ECON 2301: Chapter 27 (Measuring Domestic Output and National Income)

gross private domestic investment (I_g)

(1) final purchases of plant, machinery, and equipment by business enterprises (2) residential construction (3) expenditures on the research and development (R&D) of new productive technologies (4) money spent on the creation of new works of art, music, writing, film, and software (5) changes in inventories

final goods and services

products that are purchased by their end (final) users

According to the World Bank Group, which three countries had the highest GDP in 2017? A) China B) United States C) Canada D) Japan E) Germany F) United Kingdom

A) China B) United States D) Japan

For the purposes of GDP accounting, what do government purchases include? A) purchase of new military equipment B) spending on highway construction C) social security payments D) unemployment insurance payments

A) purchase of new military equipment B) spending on highway construction

Which of the following are included in compensation of employees? A) wages and salaries B) payments by employers into social insurance for employees C) payments by employers into private pension plans for employees D) payments by employees into private pension plans

A) wage and salaries B) payments by employers into social insurance for employees C) payments by employers into private pension plans for employees

Which of these are components of government purchases in GDP? A) expenditures and government receipts that consist of transfer payments to house-holds B) expenditures for goods and services that the government consumes in providing public services C) expenditures for publicly owned capital D) expenditures for intermediate goods

B) expenditures for goods and services that the government consumes in providing public services C) expenditures for publicly owned capital

Which of these countries had the highest GDP in 2017? A) Germany B) France C) China D) Brazil

C) China

Which of the following is not an example of a personal consumption expenditure? A) restaurant meal B) television set C) clothing D) fighter jet

D) fighter jet

Which of the following measures the economy's overall performance? A) gross state product B) the stock market C) private accounting D) national income accounting

D) national income accounting

Government transfer payments include all of the following except __________. A) social security payments B) direct welfare payments C) direct payments to veterans D) wage payments to police officers

D) wage payments to police officers

nominal GDP

GDP based on prices that prevailed when output was produced; unadjusted GDP

real GDP

GDP that has been deflated or inflated to reflect changes in the price level; adjusted GDP

net domestic product (NDP)

NDP = GDP - consumption of fixed capital (depreciation)

In national income accounts, what does value added refer to?

The difference between the market value of a firm's output and the value of the inputs purchased by the firm

taxes on production and imports

account that includes general sales taxes, excise taxes, business property taxes, license fees, and customs duties.

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

aggregate output

disposable income (DI)

amount of income that households are free to dispose of (spend or save) after meeting their legal tax obligations DI = C + S

personal consumption expenditures (C)

consumption expenditures by households; covers all expenditures by households on goods and services

Gross domestic product calculations count only final goods and services because __________.

counting all intermediate goods and services would lead to double-counting of many activities

Gross rental income minus __________ of the rental property equals net rent.

depreciation

The amount of capital that is subtracted from an economy's gross amount of investment to calculate net investment is called __________.

depreciation

The estimated amount of capital that is being used each year is called __________.

depreciation

income approach

earnings or allocations approach; view GDP in terms of income derived or created from producing final goods and services

consumption of fixed capital

economy-wide amount of depreciation; accounts for capital that has been "consumed" in producing the year's GDP

The view of GDP as the sum of money spent on purchases is called the __________ approach.

expenditures

Which approach to GDP adds up all the spending on final goods and services that has taken place throughout the year?

expenditures approach

In order to determine GDP using the expenditures approach, all spending on __________ goods and services, not intermediate goods, is added up.

final

intermediate goods and services

goods and services purchased for resale or as inputs used to produce other products; excluded from the GDP

Net exports equals exports minus __________.

imports

personal income (PI)

includes all income received by households, whether earned or unearned

GDP can be measured using the __________ approach, which adds up all of the items that make up national earnings.

income

National __________ accounting measures the overall performance of the economy.

income

__________ income consists of the money paid by private businesses to the suppliers of loans used to purchase capital.

interest

Including the value of __________ goods along with the value of final goods in the calculation of GDP would amount to multiple counting of goods and distort GDP.

intermediate

value added

market value of a firm's output less the value of inputs the firm has bought

price index

measure of the price of a specific collection of goods and services (market basket) in a given year as compared to the price of an identical (or highly similar) collection of goods and services in a reference year.

Net private domestic investment

measures only the net additions to the economy's total stock of capital Net investment = gross investment - depreciation

National income accounting

measures the economy's overall performance

multiple counting

mistake of including the sales values of intermediate goods in GDP

What do economists use to calculate GDP under the income approach?

national income

The difference between the amount of goods sold abroad and goods that are purchased from abroad is known as __________.

net exports

Net exports

net exports = exports - imports

The view that GDP is the sum of money spent on buying final goods and services is called the aggregate __________ approach.

output

expenditures approach

output approach; view GDP as the sum of all the money spent buying final goods and services

The term that covers all expenditures by households on goods and services is known as __________ __________ expenditures.

personal consumption

base year

point of reference (benchmark) known as the base period; reference year

durable goods

products that have expected lives of 3 years or more

non-durable goods

products with less than 3 years of expected life

gross output (GO)

sums together the sales values received by firms at each state of production

Depreciation of capital is __________.

the annual amount allocated to wear and tear on private investment

gross domestic product (GDP)

the dollar value of all final goods and services produced within a country's border during a specific period of time, typically within a year or a quarter

national income

the total of all sources of private income (employee compensation, rents, interest, proprietors' income, and corporate profits) plus government revenue from taxes on production and imports; National income is all the income that flows to U.S. supplied resources, whether here or abroad, plus taxes on production and imports.

Aggregate output is the primary measure of the economy's __________.

total output of goods and services

Social security payments, welfare payments, and veterans' payments that the government makes directly to households are called government public __________ payments.

transfer

The market value of a firm's output minus the value of the inputs the firm has bought from others is called __________.

value added

services

work done by lawyers, hair stylists, doctors, mechanics, and other service providers