Chapter 7: Measuring Domestic Output and National Income

The following items comprise national income:

-American salaries earned abroad -interest -compensation of employees -proprietors' income -rents -taxes on production and imports -corporate profits

A final good is

-counted as a part of GDP -a good directly consumed by individuals or buisnesses

National income accountants subdivide corporate profits into which categories?

-dividends -corporate income taxes -undistributed corporate profits

Which of the following are two ways to adjust nominal GDP to reflect price changes?

-dividing nominal GDP by the price index of the current year -multiplying the current year's output by price of the output in the base year

Select all of the benefits of national income accounting

-enables formulation of policies to improve or safeguard the economy's health -tracks the long-run course of the economy -assesses the health of the economy

Which of the following are components of government purchases in GDP?

-expenditures for publicly owned capital -expenditures for goods and services that the government consumes in providing public services

Which of the following are part of taxes on production and imports?

-general sales taxes -excise taxes -custom duties -business property taxes -license fees

As a measurement of economic output and the nation's wealth, GDP fails to account for:

-improved product quality -non-market activities -the underground market -lesiure time

A price index:

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

What are the three categories of personal consumption expenditures?

-services -durable consumer goods -non-durable consumer goods

Private domestic investment includes:

-spending on new plant and equipment -construction of new housing -any increase in inventories

HIGHEST GDP'S (countries)

-united states -china -japan

The transfer of claims to existing capital goods creates new capital

FALSE

By ignoring the value of lesiure time, how does national income affect our well being?

It understates our well-being

In national income accounts, value added refers to:

The difference in the market value of a firm's output and the value of inputs purchased from other firms

Consumption of fixed capital is the __________________ charge made againist private and publicly owned capital each year.

depreciation

The estimate of how much of the capital is being used up each year is called

depreciation

The amount of income that households have left over after paying their personal taxes is:

disposable income

The after-tax profits that are distributed to stockholders are called ______________

dividends

All final purchases of machinery, equipment, and tools by business, enterprises, including construction, and changes in inventories make up gross private __________ investment.

domestic

The view of GDP as the sum of money spent on buying it is called the aggregate ____________________ approach

expenditure

The three domestic sectors of the economy are households, government, and ___________

firms

Net exports is equal to exports minus ____________

imports

National ____________ accounting measures the overall performance of the economy.

income

_____________ consists of the money paid by private buisness to the suppliers of loans used to purchase capital.

interest

Goods and services that are used up in the production of final goods are called _____________ goods.

intermediate

Economists compare the _________________ value of the total output in various years, rather than ___________ volumes of prodcution .

market, actual

Income earned through the use of American-owned resources for services and production is called:

national income

When gross investment is less than depreciation, net investment is _____________.

negative

in calculating gross private domestic investment a _____________ change in _____________ must be subtracted from total investment for that particular year.

negative, inventories

When dealing with international trade, economists include ______________ as a component of GDP.

net exports

The difference between the income Americans earn abroad and the income they earn in the United States is called ________ ____________ factor income.

net foreign

Transfer payments are not included in GDP because the generate +_________________

no output

The amount of income that households receive, whether earner or unearned, is called _________ income.

personal

The term that covers all expenditures by households is ________________ ____________________ expenditures.

personal consumption

The price of a market basket of goods in a specific year divided by the price of the same market basket of goods in the base year multiplied by 100 is called a:

price index

Imports must be subtracted from GDP because they are goods and services ___________ the borders of the United States.

produced outside

A country's exports are included in GDP when the goods and services are:

produced within the borders of said country

Government ____________, officially labeled "government consumption expenditures and gross investment," include all federal, state, and local government outlays on final goods.

purchases

undistributed corporate profits are called _____________ _________________.

retained earnings

Consumers are free to divide their income between consumption and ___________________.

savings

The __________ costs of negative gross domestic by-products reduce a nation's _____________ well-being

social, economic

After calculating national income, which of the following is added to national income to obtain GDP?

statistical discepancy and consumption of fixed capital

Viewing GDP in terms of earnings derived or created by producing something is called:

the income approach

GDP only counts final goods and services to avoid multiple counting of goods

true

Government transfer payments include all of the following except

wage payments to police officers (includes payments to elderly for social security, welfare, and payments to veterans)

The real-world, more complex GDP price index used in the United States is called the chain-type annual ____________ price index.

weights

When gross investment and depreciation are equal, the value of net investment is:

zero

The dollar value of all final goods and services produced within the borders of a given country during a given period of time is the definition of:

GDP, Gross Domestic Product

___________ market transactions are not included in measuring GDP as they just involve swapping bits of paper.

Stock

GDP reveals nothing about the way output is distributed

TRUE

In general, GDP does not include the value of unpaid work.

True

The primary measure of the economy's performance is its annual total output of goods and services, which is called its:

aggregate output

Wages, salaries and benefits paid by businesses and government to their workers are called employee _______________.

compensation

Which of the following is the largest component of national income?

compensation of employees by firms

Secondhand sales are excluded from the calculation of GDP because they

contribute nothing to current production