Macro Economics 2021—Chapters 6&7
Which type of expenditure makes up more than 50% of U.S. GDP?
Personal consumption
Net exports
Xn
National ______ accounting measures the overall performance of the economy.
income
The short run in macroeconomics is the period in which:
input prices do not change at all or very much
Goods and services that are used up in the production of final goods:
intermediate goods
The distinction between an increase in output versus an increase in output per person can be made when discussing ______.
modern economic growth
Modern economic growth is best measured as an increase in ______.
output per person
In the short run, as a result of inflexible prices, economies are forced to respond to demand shocks primarily through changes in ______ and ______.
output; employment
Expectations have a large effect on economic growth, since increased _______ leads to less current investment and, subsequently, less future consumption.
pessimism
When demand shocks lead to recessions, it is mainly due to ____ ______
price inflexibility.
_______ transfer payments are excluded from GDP because they produce no output and are simply a transfer of funds from one private individual to another.
private
The biggest problem with inflation is that ______.
real income may fall as nominal wages do not keep up with price changes
Suppose the demand for cars rises and prices are flexible. Firms that produce cars will experience:
rising prices, an increase in production, and an increase in employment
The buying and selling of _______ is not included in GDP because it is just a matter of swapping bits of paper.
stocks
Because companies make major efforts to predict trends to decide how to invest in their business, macroeconomics ______.
takes into account expectations about the future
What is savings?
(income) - (consumption)
The term "shock"...
...Does not tell us whether what has happened is unexpectedly bad or unexpectedly good
Suppose that demand for hot dogs decreases and prices are flexible. Firms that produce hot dogs will experience...
...a fall in prices, which will induce them to decrease production and reduce the number of workers.
Nominal gross domestic product...
...can change when there is a change in either output or the price level.
The largest component of national income is...
...compensation of employees.
Under which economic condition do consumers have the most choice in what they spend their money on?
A steadily growing real GDP
The view of GDP as the sum of money spent on buying it:
Aggregate Expenditures Approach
Personal consumption expenditures
C
Income flow in the circular flow of domestic output and national income
Corporate Profits
True or false: High rates of unemployment are desirable because they indicate that a nation is using a large fraction of the talents and skills of its people.
False
Government purchases
G
Net Domestic Product (NDP)
GDP - consumption of fixed capital (depreciation)
expenditures approach
GDP=C+Ig+G+Xn
Gross private domestic investment expenditures
Ig
Viewing GDP in terms of earnings derived or created by producing something:
Income Approach
What enables economists to track the long-run course of the economy?
National Income Accounting
________ GDP or adjusted GDP is an important measure of output because it allows valid comparisons between different years.
Real
The buying and selling of stocks and bonds
Stock market transactions
In national income accounts, what does value added refer to?
The difference in the market value and cost of inputs purchased from other firms
True or False: Citizens living in the richest nations today have material standards of living that are on average more than 50 times higher than people living in the poorest countries.
True
True or False: If real GDP is 50 and nominal GDP is 100, the GDP price index is 200.
True
GDP price index:
a measure of the price of a specified collection of goods and services compared to the price of a highly similar collection of goods and services in a reference year.
What is a final good? a. A good directly consumed by individuals or businesses b. A good used only in the production of other products c. A good that is counted as part of GDP d. A good that is counted twice while calculating GDP
a. A good directly consumed by individuals or businesses & c. A good that is counted as part of GDP
Select all of the benefits of national income accounting. a. Assesses the health of the economy b. Enables formulation of policies to improve or safeguard the economy's health c. Tracks the long-run course of the economy d. Determines the appropriate level of government control
a. Assesses the health of the economy b. Enables formulation of policies to improve or safeguard the economy's health & c. Tracks the long-run course of the economy
Business cycle fluctuations typically arise because:
actual demand ends up being lower or higher than expected
The primary measure of the economy's performance is its annual total output of goods and services, which is called its ______.
aggregate output
Which of the following best defines unemployment? a. The state of a person without a job who is willing to work but not looking for a job b. The state of a person who cannot get a job but is actively seeking work c. The state of a person who does not have a job d. The state of a person who is not working and not actively seeking work.
b. The state of a person who cannot get a job but is actively seeking work
Government transfer payments include all of the following except: a. direct welfare payments to low-income households b. wage payments to police officers c. payments to the elderly from Social Security d. direct payments to veterans
b. wage payments to police officers
Why do economists collect and analyze economic data? Multiple select questions. a. To determine how much profit a company has made b. To calculate a person's income tax c. To learn how to improve the performance of economies d. To understand how economies operate
c. To learn how to improve the performance of economies & d. To understand how economies operate
Economists and policy makers encourage the growth of real GDP because a greater GDP generally ensures that ______.
consumers have greater consumption possibilities
Which of the following statements is true? a. Short-run economic fluctuations are made worse because prices are flexible. b. Short-run economic fluctuations would be less severe if prices were inflexible. c. If prices were fully inflexible, there would be no short-run economic fluctuations. d. If prices were fully flexible, there would be no short-run economic fluctuations
d. If prices were fully flexible, there would be no short-run economic fluctuations
A country's gross domestic product (GDP) is a measure of ______ produced within an economy during a specific period of time.
dollar value of all final goods and services
Because GDP is used by economists to compare dissimilar items using a common unit of measurement, the GDP is measured in ______.
dollars
To understand how economies operate and how their performance can be improved, economists collect and analyze _______ data.
ecomomic
_________ about the future are particularly important for firms to consider.
expectations
When demand is unexpectedly high, inventories will _____ as the quantity demanded _______ the factory's optimal output.
fall; exceeds
Consumption goods, capital goods, and services purchased by their ultimate users are called ______ goods.
final
Prices that adjust very quickly are:
flexible prices
The principal source of savings is:
households
Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry's produced 12,000 large pepperoni pizzas (identical to last year's pizzas) but sold them for $10 each. Based on this information, we can conclude that Harry's production of large pepperoni pizzas
increased nominal GDP by $20,000.
Real GDP, unemployment, and _________ are the main statistics used by economists to assess the health of the economy.
inflation
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
In an economy that is experiencing a shrinking production capacity...
...depreciation exceeds gross investment.
Comparing market values over time has the...
...disadvantage that prices change over time.
Investment as defined by economists differs from investment as defined by the general public in that...
...economic investment refers to the purchase of machinery, whereas financial investment is the purchase of financial assets
Goods that are produced in a particular period but not sold in that period...
...end up in inventories
We measure gross domestic product by multiplying the quantities of goods by their prices because it allows us to...
...express the values of products in a common unit of measurement
Prices tend to be sticky because...
...firms are worried that frequent price changes would annoy consumers.
As a result of shocks and things not going to plan there are...
...fluctuations in output and employment.
When an economy's production capacity is expanding...
...gross domestic investment exceeds depreciation.
Firms try to predict future trends so that they can ...
...invest only in projects that are likely to succeed
Before the period of modern economic growth...
...rates of population growth virtually matched rates of output growth
Value added can be determined by...
...subtracting the purchase of intermediate products from the value of the sales of final products.
Macroeconomics is mostly focused on...
...the economy as a whole.