MACRO Chapter 7

Formula for price index?

(Price in specific year/Price in base year) x100 PI= (NGDP/RGDP) x100

How to find Real GDP from nominal GDP when there is two products?

- Use non base quantities - Multiply by non base prices and add together for nominal GDP - Multiply non base quantities by base prices and add together for RGDP - (NGDP/RGDP) x100

Nominal or Real GDP? 1) Based on prices that were in effect when output was produced? 2) Reflect changes in the price level, use base year price

1) Nominal 2) Real

A price index is A) a comparison of the current price of a market basket to a fixed point of reference. B) a comparison of real GDP in one period relative to another. C) the cost of a market basket of goods and services in a base period divided by the cost of the same market basket in another period. D) a ratio of real GDP to nominal GDP

A

Suppose that inventories were $40 billion in 2012 and $50 billion in 2013. In 2013, national income accountants would A) add $10 billion to other elements of investment in calculating total investment. B) subtract $10 billion from other elements of investment in calculating total investment. C) add $45 billion (= $90/2) to other elements of investment in calculating total investment. D) subtract $45 billion (= $90/2) from other elements of investment in calculating total investment.

A

If depreciation exceeds gross investment A) the economy's stock of capital may be either growing or shrinking. B) the economy's stock of capital is shrinking. C) the economy's stock of capital is growing. D) net investment is zero.

B

In national income accounting, the consumption category of expenditures includes purchases of: A) both new and used consumer goods. B) automobiles for personal use but not houses. C) consumer durable and nondurable goods but not services. D) consumer nondurable goods and services but not consumer durable goods.

B

Why is the value of final goods included in GDP but the value of intermediate goods excluded?

Because the value of final goods already includes the value of all the intermediate goods that were used in producing them.

Suppose the total monetary value of all final goods and services produced in a particular country in 2010 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that A) GDP in 2010 is $450 billion. B) NDP in 2010 is $450 billion. C) GDP in 2010 is $500 billion. D) inventories in 2010 fell by $50 billion.

C

In order to avoid problems created by using money values to measure GDP, when prices raise GDP should be ______ and when prices fall GDP should be _______

Decreases Increased

Whats the difference between a durable good and a non durable good? What is the % of durable goods, nondurable goods and services that make up personal consumption?

Durable goods - Expected lives of three or more years (TV/Fridge/Car) Nondurable goods - Necessities (Food/Clothes) Durable goods- 10% Nondurable goods- 30% Services- 60%

The view of GDP as the sum of money spent on buying it is called the aggregate ______ approach

Expenditure

What are the two approaches to calculating GDP?

Expenditures Approach Income Approach

Net domestic product equation?

GDP - Consumption of fixed capital GDP less depreciation

How do you figure out net domestic product?

GDP- Consumption of fixed capital

Viewing GDP in terms of earnings derived or created by producing something is called the _______ approach

Income

Goods and services that are purchased for resale or for further processing or manufacturing are called ________ goods

Intermediate

Why doesn't anyone use income approach?

It has to account for statistical discrepancies

Who measures the economies overall performance? Who complies this data and reports to ^^^?

National Income Accounting (NIA) Bureau of Economic Analysis (BEA)

When gross investment is less than depreciation, net investment is _______

Negative

In gross private domestic investment, a ______ change in ______ must be subtracted from total investment for that particular year

Negative, inventories

Net investment equation?

Net investment= Gross investment - Depreciation

Price x Quantity= ? Base year price x Current year quantity= ?

Nominal GDP Real GDP

What are positive and negative changes in inventory ?

Positive change - Implies that economy produced more output than the amount consumed. And the inventory increase is added to GDP Negative change - Implies that the economy consumed more output than the amount produced. Then we must subtract this decrease off GDP

How to find Real GDP from nominal GDP when there is one product?

RGDP= NGDP/PI

What are the three major exclusions of GDP?

Secondhand Sale - Nothing gets created All financial transactions - If you get money from someone, nothing is created Intermediate goods/services - Goods and services purchased for resale or for further processing or manufacturing - They are not included in GDP because we add multiple counts (price) to the product

The ____ costs of negative gross domestic by-products reduce a nations _______ well being

Social Economic

Expenditures Approach Formula?

Sum of all money spent in buying goods & services C+Ig+G+Nx Consumption by households Investment by business Government purchase Expenditures by foreigners

Gross private domestic investment includes

The final purchase of machinery, equipment, and tools by business enterprises All construction All changes in inventory

Gross private domestic investment exceeds depreciation in an economy that experiences expanding production capacity (T/F)

True

National Income Accountants subdivide corporate profits into which categories?

Undistributed corporate funds Corporate income taxes Dividens

Subtract the new sale value from previous sale value and add up totals

Value Added Approach