Ch. 8: Measuring the Economy's Performance V2

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Refer to the above table. The production of this good goes through 4 different stages of production. What does the total value added equal? $0.07 $0.32 $0.75 Cannot be computed without more information.

$0.75

In the first stage of manufacturing each final unit of a product, a firm purchases a key input at a price of $3 per unit. The firm then pays a wage rate of $2 for the time that labor is exerted, combining an additional $3 of inputs for each final unit of output produced. The firm sells every unit of the product for $10. What is the contribution of each unit of output to GDP in the current year? The contribution of each unit of output to GDP in the current year is $

$10

If households receive $100 in interest payments and make interest payments of $110, wages equal $500, rental receipts are $200, royalties are $100, profits are $200, depreciation is $50, and indirect business taxes are $50, then gross domestic income is $1110. $1090. $1180. $1280.

$1090

Assume that the nominal GDP for a given year is equal to $12,400 billion and the GDP deflator equals 112. Real GDP for that year is approximately...

$11,071.4 billion

According to the above table, net domestic product is $11,811 billion. $11,892 billion. $11,998 billion. $12,531 billion.

$11,811 billion.

Assume that a honey producer sells its annual harvest to an Internet retailer for $75,000. The retailer, in turn, brings in $112,500 from selling the honey directly to final customers. What amount would these two transactions add to personal consumption expenditures, and thus to GDP, during the year? GDP would increase by $_____________. (Enter your response as a whole number.)

$112,500 These two transactions would add $112,500 to personal consumption expenditures and thus to GDP during the year. The reason that we do not count the $75,000 is that this first sale is an intermediate step toward the final sale. This final price includes the cost of the honey purchased by the Internet retailer.

According to the above table, national income is... (chart ?)

$13,271 billion

If households pay $1,000 in interest payments and receive $1,200 in interest, wages equal $8,000, rental receipts on land are $200, total business profits before taxes are $2,200, depreciation is $1,750, and indirect business taxes are $1,000, then gross domestic income is...

$13,350

Consider the following table for the economy of a nation whose residents produce five final goods: b. Assume 2017 is the base year. Calculate real GDP for 2017. $______. (Enter your response rounded to two decimal places.) Calculate real GDP for 2021. $_____. (Enter your response rounded to two decimal places.)

$2,253.15; $1,963.70 Real GDP of 2017 =Nominal GDP of 2017, since 2017 is the base year. Real GDP of 2021 equals left parenthesis Price of shampoo in 2017 times Quantity of shampoo in 2021 right parenthesis plus left parenthesis Price of external hard drives in 2017 times Quantity of external hard drives in 2021 right parenthesis plus Real GDP of 2021=(Price of shampoo in 2017×Quantity of shampoo in 2021)+(Price of external hard drives in 2017×Quantity of external hard drives in 2021)+ left parenthesis Price of books in 2017 times Quantity of books in 2021 right parenthesis plus left parenthesis Price of milk in 2017 times Quantity of milk in 2021 right parenthesis plus left parenthesis Price of candy in 2017 times Quantity of candy in 2021 right parenthesis (Price of books in 2017×Quantity of books in 2021)+(Price of milk in 2017×Quantity of milk in 2021)+(Price of candy in 2017×Quantity of candy in 2021) We can find the final value of the Real GDP by using the appropriate price and quantity from the table.

According to the above table, Gross Domestic Product (GDP) is $2,465. $2,840. $2,750. $2,190.

$2,465.

Consider the following table for the economy of a nation whose residents produce five final goods: a. Assume 2017 is the base year. Calculate nominal GDP for 2017. $_______________ Calculate nominal GDP for 2021. $_________ b. Assume2017 is the base year. Calculate real GDP for 2017. $__________ Calculate real GDP for 2021. $________

$2,790.12 $2,735.78 $2,790.12 $2,116.15

If imports are $100 million less than exports, government spending is $500 million, consumer expenditures are $1 billion, and investment spending is $500 million, then GDP is $2.1 billion. $1 billion. $2 billion. $1.9 billion.

$2.1 billion.

Each year after a regular spring cleaning, Maria spruces up her home a little by retexturing and repainting the walls of one room in her house. In a given year, she spends $27 on magazines to get ideas about wall textures and paint shades, $47 on newly produced texturing materials and tools, $39 on new paintbrushes and other painting equipment, and $175 on newly produced paint. Normally, she preps the walls, a service that a professional wall-texturing specialist would charge $193 to do, and applies two coats of paint, a service that a painter would charge $360 to do, on her own. When she purchases her usual set of materials and does all the work on her home by herself in a given spring, how much does Maria's annual spring texturing and painting activity contribute to GDP?

$288

Each year after a regular spring cleaning, Maria spruces up her home a little by retexturing and repainting the walls of one room in her house. In a given year, she spends $29 on magazines to get ideas about wall textures and paint shades, $48 on newly produced texturing materials and tools, $38 on new paintbrushes and other painting equipment, and $176 on newly produced paint. Normally, she preps the walls, a service that a professional wall-texturing specialist would charge $209 to do, and applies two coats of paint, a service that a painter would charge $365 to do, on her own. a. When she purchases her usual set of materials and does all the work on her home by herself in a given spring, how much does Maria's annual spring texturing and painting activity contribute to GDP?

$291 $500 $865

Suppose gross domestic product is $5 billion, government transfer payments are $1 billion, indirect business taxes and transfers are $0.5 billion, and depreciation is $0.5 billion. Then national income equals...

$4 billion

$4 billion.

Households receive a total income of $5 million. Of this, $3.5 million are wages received for labor services, $1 million are rental payments, and $250,000 are interest payments received. What are the costs of production and profits equal to respectively?

$5 million; $250,000

The nominal GDP for 2008 is... (chart ?)

$5677.50

Suppose that in 2013, the total value of all final services produced in a nation was $300 billion; the total value of all final goods produced in that nation was $400 billion; and the total value of all final goods and services produced by that nation's firms in other countries was $200 billion. Gross domestic product was...

$700 billion

The following table contains national income accounting data for a hypothetical economy: Starting from the value for disposable personal income (DPI), gross domestic product is calculated to be ______ (enter your response as an integer).

$8,050 To derive GDP, start with disposable personal income ($6,000 million) and add the following: personal income tax and nontax payments ($800 million); corporate taxes, social security contributions, and corporate retained earnings ($1,000 million); indirect business taxes ($50 million); and depreciation ($900 million). Then subtract government and business transfer payments ($1,400 million).

The following table contains national income accounting data for a hypothetical economy: Disposable personal income $7,000 mil Personal income tax and nontax payments $900 mil Government & Business transfer payments $1500 mil Corporate taxes, social security contributions, & corporate retained earnings $1100 mil Indirect business taxes $900 mil Depreciation $1000 mil Starting from the value for disposable personal income (DPI), gross domestic product is calculated to be $_____________

$9,400

Assume that a honey producer sells its annual harvest to an Internet retailer for $65,000. The retailer, in turn, brings in $97,500 from selling the honey directly to final customers. What amount would these two transactions add to personal consumption expenditures, and thus to GDP, during the year? GDP would increase by $________

$97,500

What are the three general categories of financial transaction?

(1) the buying and selling of securities (2) government transfer payments, and (3) private transfer payments. (these are not included in GDP)

Indicate whether each of the following transactions represents the purchase of a final good. 1) The purchase of wheat from a wheat farmer by a bakery. 2) The purchase of two new elementary school buildings by the state government. 3) The purchase of domestic wine by a French consumer. 4) The purchase of a new machine tool by the Ford Motor Company.

1) Not a purchase of a final good. 2) Is the purchase of a final good. 3) Is the purchase of a final good. 4) Is the purchase of a final good.

How does real GDP deal with the problem inflation causes with nominal GDP?

1)Real GDP uses the prices of goods and services in the base year to calculate the value of goods in all other years. 2) By keeping prices constant, we know that changes in real GDP represent changes in the quantity of output produced. 3) Real GDP separates price changes from quantity changes.

1. Suppose that early in a year, a hurricane hits a town in Florida and destroys a substantial number of homes. A portion of this stock of housing, which had a market value of $105 million (not including the market value of the land), was uninsured. The owners of the residences spent a total of $6 million during the rest of the year to pay salvage companies to help them save remaining belongings. A small percentage of uninsured owners had sufficient resources to spend a total of $15 million during the year to pay construction companies to rebuild their homes. Some were able to devote their own time, the opportunity cost of which was valued at $4 million, to work on rebuilding their homes. The remaining people, however, chose to sell their land at its market value and abandon the remains of their houses. What was the combined effect of these transactions on GDP for this year? $____million. (Hint: Which transactions took place in the markets for final goods and services?) 2. The loss in national welfare ___________________________ GDP, because it is ____________ market place.

1. 21 million 2. produces no change in; not valued in the

What are the weakness of a GDP?

1. GDP excludes nonmarket production, such as the household services of homemakers 2. GDP is Not a Direct Measure of Human Well-Being

What are the 2 principles of a circular flow of income?

1. In every economic exchange, the seller receives exactly the same amount that the buyer spends. 2. Goods and services flow in one direction and money payments flow in the other.

1. To obtain ___________, we subtract indirect business taxes and transfers from net domestic product and add other business income adjustments and net U.S. income earned abroad. 2.To obtain ____________, we must add government transfer payments, such as Social Security benefits and food stamps. We must subtract income earned but not received by factor owners, such as corporate retained earnings, Social Security contributions, and corporate income taxes. 3. To obtain disposable personal income, we subtract all personal ___________, from personal income. Disposable personal income is income that individuals actually have for consumption or saving.

1. national income 2. personal income 3. income taxes

To correct nominal GDP for price changes, we first select a base year for our price index and assign it the number ▼ . Then we construct an index based on how a weighted average of prices has changed relative to that base year. For example, if in the next year a weighted average of the prices indicates that prices have increased by 10 percent, we would assign it the number ▼ . We then divide each year's price index, so constructed, into its respective nominal GDP figure (and multiply by 100). We can divide the ▼ into real GDP to obtain per capita real GDP. Statisticians often calculate relative GDP by adding up each country's GDP in its local currency and dividing by the dollar ▼ . Because not all goods and services are bought and sold in the world market, however, we must correct exchange rate conversions of other countries' GDP figures to take into account differences in the true ▼ across countries.

100 110 population exchange rate cost of living

Refer to the above table. The value of the GDP deflator in 2009 is 122.1. 121.2. 122.9. uncertain without more information.

121.2

Refer to the above table. The value of the GDP deflator in 2009 is... (chart ?)

121.2

Consider the following hypothetical data for the U.S. economy in 2020 (all amounts are in trillions of dollars): Consumption $10.6 Non-income related taxes net of subsidies 0.7 Deprecation 1.4 Government Spending 2.8 Imports 2.7 Gross private domestic investment 2.9 Exports 2.4 Based on the data above Calculate GDP$ tril Calculate NDP$ tril Calculate NI$ tril Suppose that in 2021, exports fall to $2.2 trillion, imports rise to $2.9 trillion , and gross private domestic investment falls to $2.4 trillion. Calculate GDP in 2021, assuming that other values do not change between 2020 and 2021. $____________trillion

17.4 16.2 15.5 16.3

Consider the diagram to the right, and answer the questions below. The base year is___________ The diagram shows that the Nominal GDP curve exhibits a steeper growth path, compared to the Real GDP curve after their intersection. This indicates

2016 this country has experienced inflation since the base year.

Using the above table, the National Income (NI) for the country is... (chart ?)

318

Consider the following table for the economy of a nation whose residents produce four final goods: Assume 2020 as the base year. Calculate the price index for 2019. ____ (Enter your response rounded to one decimal place.)

68.8 Price Index of 2019 = ((Nominal GDP 2019 / Real GDP 2019) * 100))

Refer to the above table. Real GDP in 2012 is 682.9. 717.5. 700. 146.4.

682.9.

Using the above table, the GDP is (in billions of dollars) 8,200. 8,900. 9,500. 10,200.

9,500.

Profits

A cost of production because entrepreneurs must be rewarded for providing their services or they won't provide them

A firm produces a good and generates $5 million in receipts. Wages are $3 million, rent is $500,000, and interset payments are $1 million. Then A) profits are $500,000, the cost of production is $4.5 million, and households receive income equal to $4.5 million. B) profits are $500,000, the cost of production is $5 million, and households receive income equal to $5 million. C) profits are $500,000, the cost of production is $5 million, and households receive income equal to $3.5 million. D) profits are $500,000, the cost of production is $5 million, and households receive income equal to $4.5 million.

National income accounting

A measurement system used to estimate national income and its components. One approach to measuring an economy's aggregate

A purchasing power parity index would help you A) make international comparisons of living standards. B) predict changes in U.S. real GDP. C) estimate the growth rate of U.S. personal income. D) identify those goods and services that are becoming relatively more important in chain-weighted GDP.

Which of the following is included in the economist's definition of investment? A. the purchase of new machines, factories, or houses Your answer is correct. B. the purchase of a rare coin or a deposit in a savings account C. the purchase of a share of stock D. All of the above.

An increase in social security benefits will make A. personal income larger. B. national income larger. C. national income smaller. D. net domestic product smaller.

A. personal income larger. Higher social security benefits will increase the amount of personal income. These increased payments to retirees clearly make received income higher. However, since the recipients concurrently produced no goods or services, earned income did not change.

Per capita real GDP equals A. real GDP/population. B. real GDP in the nation's capital, Washington, D.C. C. real GDP/investment capital. D. real GDP/human capital.

A. real GDP/population.

Depreciation

Added to go from net domestic income to gross domestic income

Purchasing power parity

Adjustment in exchange rate conversion that takes account differences in the true cost of living across countries

Purchasing Power Parity

Adjustment in exchange rate conversions that takes into account differences in the true cost of living across countries

Indirect Business Taxes

All business taxes except tax on corporate profits Include sales and business property taxes

Which of the following equations is correct?

All of the above equations are correct. (A. GDP = C + netI + G + X + depreciation B. GDP minus − depreciation = NDP C. NDP = C + I + G + X minus − depreciation)

Total income can be viewed as the sum of

All of the above.

Investment

An activity that uses resources today in such a way that they allow for greater production in the future and hence greater consumption in the future (EX: new equipment or factory)

Net domestic product (NDP)

An estimate of the amount that capital goods have depreciated during the year is subtracted from gross domestic product

An example of an increase in gross private domestic investment spending that also increases Gross Domestic Product (GDP) is when A) inventories of new cars accumulate on the lots of car dealers. B) a farmer buys a used tractor. C) a family sells its home because of a transfer. D) government increases spending on infrastructure.

Capital consumption allowance

Another name for depreciation, the amount that businesses would have to put aside in order to take care of deteriorating machines and other equipment

Investment

Any use of today's resources to expand tomorrow's production or consumption

Final goods and services

Are at their final stage of production and will not be transformed into yet other goods and services. For example, what ordinarily is not considered a final good because it is usually used to make a final good, bread

Assume that the nominal GDP for a given year is equal to $12,400 billion and the GDP deflator equals 112. Real GDP for that year is approximately A) $12,228.1 billion. B) $13,888.0 billion. C) $11,071.4 billion. D) $12,512.0 billion.

An underground economy involves all of the following except: A. trying to avoid government regulations. Your answer is not correct. B. buying and selling of goods and services by obtaining a permit from the government. This is the correct answer. C. avoiding tax payment on the earned income. D. dealing in illegal goods and services, such as drugs or prostitution.

To derive GDP using the expenditure approach, which of the following components are added together? A. consumption expenditures, gross private domestic investment, and government expenditures B. consumption expenditures, gross private domestic investment, government expenditures, and net exports C. consumption expenditures, government expenditures, and net exports D. consumption expenditures, gross private domestic investment, and net exports

B. consumption expenditures, gross private domestic investment, government expenditures, and net exports

The country with the highest per capita GDP based on purchasing power parity (U.S. dollars) is A. France. B. the United States. C. Japan. D. Germany.

B. the United States.

cost, living

Because not all goods and services are bought and sold in the world market, we must correct exchange rate conversions of other countries' GDP figures to take into account differences in the true ___________ of ___________ across countries.

Why do we subtract imports rather than ignoring them altogether?

Because we want to estimate domestic output, so we have to subtract U.S. expenditures on the goods produced in other nations.

The flow of gross domestic product during a given interval must always be equivalent to the flow of gross domestic income within that same period because

Both (a) and (b) are correct.

The biggest component of GDP using the expenditure approach is ____________ and the biggest component of GDP using the income approach is _____________. A. government expenditures; taxes B. consumer expenditures; profit C. consumer expenditures; wages D. investment expenditures; profit

C. consumer expenditures; wages

If real GDP increases in any year, we know that A. both inflation and output have increased. B. inflation has raised the value of output. C. the output of goods and services produced this year has increased. D. nominal GDP must have risen.

C. the output of goods and services produced this year has increased.

Inventory investment

Changes in the stocks of finished goods and goods in process, as well as changes in the raw material that businesses keep on hand. Whenever inventories are decreasing, inventory investment is negative vice versa

Inventory Investment

Changes in the stocks of finished goods and goods in process, as well as changes in the raw materials that businesses keep on hang Whenever inventories are decreasing, inventory investment is negative Whenever inventories are increasing, inventory investment is positive

Expenditure approach

Computing GDP by adding up the dollar value at current market prices of all final goods and services (including consumption, investment, government purchases of goods and services, and net exports)

Nondurable Consumer Goods

Consumer goods that are used up within 3 years

Nondurable consumer goods

Consumer goods that are used up within three years (EX: rest, food, and gasoline)

Durable Consumer Goods

Consumer goods that have a life span of more than 3 years

Durable consumer goods

Consumer goods that have a life span of more than three years (EX: cars, furniture, household appliances)

GDP Formula

Consumption + Gross private Domestic Investment + Government Spending + Exports - Imports

durables, nondurables, services

Consumption expenditures include consumer ___________, consumer ___________, and ___________.

What are the four major components of expenditures in GDP?

Consumption, Investment, Government Purchases, and Net Exports

Flow of Expenditure

Consumption, investment, government purchases of goods and services, dollar value Measure GDP by adding up the dollar value at current market prices of all final goods and services

The following table contains data for a hypothetical economy: According to the expenditure approach, if depreciation is $125 million, GDP is _____________ and NDP is ___________.

D. $1,200 million; $1,075 million You correctly summed consumer expenditures, investment expenditures, government expenditures, and net exports to compute GDP. You also saw that NDP = GDP − Depreciation.

Gross Domestic Product A. only includes "final" goods and services to avoid double counting. B. does not include the transfer of second-hand goods. C. does not include transfer payments or financial transactions. D. All of the above.

D. All of the above

Which of the following equations is correct? A. GDP − depreciation = NDP B. NDP = C + I + G + X − depreciation C. GDP = C + netI + G + X + depreciation D. All of the above equations are correct.

D. All of the above equations are correct.

Total income can be viewed as the sum of A. payments to factor services such as land, labor, capital, and entrepreneurial activity. B. wages, rents, interest, and profits. C. the dollar value of output produced since total income and total production are equal. D. All of the above.

D. All of the above.

The expenditure approach to tabulating GDP A. excludes investment expenditures because they yield consumption in the future. B. adds consumption expenditures, investment expenditures, government expenditures, interest payment and wages. C. adds up the total value of all income earnings during the year. D. adds up the total amount spent on newly produced domestic goods and services during the year.

D. adds up the total amount spent on newly produced domestic goods and services during the year. The expenditure approach to measuring GDP consists of summing consumption, investment, government purchases of goods and services, and net expenditures in the foreign sector (net exports).

If nominal GDP increases, it is possible that A. prices have increased. B. output has increased. C. both prices and output have increased. D. any of the above might have happened.

D. any of the above might have happened.

Suppose social security contributions rise by $1 billion while social security benefits also rise by $1 billion. Further, personal income taxes fall by $500 million. As a result, A. national income, personal income, and disposable income should increase. B. personal income, disposable personal income, and national income remain unchanged. C. both personal and disposable personal income should increase. D. disposable income should increase while personal income and national income are unchanged.

D. disposable income should increase while personal income and national income are unchanged. Disposable income will increase since taxes are lower while both personal income and national income remain unchanged.

The problem with using foreign exchange rates to convert one country's GDP into dollars is that A. the values of currencies are not comparable. B. exchange rates do not reflect differences in inflation rates. C. the dollar has been losing value over the last twenty years. D. not all goods and services are sold on world markets.

D. not all goods and services are sold on world markets.

The largest component of GDP by far is A. net exports. B. gross private domestic investment. C. government purchases of goods and services. D. personal consumption expenditures.

D. personal consumption expenditures

The adjustment in exchange rate conversions that takes into account differences in the true cost of living across countries is called A. nominal purchasing power. B. raw purchasing power. C. currency-adjusted purchasing power. D. purchasing power parity.

D. purchasing power parity.

When GDP is corrected to reflect constant dollars, this price-corrected GDP is called A. the GDP deflator. B. NDP. C. nominal GDP. D. real GDP.

D. real GDP.

Value Added

Dollar value attributed to a product at each stage of its production The dollar value of an industry's sales minus the value of intermediate goods used in production

Constant Dollars

Dollars expressed in terms of real purchasing power using a particular year as the base or standard of comparison, in contrast to current dollars

Constant dollars

Dollars expressed in terms of real purchasing power, using a particular year as the base or standard of comparison, in contrast current dollars

Durable consumer goods are goods that A) are used up within one year. B) last for more than one year. C) are used up within three years. D) last for more than three years.

Consumption Expenditures (C)

Durable consumer goods, nondurable consumer goods, services

Producer Durables or Capital Goods

Durable goods having an expected service life of more than 3 years that are used by businesses to produce other goods and services

Limitations of GDP

Excludes nonmarket production Causes issues given the ratio of legal and illegal activities Does not show insight to environmental health of country

Disposable personal income refers to the income used by households for all purchases of nondurable goods during a year.

False

Disposable personal income refers to the income used by households for all purchases of nondurable goods during a year.

False.

Personal income is the income received by households after personal income taxes are paid.

False.

Excluded Transactions

Financial transactions, transfer of secondhand goods, household production, otherwise legal underground transactions, illegal underground transactions

110

For example, if in the next year a weighted average of the prices indicates that prices have increased by 10 percent, we would assign it the number ___________.

In the first stage of manufacturing each final unit of a product, a firm purchases a key input at a price of $7 per unit. The firm then pays a wage rate of $3 for the time that labor is exerted, combining an additional $4 of inputs for each final unit of output produced. The firm sells every unit of the product for $17. What is the contribution of each unit of output to GDP in the current year? consumption $9.5 Non-income-related taxes net of subsidies $0.9 Depreciation $1.2 Government Spending $2.8 Imports $2.4 Gross private domestic investment $3.2 Exports $2.6 The contribution of each unit of output to GDP in the current year is

GDP $15.7 NDP $14.5 NI $13.6 $14.6

NDP Formula

GDP - Depreciation In order to calculate Net Domestic Product, depreciation for the capital stock has to be subtracted from the year's GDP.

Net Domestic Product

GDP - depreciation C + net I + G + X

Given the following data, calculate the GDP. wages = $500 rent= $100 government spending= $2,500 consumer spending= $7,800 private investment = $2,100 net exports = $-400

GDP = $12,000

Calculating expenditure approach (consumption expenditures, investment expenditures, government expenditures, net exports)

GDP = C+ I+ G+ X

Net investment

GDP investment minus an estimate of the wear and tear on the existing capital stock. Net investment therefore measures the change in capital stock over a one year period

market value

GDP is a useful measure for tracking changes in the ___________ ___________ of overall economic activity over time, but it is not a measure of the well-being of a nation's residents because it fails to account for nonmarket transactions, the amount and quality of leisure time, environmental or safety issues, labor market discrimination, and other factors that influence general welfare.

Which of the following is an example of the gross private domestic investment component of Gross Domestic Product (GDP)? You put money into your checking account. You buy a share of GM stock. You put money into your savings account. GM buys a new drill press.

GM buys a new drill press. (can be used for future production and therefore consumption)

Given the following data, calculate the GDP. wages = $500 government spending = $2,500 private investment = $2,100 rent = $100 consumer spending = $7,800 net exports = $-400 A) GDP = $11,400 B) GDP = $13,000 C) GDP = $12,400 D) GDP = $12,000

Final Goods and Services

Goods and services that are at their final stage of production and will not be transformed into yet other goods or services

Intermediate goods

Goods used up entirely in the production of final goods Not included in GDP

According to the circular flow of income and output, which of the following is not true?

Goods, services and money all flow in one direction since money pays for the goods and services.

Government Expenditure (G)

Government purchases of goods and services Not all goods are bought and sold on the market, value is considered the same as cost

Government spending: 50 Social Security contributions: 20 Corporate taxes: 5 Personal income taxes: 8 Rent: 54 Wages: 231 Consumption expenditures: 250 Gross Private Domestic Investment: 40 Profit: 28 Indirect business taxes: 10 Imports: 5 Exports: 3 Interest: 5 Depreciation: 10 Government transfer payments: 8 Using the above table, the National Income (NI) for the country is A) 318. B) 662. C) 228. D) 338.

Net domestic product (NDP) is...

Gross Domestic Product (GDP) minus depreciation

Gross Domestic Income

Gross domestic income (GDI): The sum of all income — wages, interest, rent, and profits — paid to the four factors of production.

Net investment equals

Gross private domestic investment - Depreciation

capacity, inventories

Gross private domestic investment excludes transfers of asset ownership. It includes only additions to the productive ___________ of a nation, repairs on existing capital goods, and changes in business ___________.

Net Investment

Gross private domestic investment minus an estimate of the wear and tear on the existing capital stock Measures change in capital stock over a one year period

GDP is an imperfect measure of economic well-being because it fails to measure what types of production?

Household production and the underground economy.

exclude

In measuring GDP, we must ________ (1) purely financial transactions, such as the buying and selling of securities; (2) government transfer payments and private transfer payments; and (3) the transfer of secondhand goods.

factor

In the circular flow model of income and output, households sell ___________ services to businesses that pay for those services.

In the circular flow, _____ provide the factor services. A) producers B) businesses and households C) businesses D) households

In the simple circular flow model, total income in the United States must equal A) the total monetary value of all final goods and services. B) wages + rents + interest + profits. C) the yearly amount earned by our nation's resources. D) All of the above are correct.

Flow of Income

Income received by everybody producing goods and services Measure GDP by adding up all components of national income, including wages, interest, rent, and profits

Indirect business taxes include all of the following EXCEPT A) sales taxes. B) taxes on business property. C) taxes on business equipment. D) taxes on corporate profits.

Intermediate goods are goods that are used up entirely in the production of final goods. As such, intermediate goods A) make up only a small portion of Gross Domestic Product (GDP). B) are excluded in calculating Gross Domestic Product (GDP) because to do so would be to double count them. C) are included in Gross Domestic Product (GDP) only if produced within the borders of the United States. D) are excluded in calculating Gross Domestic Product (GDP) because they are not valuable.

Which of the following is included in Gross Domestic Product (GDP)?

Investment spending on capital goods

Which of the following statements does NOT describe the real value of an economic variable? It is a measure of the purchasing power of the variable. It is expressed in constant dollars. It is the variable's nominal value adjusted for unemployment. It is adjusted for changes in the price level.

It is the variable's nominal value adjusted for unemployment.

If the U.S. Bureau of Economic Analysis (BEA) added up the values of every good and service sold during the year, would the total be larger or smaller than measured gross domestic product (GDP)?

Larger: The value of all goods and services sold would include intermediate goods.

GDP

Many other transactions are excluded from measured ___________, among them household services rendered by homemakers, underground economy transactions, and illegal economic activities, even though many of these result in the production of final goods and services.

Product Markets

Markets where households are the buyers and businesses are the sellers of consumer goods

Factor Markets

Markets where households are the seller

Real Values

Measurement of economic values after adjustments have been made for changes in the average of prices between years

Real values

Measurement of economic values after adjustments have been made for changes in the average of prices between years

National Income Accounting

Measurement system used to estimate national income and its components; one approach to measuring an economy's aggregate performance

Income approach

Measuring GDP by adding up all components of national income, including wages, interest, rent, and profits

Services

Mental or physical labor or help purchased by consumers

NI Formula

NDP-Non income related taxes net of subsidies

Net domestic product (NDP) is A) Gross Domestic Product (GDP) minus depreciation. B) Gross Domestic Product (GDP) minus government transfers. C) Gross Domestic Product (GDP) minus private investment. D) Gross Domestic Product (GDP) minus the foreign sector.

Calculating net exports (Foreign Expenditures)

Net exports (X) = total exports − total imports

Net interest: $739 Net U.S. income earned abroad: 36 Wages and salaries: 8,735 Rental income: 237 Other business income adjustments less business transfers: 1,202 Change in business payments: 262 Inventories: 14 Personal consumption: 1,250 Proprietorial income: 1,128 Gross investment spending: 1,479 Indirect business taxes: 1,059 Corporate profits before taxes: 1,194 Exports: 249 Depreciation: 1,833 According to the above table, national income is A) $10,646 billion. B) $11,917 billion. C) $10,770 billion. D) $13,271 billion.

Does GDP include intermediate goods?

No because to do so would be to count them twice

Non-income expense items included in the Gross Domestic Product (GDP) calculation and not National Income include A) depreciation and indirect business taxes. B) indirect business taxes and corporate profits. C) corporate profits tax and indirect business taxes. D) depreciation and corporate profits.

Suppose that the following occurred in two countries during the past decade. Country A, real Gross Domestic Product (GDP) rose 40 percent and population rose 46 percent; Country B, real Gross Domestic Product (GDP) increased 80 percent and population increased 75 percent. Based on this information, which is true? Chances for an improved standard of living are greater in Country A. Only Country B has experienced growth in its per capita real Gross Domestic Product (GDP). Both countries have experienced growth in per capita real Gross Domestic Product (GDP). Neither country has experienced growth in per capita real Gross Domestic Product (GDP).

Only Country B has experienced growth in its per capita real Gross Domestic Product (GDP).

Transfer of Secondhand Goods

Original purchase is included in GDP, not resale

Government Transfer Payments

Payments for which no productive services are concurrently provided in exchange

The income households actually receive before they pay personal income taxes is:

Personal Income

An increase in corporate income taxes would reduce An increase in Social Security benefits will make

Personal Income Personal Income Larger

Disposable Personal Income (DPI)

Personal income after personal income taxes have been paid

The Simple Circular Flow

Principles: In every economic exchange, the seller receives exactly the same amount that the buyer spends Goods and services flow in one direction and money payments flow in the other

Which of the following statements is FALSE?

Private transfer payments, such as an inheritance, are included in the Gross Domestic Product (GDP)

Which of the following statements is true about profits?

Profits are considered a cost of doing business

Fixed Investment

Purchases by businesses of newly produced producer durables, or capital goods, such as production machinery and office equipment

Fixed investments

Purchases by businesses pf newly produced producer durables or capital goods, such as production machinery and office equipment

How to calculate REAL GDP

REAL GDP = nominal GDP / price index x 100

Depreciation

Reduction in the value of capital goods over a one year period due to physical wear and tear and also to obsolescence; also called capital consumption allowance

Financial Transactions

Securities Government Transfer Payments Price Transfer Payment

exchange rate

Statisticians often calculate relative GDP by adding up each country's GDP in its local currency and dividing by the dollar ___________ ___________.

Suppose Social Security contributions rise by $1 billion while Social Security benefits also rise by $1 billion. Further, personal income taxes fall by $500 million. As a result, A) national income, personal income, and disposable income should increase. B) personal income, disposable personal income, and national income remain unchanged. C) disposable income should increase while personal income and national income are unchanged. D) both personal and disposable personal income should increase.

Suppose that in 2013, the total value of all final services produced in a nation was $300 billion the total value of all final goods produced in that nation was $400 billion; and the total value of all final goods and services produced by that nation's firms in other countries was $200 billion. Gross domestic product was A) $900 billion. B) $500 billion. C) $700 billion. D) $600 billion.

Household Production

Tasks performed by people in their own home which they receive no payments for through the marketplace

Which of the following is included in government expenditures when measuring GDP? Social Security payments Goods imported into the United States The President's income Unemployment expenditures

The President's income

expenditure

The ___________ approach to measuring GDP requires that we add up consumption expenditures, gross private investment, government purchases, and net exports.

Personal Income (PI)

The amount of income that household actually receive before they pay personal income taxes

Personal Income (PI)

The amount of income that households actually receive before they pay personal income taxes

Capital Consumption Allowance Deprecation

The amount that businesses would have to save in order to take care of deteriorating machines and other equipment

The components of GDP using the income method (excluding indirect business taxes and depreciation) are A) wages, interest, rents, and profits. B) wages and interest. C) consumption expenditures, investment expenditures, and government expenditures. D) consumption expenditures, investment expenditures, govenrment expenditures, and net exports.

Gross private domestic investment

The creation of capital goods such as factories and machines, than yield to production and hence consumption in the future. Also included in this definition are changes in business inventories and repairs made to machines and buildings

Gross Private Domestic Investment (I)

The creation of capital goods, such as factories and machines, that can yield production and hence consumption in the future Changes in business inventories and repairs made to machines or buildings

profit

The dollar value of final output must always equal total income. The variable that adjusts to make this so is known as ___________.

final

The dollar value of total output is equal to the total monetary value of all ___________ goods and services produced.

The expenditure approach to deriving gross domestic product sums the following categories of spending: A) consumption, investment, government spending, and net exports. B) consumption, government spending, transfer payments, and net exports. C) consumption, income, government spending, and net exports. D) consumption, savings, investment, and government spending.

exchange rate

The foreign ___________ ___________ is the price of one currency in terms of another.

Factor market

The households are the sellers. They sell resources such as labor, land, capital, and entrepreneurial ability. Businesses are the buyers in factor markets. Business expenditures represent receipts or, more simply, income for households

The income approach to measuring GDP A) excludes durable consumer goods since they last more than a year. B) excludes profits since profits are a cost of production. C) adds the dollar value of final goods and services. D) adds the income received by all factors of production.

We often use real GDP per capita as a measure of a country's well-being. Review the definition of real GDP per capita before answering the following question. Today, the typical American works fewer than 40 hours per week. In 1890, the typical American worked 60 hours per week. Would the difference between the real GDP per capita in 1890 and the real GDP per capita today understate or overstate the difference in the population's economic well-being?

The increase in real GDP per capita between 1890 and today understates well-being because the value of leisure is not included in GDP.

Foreign Exchange Rate

The price of one currency in terms of another

Foreign exchange rate

The price of one currency in terms of another

income

The receipt of payments is total _________. Businesses sell goods and services to households that pay for them.

Gross Domestic Income (GDI)

The sum of all income - wages, interest, rent, and profit - paid to the four factors of production: Wages Interest Rent Profits

Consider the following table:

The table in the original problem shows 2009 as the base year. The problem requires the base year to be changed to 2007. Thus, the Price Index of the year 2009 has to be recalculated assuming that 2007 is now the base year. Price index of 2009 when 2007 is the bast year = (Price index of 2009 when 2009 was the base year / Price index of 2007 when 2009 was the base year) * 100 or 100,000 / 97.337 * 100. Real GDP of the year 2009 in constant 2007 dollars = (Nominal GDP of 2009 / Price index of 2009 with 2007 as the bast year) * 100, or 14,418.7 / 102.736 Use the same strategy for all of the years in the table below. (2007, 2009, 2011, 2013, 2015, 2017) (Price Index (Base year 2007) and Real GDP (billions of dollars per year, in constant 2007 dollars)) Price Index: 100.000, 102.736, 106.137, 109.851, 112.769, 115.819. Real GDP: 14,477.6, 14,034.7, 14,620.6, 15,168.9, 15906.7, 16,680.3.

Gross Domestic Product (GDP)

The total market value of all final goods and services produced during a year by factors of production located within a nation's boarders

What best describes a nation's Gross Domestic Product?

The total market value of all final goods and services produced in the economy during a year

Gross output

The total market value of all goods and services produced during a year by factors of production located within a national boarder

National Income (NI)

The total of all factor payments to resource owners Can be obtained from net domestic product (NDP) by subtracting indirect business taxes and transfers and adding net US income earned abroad and other business income adjustments

Nonimcome Tax Expense

The total of indirect business taxes and depreciation

Nominal values

The values of variables such as GDP and investment expressed in current dollars , also called money values; measurement in terms of the actual market prices at which goods and services are sold

Nominal Values

The values of variables such as GDP and investment expressed in current dollars Money values Measurement in terms of the actual market prices at which goods and services are sold

Total Income

The yearly amount earned by the nation's resources (factors of production) Total income therefore includes wages, rent, interest payments, and profits that are received by workers, landowners, capital owners, and entrepreneurs

Otherwise Legal Underground Transactions

Those that are legal but not reported and hence not taxed, such as paying housekeepers in cash that is not declared as income to the IRS

value added

To avoid double counting, we look only at final goods and services produced or, equivalently, at ___________ ___________.

100

To correct nominal GDP for price changes, we first select a base year for our price index and assign it the number ___________. Then we construct an index based on how a weighted average of prices has changed relative to that base year.

wages, interest, rent, profits

To derive GDP using the income approach, we add up all factor payments, including ___________, ___________, ___________, and ___________.

Starting from the value for disposable personal income (DPI), gross domestic product is calculated to be

To derive GDP, start with disposable personal income and add the following: personal income tax and nontax payments; corporate taxes, social security contributions, and corporate retained earnings; indirect business taxes; and depreciation. Then subtract government and business transfer payments.

indirect business taxes, depreciation

To get an accurate measure of GDP using the income approach, we must also add ___________ ___________ __________ and _________ to those total factor payments.

personal income

To obtain __________ __________, we must add government transfer payments, such as Social Security benefits and food stamps. We must subtract income earned but not received by factor owners, such as corporate retained earnings, Social Security contributions, and corporate income taxes.

national income

To obtain ___________ ___________, we subtract indirect business taxes and transfers from net domestic product and add other business income adjustments and net U.S. income earned abroad.

income taxes

To obtain disposable personal income, we subtract all personal ___________ ___________ from personal income. Disposable personal income is income that individuals actually have for consumption or saving.

depreciation

To obtain net domestic product (NDP), we subtract from GDP the year's _________ of the existing capital stock.

Net Exports (X)

Total exports - total imports

Product market

Transactions in which households buy goods, where households are the buyers and businesses are the sellers of consumer goods.

Price Transfer Payment

Transfer of funds from one individual to another

For a business, profit is a cost of production.

True

The dollar value of total output is always equal to total income.

True

To go from personal income to disposable personal income, personal income taxes must be subtracted.

True

True or False: Gross domestic income (GDI) is identical to gross domestic product (GDP).

True

True or False: The adjustment in exchange rate conversions that takes into account differences in the true cost of living across countries is known as purchasing power parity.

True

True or False: Total income is the annual cost of producing the entire output of final goods and services.

True

Total income is the annual cost of producing the entire output of final goods and services. In product markets,

True consumer goods and services flow to households and money flows to businesses.

National income is income earned by all U.S. factors of production.

True.

To go from personal income to disposable personal income, personal income taxes must be subtracted.

True.

We can divide the ___________ into real GDP to obtain per capita real GDP. population

We then divide each year's price index, so constructed, into its respective nominal GDP figure (and multiply by 100).

market

We value government expenditures at their cost because we usually do not have ___________ prices at which to value government goods and services.

When economists refer to investment expenditures, they mean the A) use of today's resources to expand tomorrow's production or consumption. B) purchase of a consumer nondurable goods. C) production of intermediate goods. D) purchase of stocks or bonds.

Business receipt

When households purchase goods and services

Why does inflation make nominal GDP a poor measure of the increase in total production from one year to the next?

When nominal GDP increases from year to year, the increase is due partly to changes in prices and partly to changes in quantities.

Which of the following best describes a nation's Gross Domestic Product? A) The market value of all goods and services produced in the economy, including intermediate goods B) The total market value of all final goods and services produced in the economy during a year C) The market value of all goods and services less depreciation D) The constant dollar value of all goods produced in the economy during a year period

Which of the following is included in Gross Domestic Product (GDP)? A) Private transfer payments B) The sale of used goods C) Government transfer payments D) The buying and selling of securities E) None of the above

Which of the following is included in Gross Domestic Product (GDP)? A) Sales of financial assets to foreign firms B) Purchases of stocks and bonds by individuals C) Purchases of stocks and bonds by firms D) Investment spending on capital goods

Which of the following statements is FALSE? A) Transfer of used goods are not included in Gross Domestic Product (GDP). B) Private transfer payments, such as an inheritance, are included in the Gross Domestic Product (GDP). C) If statisticians counted intermediate goods, the estimate of Gross Domestic Product (GDP) would be too high. D) Gross Domestic Product (GDP) measures the market value of final goods and services produced during a particular time period.

Which of the following statements is true about profits? A) Profits are excluded from the circular flow of the income diagram. B) The only portion of profits that are included in the circular flow diagram are the portion paid out in the form of dividends. C) Profits are considered a cost of doing business. D) Profits are considered one of the resources necessary for production.

Gross

Without deduction

Which equation represents the relationship between GDP and the four major expenditure components?

Y = C + I + G + NX

Year | Nominal GDP | Price Deflator | Real GDP 2000 - $3405.0 - 87.2 - ___ 2001 - ___ - 91.0 - $4146.2 2002 - 4038.7 - 94.4 - ___ 2003 - ___ - 96.9 - 4405.2 2004 - 4539.9 - ___ - 4539.9 2005 - 49.00.4 - 103.9 - ___ 2006 - ___ - 108.5 - 4839.4 2007 - 5222.2 - 113.1 - ___ 2008 - ___ - 117.8 - 4819.6 2009 - 5967.1 - ___ - 4923.6 2010 - 6158.8 - 122.9 - ___ Refer to the above table. The nominal GDP for 2008 is A) $4819.6. B) $4091.3. C) $5677.5. D) uncertain without more information.

Year | Nominal GDP | Price Deflator | Real GDP 2000 - $3405.0 - 87.2 - ___ 2001 - ___ - 91.0 - $4146.2 2002 - 4038.7 - 94.4 - ___ 2003 - ___ - 96.9 - 4405.2 2004 - 4539.9 - ___ - 4539.9 2005 - 49.00.4 - 103.9 - ___ 2006 - ___ - 108.5 - 4839.4 2007 - 5222.2 - 113.1 - ___ 2008 - ___ - 117.8 - 4819.6 2009 - 5967.1 - ___ - 4923.6 2010 - 6158.8 - 122.9 - ___ Refer to the above table. The value of the GDP deflator in 2009 is A) 122.9. B) 121.2. C) 122.1. D) uncertain without more information.

Gross domestic product

__________ __________ __________ is the total market value of final goods and services produced in an economy during a one-year period by factors of production within the nation's borders. It represents the dollar value of the flow of final production over a one-year period.

Producer durables or capital goods

a good that is purchased not to be consumed in its current form but to be used to make other goods and services.

Consider the following hypothetical data for the U.S. economy in 2020 (all amounts are in trillions of dollars) a. Based on the data above: (Enter your responses rounded to one decimal place.) Calculate GDP. $____ trillion Calculate NDP. $____ trillion Calculate NI. $____ trillion b. Suppose that in 2021, exports falll to $2.5 trillion, imports rise to $2.8 trillion, and gross private domestic investment falls to $2.5 trillion. Calculate GDP in 2021, assuming that other values do not change between 2020 and 2021. $____ trillion. (Enter your response rounded to one decimal place)

a. GDP: $15.4 trillion NDP: $14.1 trillion NI: $13.3 trillion b. GDP: $14.3 trillion GDP = Consumption + Gross Private Domestic Investment + Government Spending + Exports - Imports. Use the values given in the table to figure out GDP for 2020. NDP = GDP - Depreciation In order to calculate Net Domestic Product, depreciation for the capital stock has to be subtracted from the year's GDP. NI = NDP - Non income related taxes net of subsidies

Consider the following hypothetical data for the U.S. economy in 2020 (in trillions of dollars), and assume that there are no statistical discrepancies, zero net incomes earned abroad, and zero taxes on production and imports of net subsidies. a. Calculate the gross domestic income. $_____ trillion. (Enter your response rounded to one decimal place) Calculate GDP. $_____ trillion. (Enter your response rounded to one decimal place.) b. Calculate gross private domestic investment. $_____ trillion. (Enter your response rounded to one decimal place.) c. Based on the above information, calculate personal income $____ trillion (Enter your response rounded to one decimal place.)

a. $15.1 trillion, $15.1 trillion Gross Domestic Income = Rent + Wages + Profit + Interest + Nonincome expense items + Proprietorial income or = 0.6 + 8.3 + 2.8 + 0.9 + 1.7 + 0.8 = $15.1 trillion b. $0.2 trillion Gross Domestic Income = Gross Domestic Product or GDP using the above relationship, we can write that Gross Private Domestic Investment = GDP - Consumption - Government Spending - Exports + Imports = $15.1 - $13.5 - $1.8 - $1.4 + $1.8 = $0.2 trillion. c. $12.8 trillion Personal Income = ((Gross Domestic Income + Net Transfers and interest earnings - (Depreciation + Corporate Taxes + Social Security Contributions)) = $15.1 + $1.9 - ( $1.5 + $0.6 + $2.1)) = $12.8 trillion

Indicate which component of GDP will be affected by each of the following transactions involving the Ford Motor Company. a. You purchase a new Ford Escape Hybrid from a Ford dealer. b. You purchase a 2011 (preowned) Ford Escape Hybrid from a friend. c. Ford purchases door handles for the Escape from an auto parts manufacturer in Indiana. d. Ford produces 1,000 Escapes in a factory in Missouri and ships them to a car dealer in Shanghai, China. e. Ford purchases new machine tools to use in its Missouri Escape factory. f. The state of Missouri builds a new highway to help improve access to the Ford Escape plant.

a. Consumption Expenditure b. Not included in GDP calculation c. Not included in GDP calculation d. Net Export Expenditure e. Investment Expenditure f. Government Expenditure

Explain what happens to contributions to GDP in each of the following situations. a. A woman who makes a living charging for investment advice on her Internet Web site marries one of her clients, to whom she now provides advice at no charge. As a result of this, GDP _____________. b. A tennis player wins two top professional tournaments as an unpaid amateur, meaning the tournament sponsor does not have to pay out his share of prize money. As a result of this, GDP _______________. c. A company that had been selling used firearms illegally finally gets around to obtaining an operating license and performing background checks as specified by law prior to each gun sale. As a result of this, GDP _____________.

a. decreases b. remains unchanged c. remains unchanged (because the firearms are used)

Assuming that inflation has occurred over time, what is the relationship between nominal GDP and real GDP in each of the following situations? a. In years after the base year, nominal GDP is _______________ real GDP. b. In the base year, nominal GDP is _______________ real GDP. c. In years prior to the base year, nominal GDP is _______________ real GDP.

a. greater than b. equal to c. less than

When comparing per capita GDP across countries, GDP should be adjusted for A. purchasing power parity. B. the unemployment rate. C. foreign exchange rates. D. population.

a. purchasing power parity. Purchasing power parity refers to adjustments in exchange rate conversions that take into account differences in the true cost of living across countries.

The value added method of calculating GDP means adding up the difference between the sale price and the value of intermediate goods of each product at every stage of production. calculating the percentage changes in the GDP between two years. adding up the incomes of all businesses in a given year. adding up the market values of all intermediate goods.

adding up the difference between the sale price and the value of intermediate goods of each product at every stage of production.

The income approach to measuring GDP...

adds the income received by all factors of production.

Intermediate goods are goods that are used up entirely in the production of final goods. As such, intermediate goods...

are excluded in calculating Gross Domestic Product (GDP) because to do so would be to double count them.

Which of the following equations is used to calculate gross domestic income (GDI)? a. wages + interest + rent + profit + indirect business taxes - depreciation = GDI b. wages + interest + rent + profit - indirect business taxes -depreciation = GDI c. wages + interest + rent + profit + indirect business taxes + depreciation = GDI d. wages + interest + rent + profit = GDI

c. wages + interest + rent + profit + indirect business taxes + depreciation = GDI

Real GDP is computed by adjusting nominal GDP for

changes in the price level.

The biggest component of GDP using the expenditure approach is ____________ and the biggest component of GDP using the income approach is _____________.

consumer expenditures; wages

The expenditure approach to deriving gross domestic product sums the following categories of spending:

consumption, investment, government spending, and net exports

To derive GDP using the expenditure approach, which of the following components are added togehter?

consumption expenditures, gross private domestic investment, government expenditures, and net exports

Gross domestic product is the sum of

consumption spending, gross private domestic investment, government spending and net exports.

Depreciation

decrease in value due to wear and tear, decay, decline in price,

Non-income expense items included in the Gross Domestic Product (GDP) calculation and not National Income include...

depreciation and indirect business taxes

Suppose Social Security contributions rise by $1 billion while Social Security benefits also rise by $1 billion. Further, personal income taxes fall by $500 million. As a result...

disposable income should increase while personal income and national income are unchanged

Suppose social security contributions rise by $1 billion while social security benefits also rise by $1 billion. Further, personal income taxes fall by $500 million. As a result,

disposable income should increase while personal income and national income are unchanged.

As households or as individuals, we spend our income through consumption expenditure (C), which falls into three categories:

durable consumer goods, nondurable consumer goods, and services.

Statisticians often calculate relative GDP by adding up each country's GDP in its local currency and dividing by the dollar ______________. Because not all goods and services are bought and sold in the world market, however, we must correct exchange rate conversions of other countries' GDP figures to take into account differences in the true __________________ across countries.

exchange rate; cost of living

Which of the following are production activities that are included in GDP? Which are not? a. Mr. King performs the service of painting his own house instead of paying someone else to do it. This activity is____________ in GDP b.Mr. King paints houses for a living. This activity is________ in GDP c. Mrs.. King earns income from parents by taking baby photos in her home photography studio. This activity is__________ in GDP. d. Mrs. King takes photos of planets and stars as part of her astronomy hobby. This activity is_________ in GDP. e. E*Trade charges fees to process Internet orders for stock trades.This activity is___________ in GDP

excluded included included excluded

Which of the following activities of a computer manufacturer during the current year are included in this year's measure of GDP a. The manufacturer purchases a chip in June. This activity is ___________ in GDP.

excluded (because it's an intermediate good)

The___________ approach to measuring GDP requires that we add up consumption expenditures, gross private investment, government purchases, and net exports. Consumption expenditures include consumer___________, consumer___________ and ______________ services. To derive GSP using the income approach, we add up all factor payments including __________ , ___________ , ___________ , and ___________. To get an accurate measure of GDP using the income approach, we must also add ___________ and _________ to those total factor payments

expenditure durbales nondurables services wages profit interest rent indirect business taxes deprecation

In the circular flow model of income and output, households sell ▼ services to businesses that pay for those services. The receipt of payments is total ▼ . Businesses sell goods and services to households that pay for them. The dollar value of total output is equal to the total monetary value of all ▼ The dollar value of final output must always equal total income. The variable that adjusts to make this so is known as ▼

factor income final profit

In the circular flow model of income and output, households sell ________ services to businesses that pay for those services. The receipt of payments is total _________. Businesses sell goods and services to households that pay for them.

factor; income

Personal income is the income received by households after personal income taxes are paid.

false

Intermediate goods

goods used up entirely in the production of final goods

Government Expenditures

government-produced goods were considered equal to their costs. For example, the value of a newly built road was considered equal to its construction cost for inclusion in GDP for the year it was built.

In the circular flow, ________ provide the factor services.

households

In the circular flow of income

households demand goods and services that are supplied by firms, while supplying resources that are demanded by firms.

EX foreign exchange rate

if British incomes per capita are, say, 39,760 pounds, that translates, at an exchange rate of $1.33 per pound, to $52,881

Mrs. King earns income from parents by taking baby photos in her home photography studio. This activity is _________ in GDP.

included

National Income (NI)

income earned by all U.S. factors of production

To get an accurate measure of GDP using the income approach, we must also add ____________________ and ________________ to those total factor payments.

indirect business taxes; depreciation

An example of an increase in gross private domestic investment spending that also increases Gross Domestic Product (GDP) is when

inventories of new cars accumulate on the lots of car dealers

Excluding indirect business taxes and depreciation, Gross Domestic Income (GDI) would equal GDP if there was no depreciation. is the sum of all income paid to the factors of production. never equals GDP. cannot be computed.

is the sum of all income paid to the factors of production.

Durable consumer goods are goods that...

last for more than three years

A purchasing power parity index would help you...

make international comparisons of living standards

Services

mental or physical labor or assistance purchased by consumers (EX: medical care and education)

To obtain ▼ we subtract indirect business taxes and transfers from net domestic product and add other business income adjustments and net U.S. income earned abroad. To obtain ▼ we must add government transfer payments, such as Social Security benefits and food stamps. We must subtract income earned but not received by factor owners, such as corporate retained earnings, Social Security contributions, and corporate income taxes. To obtain disposable personal income, we subtract all personal ▼ from personal income. Disposable personal income is income that individuals actually have for consumption or saving.

national income personal income income taxes

Income earned by the factors of production is called national income. gross domestic income. personal income. disposable personal income.

national income.

The problem with using foreign exchange rates to convert one country's GDP into dollars is that

not all goods and services are sold on world markets.

Some countries have larger underground economies than do other countries, because

of government policies that are retarding economic growth.

Net net investment

our productive capacity is actually declining—we are disinvesting. This actually occurred during the Great Depression.

Per capita real GDP measures the amount of real GDP

per person

The income households actually receive before they pay personal income taxes is:

personal income.

An increase in corporate income taxes would reduce An increase in social security benefits will make

personal income. personal income larger.

The dollar value of final output must always equal total income. The variable that adjusts to make this so is known as _______.

profit

A firm produces a good and generates $5 million in receipts. Wages are $3 million, rent is $500,000, and interest payments are $1 million. Then...

profits are $500,000, the cost of production is $5 million, and households receive income equal to $5 million

Measuring total aggregate production in constant dollars uses which of the following measures? nominal gross domestic product nominal net domestic product real personal income real gross domestic product

real gross domestic product

How to calculate the foreign exchange rate into dollars

simply adding up each country's GDP in its local currency and dividing by the respective dollar exchange rate.

Total income equals the dollar value of total output because

spending by one group represents income to the other group.

In calculating GDP, which levels of government spending are included in government purchases?

spending by federal, state, and local governments

Indirect business taxes include all of the following EXCEPT...

taxes on corporate profits

Value added

the dollar value of an industry's sales minus the value of intermediate goods (for example raw material and part) used in a production

GDP excludes nonmarket production such as

the household services of homemakers.

If real GDP increases in any year, we know that

the output of goods and services produced this year has increased.

Total income is defined as the sum of the total receipts of firms less the amount of tax that must be paid. the total amount earned by all resource owners. the sum of the total receipts of firms and the amount earned by households. the total receipts of firms before taxes.

the total amount earned by all resource owners.

Expenditure

the total amount of money that a government or person spends

In the simple circular flow model, total income in the United States must equal...

the total monetary value of all final goods and services. wages + rents + interest + profits. the yearly amount earned by our nation's resources.

Total income

the total of all individuals' income includes a a payment for something, whether it be wages paid for labor services, rent paid for the use of land, interest paid for the use of capital, or profits paid to entrepreneurs.

Underground economy

the total value of expenditures on final goods and services not counted in official tabulations of a nation's aggregate volume of production during a given year

Capacity expansion

there is increased capital, which will generate even more income in the future.

Gross domestic product (GDP) is the

total market value of all final goods and services produced during a year by factors of production located within a nation's borders.

GDP

total market value of all final goods and services produced in an economy during a year

Gross domestic income (GDI) is identical to gross domestic product (GDP).

true

The adjustment in exchange rate conversions that takes into account differences in the true cost of living across countries is known as purchasing power parity.

true

The difference between real GDP and nominal GDP for the same year reflects the amount of inflation that occurred during that year.

true

A key limitation of using GDP to gauge the overall flow of economic activity occurs because of

underground transactions such as exchanges that people intentionally attempt to hide.

When economists refer to investment expenditures they mean the...

use of today's resources to expand tomorrow's production or consumption

The components of GDP using the income method (excluding indirect business taxes and depreciation) are...

wages, interest, rents, and profits

To derive GDP using the income approach, we add up all factor payments, including _______, ________, ______, and _______.

wages; profit; interest; rent

Which of the following equations is used to calculate gross domestic income (GDI)?

wages + interest + rent + profit + indirect business taxes + depreciation = GDI

In a simple economy with only businesses and households, suppose that the sum total of all the goods and services produced during the relevant period long dash —pairs of shoes, candy bars, digital devices, etc. all summed together long dash —is 420 420 trillion units. The total dollar value of this flow of output is $ 43 trillion. The total amount of factors of production long dash —labor, land, capital, entrepreneurship, all summed together long dash —is 0.5 billion units. What is the flow of income long dash —that is, the sum of wages, rents, interest, and profits? The flow of income long dash —the sum of wages, rents, interest and profits long dash —is

$45 trillion.

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Ch. 8: Measuring the Economy's Performance V2

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