macro ch 7

Enchanté Inc., a designer clothing company, buys $400 worth of silk and $30 worth of accessories to produce each dress. If the value added by Enchanté is equal to $200, then according to the value-added approach, the price of the designer dress should be:

$630.

The U.S. consumer price index contains data from approximately _____ different cities.

87

Which of the following transactions is included in the nation's gross domestic product?

A college student buys a pizza and has it delivered to her dorm room.

In Macroland, the GDP deflator for 2014 is 105 with 2013 as the base year. Real GDP in 2014 equaled $210 billion. Therefore, nominal GDP in 2014 equaled _____, while nominal GDP in 2013 equaled _____.

$220.5 billion; $200 billion

The equation that breaks GDP down by the four sources of aggregate spending is:

GDP = C + I + G + X - IM.

is the total value of all final goods and services produced in the economy during a given year.

Gross domestic product, or GDP,

Included in GDP of the US

Hondas assembly and sale of cars in the US, old navy purchases mannequins to display clothes

included in GDP

a new skateboard you buy for your niece, the commission paid tot he seller of a previously owned collectors skateboard, a new building for tony hawk industries

examples of government

a public school teachers salary

the sum of consumer spending, investment spending, government purchases of goods and services, and exports minus imports, is the total spending on domestically produced final goods and services in the economy.

aggregate spending

A price index:

always includes a base year, measures the cost of purchasing a market basket of output across different years, and is normalized to 100 for the base year.

examples of net exports

an exported dollhouse

what is inflation?

an increase in the overall price level

is borrowing in the form of an IOU that pays interest.

bond

is the method of calculating changes in real GDP using the average between the growth rate calculated using an early base year and the growth rate calculated using a late base year.

chained dollars

The most widely-used price index in the United States is the:

consumer price index

a measure of inflation based on the cost of goods that households typically purchase

consumer price index

is household spending on goods and services.

consumer spending

why is hypothetical basket of goods used to measure inflation?

consumers can see the general increase in price over time by using a basket of goods

Economists frequently use GDP per capita to reflect:

differences in living standards across countries.

equal to income plus government transfers minus taxes, is the total amount of household income available to spend on consumption and to save.

disposable income

The total income of households after taxes and government transfers is called:

disposable income.

Goods that are produced in a particular period but NOT sold in that period:

end up in inventory and are included in investment.

Aggregate spending on domestically produced final goods and services is _____ the factor income earned by all households in the economy.

equal to

Goods and services sold to other countries are

exports

are goods and services sold to the final, or end, user.

financial goods and services

The banking, stock, and bond markets, which channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing, are known as the

financial markets

a broad price index based on all the components of gdp

gdp deflator

is GDP divided by the size of the population; it is equivalent to the average GDP per person.

gdp per capita

is the total amount of funds borrowed by federal, state, and local governments in the financial markets.

government borrowing

are total expenditures on goods and services by federal, state, and local governments.

government purchases of goods and services

are payments by the government to individuals for which no good or service is provided in return.

government transfers

_____ refers to the total market value of all final goods and services produced in an economy during a given period.

gross domestic product

The circular-flow diagram illustrates all of the following in the U.S. economy EXCEPT:

growing income inequality.

_____ sell factors of production in the factor markets.

households

examples of consumption

ice cream, a domestically manufactured personal computer, cab fare for personal use, 55 cent tacos, super bowl ticket bought new from nil

The dollar value of final goods and services only is counted in GDP because:

if we counted the value of all goods, we would count inputs, like the value of steel in a new automobile, more than once.

Goods and services purchased from other countries are

imports

Bensalem is a small country; it had only 10 people and the GDP of its economy was $10,000 in 2014. Amazingly, the GDP in Bensalem in 2015 increased to $20,000 while the population increased by 50 percent. As a result, GDP per capita in Bensalem in 2015:

increased, because the percentage change in GDP was greater than the percentage change in population.

a person whose salary has increased is able to purchase fewer goods and services. is evidence that

inflation has occurred

are goods and services—bought from one firm by another firm—that are inputs for production of final goods and services.

intermediate goods and services

are stocks of goods and raw materials held to facilitate business operations.

inventories

is spending on productive physical capital—such as machinery and construction of buildings—and on changes to inventories.

investment spending

A country's GNP:

is the total factor income earned by residents of a country.

A country's exports minus its imports during a period are:

net exports

are the difference between the value of exports and the value of imports.

net exports

_____ is the value of all final goods and services produced in the economy during a given year; it is calculated using the current prices from the year in which the output is produced.

nominal gdp

a measure of an economies output using current prices uses

nominal gdp

a measure of output that is not adjusted for inflation uses

nominal gdp

A(n) _____ compares the cost of purchasing a given market basket in a given year to the cost of purchasing the market basket in the base year.

price index

equal to disposable income minus consumer spending, is disposable income that is not spent on consumption.

private savings

a price index based on the cost of common inputs for firms

producer price index

Investment spending is spending on:

productive physical capital.

a measure of an economies output using constant prices uses

real gdp

a measure of output that is adjusted for inflation uses

real gdp

is the total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year.

real gdp

NOT included in GDP of the US

resale of used textbooks, GMs assembly and sale of cars in mexico, ocean spray purchases plastic to make bottles, sale of wheat to Mr. Bakerys

An example of a government transfer is a(n):

social security payment

The difference between spending on inputs and investment spending is that:

spending on investment goods is included in the calculation of GDP.

is a share in the ownership of a company held by a shareholder.

stock

From a household's perspective, a share of stock represents:

the ownership of part of the firm

real gdp per capita is NOT an adequate measure of

the well being of each person in an economy

The outflow of funds from the financial markets include funds:

to finance government purchases of goods and services, and funds to foreign borrowers.

Examples of investments

underfoot sneaker co stores shoes that are produced in the current time period but not sold in inventory, float in away kayak co buys equipment to use in its factory, a domestically manufactured business computer

The consumer price index, the producer price index, and the GDP deflator:

usually move close together

of a producer is the value of its sales minus the value of its purchases of intermediate goods and services.

value added

NOT included in GDP because of double counting

wheels used to produce a skateboard that will be sold new, a used copy of the tony hawk video game, a used skateboard you buy for your brother, a previously owned collectors skateboard, a ticket for the x games bought from a person on a street corner