Macroeconomics Chapter 6 Study Guide

Why are Intermediate Goods not included in GDP?

Because they are sold to producers to make final goods, counting them would result in overcounting.

Which component of Aggregate Expenditures comprises over 70% of Aggregate Expenditures?

Consumption

Which of the following is correct about Consumption?

Consumption is the largest category in GDP, averaging more than two thirds of total GDP over the last decade.

Which of the following correctly lists the components of Aggregate Expenditure?

Consumption, Investment, Government and Net Exports

Income remaining after taxes are excluded and transfer payments are included.

Disposable Income

Which of the following is correct about disposable income?

Disposable Income is just income remaining after taxes are excluded and transfer payments are included.

Which of the following is included in U.S. GDP?

Value of automotive production by Japanese and German auto makers in the United States.

Which of the following is NOT true about Intermediate Goods?

Only half of the value of total Intermediate Goods are included in GDP because most are not resold to consumers.

Which of the following is NOT true about the Consumer Price Index (CPI)?

The CPI is an alternative measure of GDP based upon valuing all current output at prices expected to exist in the following year.

What are intermediate goods and why aren't they included in GDP?

An intermediate good is one that is produced to produce other consumer goods. They are not included in GDP because doing so would result in double counting because their value is already reflected in the value of the final good.

Which of the following is correct about the components of Aggregate Expenditures?

Consumption refers to personal consumption of final goods by consumers, which typically makes up the largest component of Aggregate Exenditures.

Which of the following is correct about the effect of imports on Aggregate Demand?

If Consumption, Investment and Government hold steady from one year to the next and Imports are greater than Exports, Aggregate Demand will fall.

Which of the following is NOT included in GDP? (1)

Tools sold to manufacturer to produce final goods. (1)

Which of the following is correct about U.S. Gross Domestic Product?

U.S. GDP includes value of Japanese cars made in the United States.

Which of the following is NOT included in GDP? (2)

Lumber sold to furniture maker. (2)

Which of the following is NOT a shortcoming of the CPI?

The CPI likely understates inflation because it does not count part time workers and discouraged employers.

What are some basic inaccuracies of using the CPI to measure inflation?

The CPI tends to overstate the true level of inflation by not taking into account that households shift away from goods that experience relatively greater price increases toward goods with smaller or no price increases. The CPI tends to overstate the true level of inflation by not taking into account that quality improvements in goods actually lower the long term cost of buying such goods.

Which of the following is NOT true about exclusions to GDP?

The cash values of long term financial instruments sold through state chartered multi-service banks with highly varieted investment instruments secured by high yield treasuries are not included in GDP

Which of the following is NOT true about Gross Domestic Product (GDP)

The dollar value of cars manufactured in Japanese or German auto plants in the United States are not included in Crass Domesticated Produce

Which of the following is correct about Aggregate Expenditure?

The four components of aggregate expenditure are consumption, investment, government spending and net exports (X-M).