CHAPTER NINE: GDP

When the economy is operating above its potential GDP, the Federal Reserve will most likely

Decrease the amount of dollars in circulation to keep inflation under control.

After a period of recession, what is the initial increase in output called?

Economic recovery

How does employment typically change over the business cycle?

Employment rises during expansions, and falls during contractions

Which of the following items would lower the potential GDP of a country?

Fewer people complete high school and college leading to lower worker productivity.

Which of the following is a final good or service?

Flour sold to your grandmother to be used to bake a birthday cake.

Identify the incorrect statement.

GDP includes intermediate goods.

The total dollar value of this island economy's GDP is _______.

$3,500

Firms provide households with ______.

$500

What does GDP per capita indicate about a particular country?

Average standard of living.

The idea of the business cycle is that:

There are periods of economic growth and periods of economic contraction

GDP measures the:

Total market value of all final goods and services produced in an economy in a given year.

When the economy contracts, this is known as:

a recession

Financial transactions, for example, buying shares in a company:

are not included in the calculation of GDP.

Second hand, or used goods:

are not included in the calculation of GDP.

The purchase of a new house falls under which category of GDP?

Investment

The business cycle:

Is extremely unpredictable

In which market would a producer sell bicycles to consumers?

Market for goods and services

In which market do households sell their labor?

Market for resources

In which market would a producer buy the equipment and technology needed to manufacture bicycles?

Market for resources

What should happen to real GDP over time if population increases and productivity increases?

Real GDP also increases

A general rule of thumb says that a country has experienced a recession if:

Real GDP has declined for two consecutive quarters.

A significant decline in general economic activity extended over a period of time is known as a(n):

Recession

Which of the following is NOT a component of the expenditure method GDP calculation?

Savings by firms and households

The countries of Sigma and Kappa both have a GDP of $25 Billion. The population of Sigma is 1 million. The population of Kappa is 2 million. Which country has a higher standard of living?

Sigma

GDP is measured in:

dollars of all new goods & services sold

What does the size and role of the government in an economy depend on?

economic system

How often do government statisticians compute our country's GDP?

every 3 months

A period when economic output increases known as a(n):

expansion

Although NOT illustrated in the diagram, it is reasonable to conclude that households receive income in the _______________.

factor market or the market for resources

Households supply firms with _______.

factors of production

Households supply firms with ________.

factors of production

Firms provide households with ______.

good/services

Firms supply households with __________.

goods and services

Over the past one hundred years, business cycles:

have become less severe and less frequent.

When the economy is operating below potential GDP, the Federal Reserve is most likely concerned with

high levels of unemployment

Ultimately, who owns all economic resources?

households

Which colored line at the top of the diagram accurately represents the goods and services sold to households?

the top green line

Real Gross Domestic Product (RGDP) can best be defined as

the total value of all final goods and services produced in an economy in a given time period adjusted for inflation.

What is the factor payment for Capital?

interest

Which is the most accurate indicator of economic output over time?

real gdp

In return for land, firms pay ____.

rent

What is the factor payment for land?

rent

What payment do businesses receive for the goods and services they sell in the market for goods and services?

revenue

How does the government afford to pay subsidies to businesses?

taxes

The Federal Reserve's goals of price stability and maximum employment are sometimes called

the dual mandate

An economy producing below its potential GDP most often results from

low consumer demand for goods and services in the economy.

In which market would a household buy the food they need to make dinner?

market for goods and services

What helps the resources and goods and services move around the circular flow?

money

Which of the following is not an economic resource?

money

To calculate this island economy's GDP you should:

only count total expenditures or total income or total revenue but not all three

What did the narrator call the points on top of the line?

peaks

Do businesses demand or supply?

both

Is your local mall an example of the product market or the resource market?

both

What is it called when businesses sell goods and services to households?

product market

In return for entrepreneaurship, firms pay ______.

profits

Investment in the macroeconomic sense means:

spending on capital to produce future goods and services

The business cycle:

can be defined as the expansion and contractions of the economy over time.

The four groups that are included in GDP that purchase goods and services in the economy are:

consumers, investment (business), government, & net exports

The bulk of household spending is for:

consumption

A period when economic output decreases known as a(n):

contraction

Look at the chart: What does the government pay to businesses(left) and households(right)?

subsidies and welfare

Money spent on goods and services produced outside of the country must be:

subtracted out

Production done at home is not counted in gross domestic product because

there is no market price to calculate for work done for oneself.

GDP is a measure of all the production which occurs in a country over a given calendar year.

true

Rent + Wages + Interest + Profit is the formula used to calculate GDP using the income approach. It does not matter whether we use the income approach or the expenditure approach to calculate GDP, because the figure will end up being exactly the same.

true

In return for labor, firms pay ______.

wages

What is the factor payment for labor?

wages

All of the following activities would be included in the country's GDP EXCEPT

washing the dishes after dinner at home

If the net export number is negative, it means that:

we are importing more than we are exporting

What percent inflation rate does the Federal Reserve try to maintain?

2%

What are the two types of markets included in the circular flow diagram?

Resource & Product Markets

Gross Domestic Product includes goods and services that change hands.

false

Economic growth over time is reflected by:

higher standards of living.

What payment do households receive for providing resources in the market for resources?

income

Although NOT illustrated in the diagram, it is reasonable to conclude that firms receive income in the _______________.

product market or the market for goods and services

Which colored line at the bottom of the diagram accurately represents the flow of factors of production that households supply to firms?

the white line

What did the narrator call the points below the line?

troughs

Since 1950, the growth rate of the U.S. economy, as measured by real GDP, has averaged about:

3.3 percent

Taken from a Canadian perspective, which of the following economic activities would be included in national GDP?

A foreign company operating in Canada.

Which of the following would not be counted in GDP?

A gadget produced in Mexico by a U.S. company.

Over time, actual measurements of GDP will:

Be slightly higher or lower than the trendline

Why the period in purple called a recession?

Because real GDP is shrinking (receding), and the economy is producing fewer goods and services at the end of that period than at the beginning

The fluctuating levels of economic activity in an economy over a period of time measured from the beginning of one recession to the beginning of the next is known as a(n):

Business cycle

Which of the following transactions would be included in GDP?

Buying a lottery ticket.

The formula for calculating GDP using the expenditure approach is:

C + I + G + (X - M)

What are intermediate goods?

Goods used in the production of final goods and services.

What's the best way to measure the health of the economy?

Gross Domestic Product

The two main economic goals pursued by the Federal Reserve are

Price stability and maximum employment

Real GDP is:

Nominal GDP adjusted for inflation.

Which of the following is a final good or service?

Sugar sold to your mother to be used to bake your favorite cookies.

Why is the period in green called "expansion?"

The economy is producing more goods and services at the end than at the beginning (real GDP is higher)

If a furniture company were to produce and sell a dining room set, which of the following steps would be included in GDP?

The final purchase price to the customer.

Transfer payments (for example, pensions or unemployment benefits paid to households by the government)

are not included when calculating GDP.