Chapter 4 Test Bank

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What is the expenditure approach to measuring​ GDP? The expenditure approach to measuring GDP sums together​ ______, and the largest component is​ ______.

consumption​ expenditure, investment, government expenditure on goods and​ services, and net​ exports; consumption expenditure

3. Calculate net domestic income at market prices. Net domestic income at market prices is ​$ .

Market price​ = Factor cost​ + Indirect taxes less subsidies.

2. Calculate net domestic income at factor cost. Net domestic income at factor cost is ​$ .

Net domestic income at factor cost is the income paid to factors of​ production: wages,​ rent, interest, and profit.

The phases of the business cycle are​ _______. The turning points of the business cycle are​ _______.

expansion and​ recession; peak and trough

Between 2006 and​ 2016, ______.

real GDP and potential GDP​ increased, but potential GDP increased at a steadier pace

Real-Time Data Analysis​ Exercise* The table shows the levels of real GDP LOADING... and population LOADING... in the United States from 2006 to 2017. To measure the standard of​ living, we use​ _____ .

real GDP per person

How is real GDP​ calculated? Real GDP is calculated by​ _______.

summing together the value of the​ year's production using the prices of the reference base year

Exports of goods and services are items that firms in​ _____ produce and sell to​ _____.

the United​ States; any other country

How does the growth rate of real GDP contribute to an improved standard of​ living? The growth rate of real GDP contributes to an improved standard of living because​ _______.

the average person enjoys more consumption goods and services and more resources are devoted to health​ care, research, and environmental protection

Define GDP and distinguish between a final good and an intermediate good. Provide examples. Gross domestic product is​ ______.

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

Depreciation is the​ _____ in the value of​ _____ that results from its use and from obsolescence.

​decrease; capital

Net domestic income at factor cost​ _______ indirect taxes less subsidies​ _______ depreciation gives GDP​ (income approach).

​plus; plus

The table lists real GDP and the population in the United States. In which year did the standard of living increase and in which year did the standard of living​ decrease? Explain The standard of living increased in​ ______. The standard of living decreased in​ ______.

2007 because real GDP per person​ increased; 2008 and 2009 because real GDP per person decreased

An economy produces only digital​ cameras, chocolate​ bars, and watches The table gives the quantities produced and prices in 2015 and 2016. The reference base year is 2015. What is real GDP in 2016 in terms of the reference​ base-year prices? Real GDP in 2016 in terms of reference​ base-year prices is ​$ nothing.

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Which of the following is an example of a final good or service​?

Dan bought a Toyota Camry.

Use the income approach to calculate GDP. GDP calculated using the income approach is ​$ .

GDP is a gross measure of total production at market prices while net domestic income at market prices is a net measure. So using the income approach to measuring​ GDP, depreciation must be added to net domestic income at market prices to convert it to GDP

Which of the following is an example of an intermediate good or service​?

Samsung buys compressors for manufacturing refrigerators.

Imports​ = ​$80 billion​ + ​$21 billion​ + ​$30 billion​ + ​$35 billion - ​$131 ​billion, which is ​$35 billion

Item Billions of dollars Government expenditure 30 Aggregate income 131 Consumption expenditure 80 Investment 21 Exports of goods and services 35

Tropical Republic produces only bananas and coconuts. The base year is​ 2016, and the tables give the quantities produced and the market prices. Calculate real GDP in 2017 expressed in​ base-year prices. Real GDP in 2017 expressed in​ base-year prices is ​$ nothing.

Real GDP in 2017 expressed in​ base-year prices is equal to the quantity of bananas produced in 2017 multiplied by the price of a bunch of bananas in 2016 plus the quantity of coconuts produced in 2017 multiplied by the price of a bunch of coconuts in 2016. So real GDP in 2017 equals ​(1300 bunches of bananas times ​$3 a​ bunch) + ​(400 bunches of coconuts times ​$10 a​ bunch), which is ​$7 comma 900.

Which of the following is an example of government expenditure on goods and services​?

The White House buying internet services.

1. Use the expenditure approach to calculate GDP. GDP calculated using the expenditure approach is ​$ .

The expenditure approach to measuring GDP sums the expenditure on final goods and services. GDP is the sum of consumption​ expenditure, investment, government​ expenditure, and net exports. What is GDP measured by the expenditure​ approach?

Classify each of the following items as a final good or service or an intermediate good or service and identify which is a component of consumption​ expenditure, investment, or government expenditure on goods and​ services: Item 1. Upper A textbook bought by a student Item 2. Cheese bought by Domino's Item 3. New aircraft bought by Southwest Airlines Item 4. The purchase of a new security system for Congress Item 1 is​ ______ and item 2 is​ ______.

a final good that is consumption expenditure​; an intermediate good

Item 3 is​ ______ and item 4 is​ ______

a final good that is investment​; a final good which is government expenditure

What adjustments must be made to total income to make it equal​ GDP? GDP is calculated by​ _________.

adding indirect taxes less subsidies and depreciation to total income

A final good is​ _______. An example of a final good is​ _______.

an item that is bought by its final user during a specified time​ period; bread sold to a consumer

An intermediate good is ​ _________. An example of an intermediate good is​ _______.

an item that is produced by one​ firm, bought by another​ firm, and used as a component of a final good or​ service; wheat sold to a baker to make bread

What are the distinctions between domestic and​ national, and gross and​ net? Gross domestic product and gross investment are measured​ ______. Net domestic product and net investment are measured​ ______.

before the depreciation of​ capital; after the depreciation of capital

The total amount spent​ _____ is called gross investment.

both buying new capital and replacing depreciated capital

The income approach to measuring GDP sums together​ ______, which equals net domestic income at factor cost.

compensation of​ employees, net​ interest, rental​ income, corporate​ profits, and​ proprietors' income

Distinguish between real GDP and potential GDP and describe how each grows over time. Real GDP is the value of​ ______. Potential GDP is ​ ______.

final goods and services produced in a given year when valued at the prices of a reference base​ year; the maximum level of real GDP that can be produced while avoiding shortages of​ labor, capital,​ land, and entrepreneurial ability that would bring rising inflation

Real GDP is the value of the​ _____ goods and services produced in a given year expressed in terms of the prices in​ _____ year. Nominal GDP is the value of the​ _____ goods and services produced in a given year expressed in terms of the prices of ​ _____ year.

final; a​ base; ​final; that same

Why does GDP equal aggregate income and also equal aggregate​ expenditure? GDP equals aggregate income and also equals aggregate expenditure because​ _______.

firms pay out as incomes​ (aggregate income) everything they receive from the sale of their output​ (aggregate expenditure)

The table shows items of income and expenditure in the United States in 2008. Calculate GDP. GDP in the United States in 2008 equals $ 14100 billion. There is sufficient information given in the table to calculate GDP using the expenditure approach. What items would you need in addition to the items given in the table to complete your calculation of GDP using the income​ approach?

indirect taxes less subsidies

Nominal GDP in 2016

is equal to the quantity of bananas produced in 2016 multiplied by the price of a bunch of bananas in​ 2016, plus the quantity of coconuts produced in 2016 multiplied by the price of a bunch of coconuts in 2016.

Domestic product is​ _______. National product is​ _______.

production within a​ country; the value of goods and services produced anywhere in the world by the residents of a nation

What is PPP and how does it help us to make valid international comparisons of real​ GDP? PPP is​ _______.

purchasing power parity

Explain why real GDP might be an unreliable indicator of the standard of living. Real GDP might be an unreliable indicator of the standard of living because​ ______.

the standard of living depends on many​ factors, some of which are not part of real GDP

The amount by which​ _____ is called net investment.

the value of capital increases

What is the distinction between nominal GDP and real​ GDP? Nominal GDP is​ ______. Real GDP is​ ______.

the value of the final goods and services produced in a given year valued at the prices of that year​; the value of final goods and services produced in a given year when valued at the prices of a reference base year

When we use PPP we can make valid international comparisons of real GDP because​ ______.

we calculate the value of goods and services produced in two countries using the same prices

Explain the approach​ (expenditure or​ income) that you used to calculate GDP. I calculated real GDP by summing the components of aggregate​ _____, so I used the​ _____ approach.

​expenditure; expenditure

Net exports of goods and services is the value of​ _____ of goods and services​ _____ the value of​ _____ of goods and services.

​exports; minus; imports

Real GDP is the value of the​ _____ goods and services produced in a given year expressed in terms of the prices in​ _____ year. Nominal GDP is the value of the​ _____ goods and services produced in a given year expressed in terms of the prices of ​ _____ year.

​final; a​ base; ​final; that same

Gross domestic product ​(GDP​) is the market value of all the​ _____ goods and services produced​ _____ a country in a given time period.

​final; within

Imports of goods and services are items that​ _____ in the United States​ _____ the rest of the world.

​households, firms, and​ governments; buy from


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