Chapter 10: Measuring a Nation's Income

In the United States in 2009, purchases of capital equipment, inventories, and structures represented approximately

11 percent of GDP

According to the circular flow diagram GDP

Can be computed as either the revenue firms receive from the sales of goods and services or the payments they make to factors of production.

Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?

GDP

How does U.S. gross domestic product (GDP) differ from U.S. gross national product (GNP)?

GNP = GDP + income earned by US citizens abroad - income that foreign citizens earned in the US

The GDP deflator is the ratio of

a nominal GDP to real GDP multiplied by 100

A form of government spending that is not made in exchange for a currently produced good or service is

a transfer payment

Most goods and services produced at home

and most goods and services produced illegally are excluded from GDP.

GDP per person tells us the income and expenditure of the

average person in the economy

According to the circular-flow diagram GDP

can be computed as the total income paid by firms or as expenditures on final goods and services.

The basic tools of supply and demand are

central to macroeconomic analysis as well as to microeconomic analysis

Real GDP is the yearly production of final goods and services valued at

constant prices

In the national income accounts, depreciation is called

consumption of fixed capital

Retained earnings is income that

corporations have earned but have not paid out to their owners.

recessions are not associated with which of the following?

failing unemployment

Government purchases include spending on goods and services by

federal, state, and local governments.

US GDP

includes production of foreigners working in the US but excludes production by US residents working in foreign countries.

The term economists use to describe a situation in which the economy's overall price level is rising is

inflation

Spots, Inc. produces ink and sells it to Write on Target, which makes pens. The ink produced by Spots, Inc. is called

intermediate good

What word do economists use to refer to the purchase of goods and services that will be used in the future to produce more goods and services?

investment.

Income generated by a nation's domestic production

is equal to its domestic production.

GDP

is used to monitor the performance of the overall economy and is the single best measure of a society's economic well-being

Much of macroeconomics attempts to explain

long-run growth and short-run fluctuations in real GDP

Changes in the GDP deflator reflect

only changes in prices.

In a simple circular-flow diagram, firms use the money they get from a sale to

pay wages to workers pay rent to landlords pay profit to the firms owners

When economist talk about growth in the economy, they measure that growth as the

percentage change in real GDP from one period to another.

The inflation rate is the

percentage change in the price level from one period to another.

The income that households and non corporate businesses receive is called

personal income.

When studying changes in the economy over time, economists want a measure of the total quantity of goods and services the economy is producing that is not affected by changes in the prices of those goods and services. In other words, economists want to study

real GDP

A recession has traditionally been defined as a period which

real GDP declines for two consecutive quarters.

Which of the following is always measured in prices from a base-year?

real but not nominal GDP

Which of the following is included in the investment component of GDP?

spending on new business equipment such as power tools but not spending on stocks and bonds.

Which of the following is included in the investment component of GDP?

spending to build new houses spending to build new factories spending on business equipment such as welding equipment

Which government entity computes US GDP every three months?

the Department of Commerce

Total income from the domestic production of final goods and services equals

the expenditures for these goods whoever buys them

The percentage change in the price level from one period to another is called

the inflation rate

National income is defined as

the total income earned by a nation's permanent residents in the production of goods and services.

GDP is defined as

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

In a simple circular flow diagram, households buy goods and services with the income they get from

wages rents profits