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What does it mean to say that net exports are negative?

It means that imports exceed exports.

GDP deflator equation

Nominal GDP/Real GDP x 100

A recession occurs when real GDP declines. T OR F

T

Intermediate goods

goods that are produced by one firm to be further processed by another firm

Gross domestic product (GDP)

A measurement of the total goods and services produced within a country. income equals expenditure

When a U.S. company purchases and imports wood from Brazil to use to build new houses within the United States, this purchase increases the investment Correct component of GDP while also decreasing Correct net exports by the same amount. Therefore, the purchase of wood from Brazil causesno overall change Correct in US GDP.

When a firm purchases a good or service from abroad, this purchase increases the investment component of GDP. Similarly, if this purchase was made by a household, then the consumption component of GDP would increase. If the purchase was made by the government, then the government purchases component of GDP would increase. However, this transaction has a counterbalancing effect that shows up in the net exports component of GDP. Recall that net exports equal exports minus imports. Because foreign-made goods and services purchased by domestic parties (consumers, firms, and the government) are imports, their value is subtracted from exports and shows up in the GDP calculation as a debit entry (with a minus sign). In this case, because an American company has purchased and imported wood, the investment component increases by the value of the wood. However, since thewood was imported from Brazil, net exports decreases by the same amount (the value of the wood). Although the investment and net exports components of GDP have changed, there is no overall change in GDP

Of all

GDP attempts to measure all production in the economy that is legally sold in markets. GDP excludes the production and sale of illegal drugs and household production such as when homeowners clean their own houses

Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States? Check all that apply. Correct The value of babysitting services, when the babysitter is paid in cash and the transaction isn't reported to the government Correct The variety of goods available to consumers Correct The loss of enjoyment people incur when scenic land is converted to commercial use Correct Federal government paychecks to soldiers

GDP does not account for off-the-books activities, such as babysitting, which add value to the economy but are not reported to the government. It also doesn't consider the enjoyment households experience as a result of the variety of goods available to consumers. Finally, GDP doesn't take into account the loss of enjoyment people incur when scenic land is converted to commercial use. All of these, though important in measuring the true quality of life within a country, would be far too difficult to measure accurately. Federal government paychecks to soldiers are accounted for in GDP as government purchases.

Gross national product (GNP)

GNP measures the income or production of a nation's permanent residents or "nationals" (both people and their factories) no matter where they are located.

For an economy as a whole, income equals expenditure because the income of the seller must be equal to the expenditure of the buyer. T or F

T

If U.S. GDP exceeds U.S. GNP, then foreigners produce more in the United States than U.S. citizens produce in the rest of the world. T or F

T

definition of GDP focuses on expenditures.

The government also adds up income to measure GDP

If nominal GDP in 2016 exceeds nominal GDP in 2015, real output must have risen. T or F

F

NNP

NNP is the total income of a nation's residents (GNP) minus depreciation. Depreciation is the value of the wear and tear on the economy's capital stock.

Does investment include the purchase of stocks and bonds? Why?

No, because that transaction is a purchase of an asset, not a purchase of currently produced capital goods.

Do government purchases include government spending on unemployment checks? Why?

No, because unemployment benefits are expenditures for which the government receives no production in return.

Personal income

Personal income is the income of households and noncorporate businesses. It excludes retained earnings (corporate income not paid out as dividends) and subtracts indirect business taxes, corporate taxes, and contributions for social insurance. It includes interest income households receive from government debt and government transfer payments (welfare and Social Security)

(GDP) formula

Y=C+I+G+NX

GDP

can be measured by adding up the income earned in the economy (wages, rent, and profit) or the expenditure on goods and services produced in the economy

Macroeconomics

is the study of the entire economy as a whole. This chapter and the remainder of this text deals with macroeconomics.

Nominal GDP

is the value of output measured in the prices that existed during the year in which the output was produced (current prices)

Real GDP

is the value of output measured in the prices that prevailed in some arbitrary (but fixed) base year (constant prices)