Macroeconomics Chapter 7 Learn Smart
Which of the following are types of private domestic investment expenditures?
- Spending on new plants and equipment - Newly produced housing - Any increase in inventories
Using the expenditure approach, which of the following most closely defines the composition of GDP?
C+Ig+G+X-M
If C represents consumption expenditure, Ig represents gross investment, In represents net investment, G represents government expenditure, Xn represents net exports, and Xg represents gross exports, GDP is
C+Ig+G+Xn
National income is the sum of compensation of employees, rents, interest, proprietors' income, taxes on production and imports, and ______.
Corporate profits
Retained earnings are a category of ______.
Corporate profits
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 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 __________ equals net rent.
Depreciation
Net domestic product (NDP) is equal to GDP minus _____.
Depreciation
Net domestic product is gross domestic product less ______.
Depreciation
The estimate of how much of the private capital equipment is being used up each year is called ______________.
Depreciation
The amount of income that households have left over after paying their personal taxes is ________ income.
Disposable
All the final purchases of plants, machinery, and equipment by business enterprises; residential construction; and changes in inventories make up gross private _________ investment.
Domestic
Gross __________ income includes all income earned from American-owned resources plus government revenue from taxes on production and imports.
Domestic
Under the income approach to GDP, the wages, salaries, and benefits paid by businesses and government fall under the category of compensation of
Employees
Goods that are produced in a particular period but not sold in that period __________.
End up in inventories and are included in investment
Which approach to GDP adds up all spending on final goods and services that has taken place throughout the year?
Expenditures approach
Which of these are components of government purchases in GDP?
Expenditures for goods and services that the government consumes in providing public services. Expenditures for publicly owned capital.
True or false: GDP is a perfect and complete measure of the well-being of a country.
False
True or false: In general, GDP includes unpaid work.
False
Household
Has an inflow of disposable income e and outflows of consumption spending and savings
Government
Has an inflow of revenue from various types of taxes and and an outflow of disbursements in the form of purchases and transfers
Business
Has inflows from three major sources of funds for investment and an outflow of investment expenditures
As a measurement of economic output and the nation's wealth, GDP fails to account for which of the following?
Improved product quality The underground economy Leisure time Nonmarket activities
GDP can be measured using the ______ approach, which adds up all of the items that make up national earnings.
Income
Nominal GDP is not an accurate measure of the real level of economic activity in a country because ____________.
Inflation distorts the real value of all goods and services produced.
The money paid by private business to the suppliers of loans used to purchase capital or money that households receive on savings accounts is called ______.
Interest
What creates a problem in using money to value GDP?
Interest
__________ income consists of the money paid by private businesses to the suppliers of loans used to purchase capital.
Interest
Which of the following items are calculated as part of national income?
Interest Compensation of employees Proprietors' income Corporate profits Rents Taxes on production and imports
Including the value of _______ (one word) goods along with the value of final goods in the calculation of GDP would amount to multiple counting of goods and distort GDP.
Intermediate
Which of the following is true of GDP as a measure?
It fails to capture the full value of improvements in product quality.
Which of the following statements are true of a price index?
It is expressed in terms of a base, or reference, year. It measures the price of a set of goods of services in a given year.
What happens to the size of the capitals stock when gross investment and depreciation are equal?
It stays the same.
Which of the following are part of taxes on production and imports?
License fees Customs duties General sales taxes Business property taxes Excise taxes
What are the two ways to adjust nominal GDP to reflect price changes?
Multiply the current year's output by price of the output in the base year. Divide nominal GDP by the price index.
Income earned through the use of American-owned resources for services and production is called ______ income.
National
Income earned through the use of American-owned resources for services and production is called _________ income.
National
Income earned through the use of American-owned resources for services and production is called __________ income.
National
All the income that is earned from American-owned resources is called ______.
National income
What do economists use to calculate GDP under the income approach?
National income
In calculating gross private domestic investment, a _________ change in __________ must be subtracted from the total investment for that particular year.
Negative;inventories
The income Americans gain from supplying resources abroad minus the income foreigners gain by supplying resources in the United States is called
Net foreign
The difference between the income Americans earn abroad and the income foreigners earn in the United States is called ______ income.
Net foreign factor
What is gross rental income minus depreciation of the rental property?
Net rent
Real GDP is equal to ______.
Nominal GDP divided by a price index (in hundredths).
The view that GDP is the sum of money spent on buying final goods and services is called the aggregate _______ approach.
Output
Which of the following are included in compensation of employees?
Payments by employers into social insurance for employees Wages and salaries Payments by employers into private pension plans for employees
What are reasons that the underground economy exists?
People want to avoid taxes. People are engaged in illegal activities.
All income received by households, whether earned or unearned, is called _________ income.
Personal
The amount of income that households receive, whether earned or unearned, is called ______ income.
Personal
The term that covers all expenditures by households on goods and services is known as _________ ___________ expenditures.
Personal (1), Consumption (2)
Which of the following are components of the expenditure approach to measuring GDP?
Personal consumption expenditures Government purchases Gross private domestic investment
Which are examples of negative gross domestic by-products?
Polluted water Congestion Noise
A(n) ___________ ____________ is a measure of a specified collection of goods and services in a given year as compared to the value of a highly similar collection of goods and services in a reference year.
Price index
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 ______.
Price index
Residential construction, R&D expenditures, and changes in inventories are all items in the category of gross ___________ domestic investment.
Private
What is the net income of sole proprietorships, partnerships and other unincorporated businesses?
Proprietor's income
_______ ________ consists of the net income of sole proprietorships, partnerships, and other unincorporated businesses
Proprietors' Income
GDP does not capture the full value of improvements in product quality because GDP is a(n) ________ instead of a qualitative measure.
Quantitative
In order to determine whether increases or decreases in nominal GDP are the result of changes in prices, changes in output, or some combination of those two factors, economists calculate ______ GDP.
Real
In order to determine whether increases or decreases in nominal GDP are the result of changes in prices, changes in output, or some combination of those two factors, economists calculate ________ GDP
Real
Nominal GDP divided by price index (in hundredths) equals ______.
Real GDP
What are noneconomic sources of well-being that are not considered in a country's GDP?
Reduction of crime Peaceful international relations Reduction of drug and alcohol abuse
Which of the following is counted as gross private domestic investment?
Residential construction
The ___________ (social/opportunity) costs of negative gross domestic by-products reduce a nation's economic well-being.
Social
More abundant leisure increases ______, but it ______ real GDP.
Social welfare; decreases
For the purposes of GDP accounting, what do government purchases include?
Spending on highway construction The purchase of new military equipment
True or false: GDP reveals nothing about the way output is distributed.
True
Which of the following are types of private domestic investment expenditures?
Spending on new plants and equipment Any increase in inventories Newly produced housing
Depreciation of capital is _______.
The annual amount allocated to wear and tear on private investment.
In national income accounts, what does value added refer to?
The difference in the market value and cost of inputs purchased from other firms.
One of the shortcomings of GDP is that it doesn't reveal anything about which of the following?
The distribution of output
The use of money as a common denominator to sum output into a meaningful measure of GDP creates a problem because ______ changes.
The value of money itself
True or false: When gross investment and depreciation are equal, the value of new investment is zero.
True
Which of the following are the domestic sectors of the U.S. economy?
U.S. businesses U.S. government U.S. households
By ignoring the value of leisure time, how does national income accounting affect our well-being?
Understates our well-being
National income accountants subdivide corporate profits into which categories?
Undistributed corporate profits Corporate income taxes Dividends
The market value of a firm's output minus the value of the inputs the firm has bought from others is called
Value added
The market value of a firm's output minus the value of the inputs the firm has bought from others is called ____________.
Value added
In order to construct a reliable price index, government accountants must assign a ______ to each of several categories of goods and services.
Weight
The real-world, more complex GDP price index used in the United States is called the chain-type annual ___________ price index.
Weights
Net private domestic investment is defined as ______________.
What is left over from total new private investment after depreciation
Gross domestic product (GDP) may be calculated as the sum of ______.
consumer spending, investment spending, government purchases of goods and services, and net exports
Which of the following is equal to net investment?
gross investment minus depreciation
Residential construction is counted as
gross private domestic investment
One of the flaws of GDP is that it ______.
ignores transactions that do not take place in organized markets
GDP may be understated because ______.
nonmarket activities are not included in GDP
Disposable income equals ______.
personal income minus personal taxes
The main reason to participate in the underground economy is to avoid ______.
reporting actual income and paying income taxes
The formula for calculating a price index is ______.
the price of a market basket in a specific year divided by the price of the same market basket in the base year multiplied by 100
