Gross Domestic Product

Consider a piece of machinery that is still in use and highly productive.

According to an accountant, that machine could be fully depreciated.

Nominal gross domestic product measures the dollar value of

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

In economics, depreciation refers to:

Capital that is worn out or obsolete.

A change in purchasing power can be determined by:

Comparing the percentage change in income with the percentage change in the price level

Nominal GDP is the sum of all expenditures in the economy:

Consumption Gross investment Government purchases Net exports

The Expenditure Approach to measuring GDP adds:

Consumption Gross investment Government purchases Net exports GDP= C+I+G+NX

Purchases made by households are called:

Consumption.

GDP included only:

Final goods

GDP—- Income Approach

GDP= National income + indirect business taxes + depreciation + net foreign interest income

If two grading counties each of us on producing what they are relatively good at,

Global production and consumption increase

When measuring GDP, we classify expenditures into four categories:

Government Purchases Gross Investment Consumption Net Exports

Net investment is the difference between:

Gross investment and depreciation of capital

Consumption of goods and services in the economy includes purchases made by:

Households

Gross investment tells:

How much capital is being created.

Salaries in the private sector are not

Included in nominal GDP as a part of government purchases.

Salaries of gov employees such as as police, teachers, and judges are:

Included in nominal GDP within government purchases.

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

Investment

The most volatile component of GDP is:

Investment

The level of gross __________ does not tell how fast the stock of capital in the economy is increasing.

Investment.

_______ transactions that happen in a formal market will be included in GDP

Invisible

Until recently; as the composition of consumption has shifted toward services,

Many states have seen their tax revenues from this source fall

Calculate nominal GDP:

Multiply the quantity and price for each good, then sum over all goods

National Income

National Income= Rent + wages + interest + profits and losses

To calculate net exports, apply the formula:

Net Exports= Exports- imports.

The U.S military buys tanks from Toyota This transaction is:

Part of the government purchases category of GDP because the tanks are purchased by the government.

In the presence of inflation, we use real GDP instead of nominal GDP because

Real GDP adjusts for inflation

In economics, the term investment refers to:

The formation of productive capital within an economy.

Consumption and government purchases are:

The largest components of GDP

If net investment is positive, then

The total capital stock of a country is growing

The GDP price index can be used to,

Track prices from year to year.

The GDP price index can be used to:

Track prices from year to year.

Social security payments are considered ______ payments and are not included in GDP

Transfer

Whether you use the income approach or the expenditure approach to calculating nominal GDP,

You should arrive at the same number

Investment is what percent of total output in the U.S economy?

20%

Nominal gross domestic product

A measure of GDP in which the quantities produced are valued at current-year prices. Nominal GDP measures the current dollar value of production.

Net exports =

exports - imports

Home production

goods and services that are produced by a household and are not exchanged in a market

If net investment is negative, then

the total capital stock of a country is shrinking

Intermediate goods are not part of GDP because:

their prices are included in the final price of the product they are used up in production

Roughly, how much of GDP is used for investment?

1/5 or less.

Real GDP tells:

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

Real GDP tells:

- How much output was produced in a country - Whether more was produced in one year relative to another

Real GDP per capita is calculated by dividing a country's real GDP in a given year by the country's

Population

When studying GDP, we use real GDP because we need a metric that holds:

Prices constant to compare GDP from one time period to the next.

The more capital that is available to its workers, the more:

Productive a nation will be.

Payments to entrepreneurial ability are split into two categories:

Proprietors income and corporate profits.

Increases in _____GDP represent true increases in production.

Real

Real GDP per capita is the same as

Real GDP per person

________ are money in the bank or a stock or bond; ________ occurs when you buy a house or expand a factory

Savings, investment

Sales of __________ do not represent new production, just the reallocation of past production that was already counted as part of GDP in another year.

Secondhand goods.

Investment refers to:

Spending by firms on capital goods designed to improve the future productivity of the firm

Because imports are not produced domestically, they need to be:

Subtracted from GDP

The expenditures approach to calculating GDP,

Tells us who bought what

The income approach to calculating GDP,

Tells us who earned what

Thirsty Bar and Grill buys 100 pounds of ground beef for its burgers from Fast Food Supplier Company. This transaction is:

Not part of GDP because the need is an intermediate food that will be consumed

A final food or service is:

One sold to the end user and is not used to produce another product for subsequent sale

Inventory investment is included in gross investment because:

Output is counted in the year it is produced, not the year it is sold.

If we relied on nominal GDP to tell us how the economy was doing, it would almost always

Overstate the truth.

Whirlpool, situated in Germany, builds a new factory where it will make appliances that it will sell to Mexico. This transaction is:

Part of the investment category of GDP because it is a factory.

The expenditures, or the dollar value of all the final goods and services that are produced during a fixed period of time, is:

Nominal gross domestic product

The following statements are true:

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

The two following statements are true:

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

Real GDP per capita is not a perfect measure for gauging the standard of living within a country because:

- It understates incomes in countries that have a lot of non-market transactions - It can mask disparities in the distribution of income.

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

- Members of the Baby Book generation are starting to retire. - More workers went into the underground economy. - Some people who lost jobs during the recession simply gave up looking for another job.

GDP is not a perfect way to measure economic activity because:

- it does not account for changes in product quality - it cannot measure the value of leisure time - it ignores activities that occur outside formal markets

Real Gross Domestic Product

A measure of the constant dollar value of all final goods and services produced in a country during a fixed period of time; sometimes called inflation-adjusted GDP. When an economy is in equilibrium, real GDP equals income, Y.

Consider a piece of machinery that is still in use and highly productive.

An economist would say that that machine should not be counted in depreciation because it is still part of the productive process.

Services now constitute two-thirds of what households buy because:

As incomes have increased over time, people are more willing to pay others to do things for them

The income approach to measuring GDP measures the total value of all final goods and services in an economy,

Based on the income they generate.

Markets that are part of the underground economy that exchange illegal goods and services or engage in illegal transactions are called:

Black markets

Which two counties have very similar real GDP but very dissimilar real GDP per capita?

Brazil and Canada

Whether you use the income approach or the expenditures approach to calculating nominal GDP, you should arrive at the same number as shown in the:

Circular flow model.

Suppose that Country A has a real GDP per capita of $18,000 and Country B had a real GDP per capita of $24,000. We can conclude that:

Country B is more likely to have a higher standard of living than Country A.

One problem with developing countries is that measures of GDP often underestimate the amount of production that actually occurs, why is this true?

Developing countries often have relatively large informal markets.

The GDP price index is calculated by:

Dividing nominal GDP by real GDP and multiplying the result by 100.

The GDP price index is calculated by:

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

Consumption is the sum of:

Durable goods, nondurable goods, and services

Underground economy

Economic activity in which goods and services are exchanged for payment but are not counted as part of GDP. Markets that are part of the underground economy that exchange illegal goods and services or engage in illegal transactions are called black markets.

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

Exports

Since 1955, government purchases have:

Fallen as a percentage of nominal GDP

Only ______ goods and services are included in the estimation of the dollar value of output produced in an economy, or nominal GDP.

Final

The dollar value of all the final goods and services that are produced during a fixed period of time is:

Nominal gross domestic product.

Gross investment is the sum of:

Nonresidential fixed investment, residential fixed investment, and inventory investment

In the broadest terms, income is paid to the four resources used to produce goods and services:

Land Labor Capital Entrepreneurial ability

One type of depreciation occurs when,

Machines break and no longer fun things properly

Examples of transfer payments, or payments not included in the calculation of GDP, include:

Medicare Interest payments to government creditors Unemployment insurance payments

Including changes in inventory as part of gross investment guarantees that goods are counted as part of GDP in the year in which:

They are produced, not necessarily the year in which they are sold.

If the government is giving money to someone so she can buy a good or service it is a:

Transfer payment and is not included in GDP

The GDP price index measures the broadest possible range of prices in the economy

True

Because informal market transactions result in increase in output produced, GDP:

Underestimates the actual amount of output produced in an economy

By dividing nominal GDP by real GDP,

We allow the quantities to cancel out, leaving a ratio of prices between the two years.

To determine whether the stock of capital is growing or shrinking,

We need to calculate net investment.

When measuring GDP, we classify expenditures into four categories because:

we like to know who is consuming what