Chapter 4 Test Bank
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
