comparisons between different years

real

adjusted GDP or _________________ reflects changes in the price level

real GDP

nominal GDP divided by price index equals

real GDP

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

real GDP

Real GDP divided by the size of the population is called:

real GDP per capita

the biggest problem with inflation is that

real income may fall as nominal wages do not keep up with price changes

what is counted as gross private domestic investment

residential construction

undistributed corporate profits are called

retained earnings

inflation occurs when there is a

rising aggregate price level

In simple terms, any income that is not consumed is ____.

savings

a well-functioning financial system helps to promote

savings

consumers are free to divide their income between consumption and

savings

a way that the government can raise living standards over time is by encouraging

savings and investment

the sales of secondhand goods are excluded from the calculation of GDP because

secondhand sales do not contribute to current production

an unanticipated event that changes the demand or supply of goods and services either positively or negatively is called an economic

shock

which of the following are true of the prices of many goods and services in the short-run

slow to change, inflexible, sticky

Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are known as:

sticky prices

a ____________ shock refers to unexpected changes in supply and demand

supply

Flexible prices are prices:

that adjust feely through the forces of supply and demand

nominal GDP is

the current market prices multiplied by current total output

viewing GDP in terms of earnings derived or created by producing something is called

the income approach

The core element of the productivity speedup is an explosion of entrepreneurship and innovation based on:

the microchip

The rule of 70 states that

the number of years it takes an economy to double in size is 70 divided by the growth rate.

gross private domestic includes

total amount of private investment in replacement capital and in added capital

the state a person is in if she cannot get a job though she is willing to work

unemployment

main statistics used by economists to assess the health of the economy

unemployment, inflation, real gross domestic product

a ____________ shock refers to unexpected changes in demand for goods and services

demand

constantly rising inventories occur when ______________ is low

demand

most short-run fluctuations are the result of _____________ shocks

demand

net domestic product is gross domestic product less

depreciation

GDP doesn't reveal anything about

distribution of output

financial intermediaries reduce the risk faced by savors through

diversification of investment projects

The after-tax profits that are distributed to stockholders are called

dividends

national income accountants subdivide corporate profits into which categories

dividends, corporate taxes, and undistributed corporate profits

For the purpose of GDP accounting, consumption expenditures include:

durable goods, nondurable goods, and services

spending on new machinery, tools, and factories represents _________________ investment

economic

to understand how economies operate and how their performance can be improved, economists collect and analyze ______________ data.

economic

Goods that are produced in a particular period but NOT sold in that period:

end up in inventories and are included in investment

firm's fear of price wars and consumer preferring stable and predictable prices

factors that increase short-run price stickness

counted as part of GDP and directly consumed by individuals or businesses

final good

consumption goods, capital goods and services, purchased by their ultimate users are called

final goods

only _____________________________ are included in the calculation of GDP in order to avoid multiple counting of goods and services

final goods and services

_________ goods are included in the calculation of GDP while ___________ goods are not

final, intermediate

the growth promoting institutional structures that involve banks and the stock and bond markets are called

financial institutions

newly produced housing, any changes in inventory, and spending on a new plant

GDP investment consists of

nominal GDP is calculated by multiplying ______________ market prices by current produced quantities

current

More abundant leisure increases ____, but it ____ real GDP

increases, decreases

what event began the rapid and sustained economic growth that is a modern phenomenon

industrial revolution

goods and services that are used up in the production of final goods are called

intermediate goods

in national income accounts, value added refers to

the difference in the market value and the cost of inputs purchased

the view of GDP as the sum of money spent on purchases is called

the expenditure approach

why do economists collect and analyze economic data

to learn how economies performance can be improved

GDP fails to account for

1) nonmarket and illegal transactions 2) changes in product quality 3) environmental effects of production

if C represents consumption expenditure, Ig represents gross investment, In represents net investment, G represents government expenditure, Xn represents net exports, and Xg represents gross exports, GDP is:

C+Ig+G+Xn

largest component of national income

Compensation of workers by firms

reflects the total market value of all final goods and services produced within an economy in a given year

GDP

tracks the long-run course of the economy, assesses the health of the economy, and enables formulation of polices to improve or safeguard the economies health

benefits of national income accounting

the _____ of stocks isn't included in GDP because it is just a matter of swapping bits of paper

buying and selling

______________ prices react within seconds to changing supply and demand

flexible

as a result of shocks and things not going to plan there are

fluctuations of output and employment

social security payments, welfare payments, and veteran's payments that the government makes directly to households are called

government public transfer payments

equal to net investment

gross investment minus depreciation

____________ are the principal source of savings

households

the savings of _____________ make their way into the banking system and become the investment funds of __________

households, firms

3 domestic sectors of the economy

households, government, and businesses

taxes on production and ____________ are part of national income "to account for expenditures that are diverted to the _____________"

imports, government

National _______ accounting measures the overall performance of the economy

income

used by economist to define and measure economic growth

increase in real GDP per capita occurring over some time period and increase in real GDP occurring over some time period

the two supply-side elements of real GDP are

increases in labor productivity and hours worked

____________ results in the loss of purchasing power of money

inflation

The prices of many goods are _____, or slow to change.

inflexible

because output prices are ____________, the economy is forced to respond in the short runt o demand shocks primarily through changes in output and employment

inflexible

including the value of __________ along with the value of final goods in the calculation of GDP would amount to multiple counting of goods and distort GDP

intermediate goods

Output that has been produced but not yet sold is called

inventory

if the demand for a good becomes unexpectedly low, the ______________ of the good will increase

inventory

Actions by businesses today that incur current costs and provide benefits in the future are called:

investments

if demand is unexpectedly high for a prolonged period of time, what will happen to unemployment

it will fall

the distinction between an increase in output versus an increase in output per person can be made when discussing

modern economic growth

Income earned through the use of American-owned resources for services and production is called

national income

the main role of financial systems is to

channel funds from savings into investments

which three countries had the highest GDP

china, japan, united states