ECON CH. 7

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

Disposable income

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

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

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

Social Security payment.

(Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is an increase in government spending, which of the following is likely to happen?

an increase in the nominal GDP

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

end up in inventory and are included in investment.

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

net exports.

Investment spending is spending on:

productive physical capital. (not bonds or stocks)

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

$630.

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

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

A price index:

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

Economists frequently use GDP per capita to reflect:

differences in living standards across countries.

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

growing income inequality.

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

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