Week 2

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Question

Answer

The national income accounting system employed by the United States had its origins in the

1930s

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True or false: Prices serve as a measure of value for calculating total output.

True

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What does a nation's gross domestic product (GDP) reflect?

The total market value of all final goods and services produced within an economy in a given year

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The GDP for this economy is $? Price Output Pizzaz $15 50mil Laptops. $400. 10mil Yachts. $1mil 2000

6750 millions

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The output of the German-owned BMW plant in South Carolina is included in Germany's _____ and in the United States' _____.

GNP; GDP

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National income accounting is:

the measurement of aggregate economic activity, particularly national income and its components

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Per capita GDP is:

GDP divided by population

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serves as a measure of value for calculating total output of a product.

Price

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If GDP included unreported income, GDP would:

Increase

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The market 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

gross domestic product

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GDP excludes some market transactions (such as intermediate goods) because

including all transactions would overstate GDP

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True or false: Intermediate goods are included in the calculation of GDP.

False

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Gross______ product refers to output produced within a country's borders.

domestic

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A final good is:

a good directly consumed by individuals or businesses, directly counted as part of GDP.

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GDP per capita means:

GDP per person

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Suppose the physical output produced by an economy falls, yet higher prices give rise to an increase in measured GDP. In this case we can say that _____ GDP is higher and _____ GDP is lower.

Nominal; Real

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An example of unreported income is ______.

lawn care that is paid "off the books"

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Nominal GDP measures the value of all goods and services:

in current prices

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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

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When GDP is measured using "adjustments for price changes," it is known as:

eal GDP

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Goods and services that are purchased for resale or for further processing or manufacturing are called

intermediate

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Consumption goods and services purchased by their end consumers are called ______ goods.

Final

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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

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An increase in the average level of prices of goods and services is

Inflation

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Computing GDP using current prices gives us

Nominal GDP

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_________ GDP uses current prices while __________ GDP uses prices ad- justed for inflation.

Nominal; Real

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Instead of using the prices of a single base year to compute real GDP, the U.S. Department of Commerce uses price indexes that are said to be

chain-weighted.

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The value of capital used up in the production of goods and services is called

depreciation or GDP

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Net domestic product is ______.

GDP) − (depreciation)

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Real gross domestic product (GDP) is a measure of GDP that _____.

accounts for prices changes

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Gross investment is ______.

the total amount of investment purchases in a given time period

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The chain-weighted price indexes employed by the U.S. Department of Commerce to compute real GDP use a _____ average of price levels in consecutive years as an inflation adjustment.

Moving

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Net investment is:

what is left over from total new private investment after depreciation

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Society's answer to the core issue of WHAT to produce is answered by ______.

GDP

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Gross domestic product less depreciation equals ______.

net domestic product

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Investment goods consist of ______.

newly produced plants, machinery, and equipment

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rue or false: All final purchases of plant, machinery, and equipment in a given time period are included as gross investment.

True

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At present, government spending on goods and services claims roughly _____ of total U.S. output.

one-fifth

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Which of the following is equal to net investment?

Gross investment minus depreciation

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The distinction of imports from domestic-made goods is _____ to establish.

difficult

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The GDP identifies the mix of output a country has selected, which also answers the question of _______ to produce.

what

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Foreign goods purchased by American consumers, firms, or governments should be _____ GDP because the goods were produced outside the United States.

subtracted from

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Which of the following are components of the expenditure approach to measuring GDP?

Consumption, Government spending, Gross investment

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Investment currently claims about _____ of U.S. output.

one-sixth

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Suppose consumption is $40b, imports are $3b, exports are $8b, government spending is $14b, and investment is $20b. Given this, GDP =

69 b Reason: C + I + G + (X − M) = $40 + $20 + $14 + $(3 − 8) = $69b.

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Government ____ include all federal, state, and local government outlays on final goods and services.

purchases, consumption, spending, expenditures, purchase, or expenditure

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GDP accounts have two sides. One side focuses on the demand side (called the ________ approach) and the other side focuses on the supply side (called the _______ approach).

expenditure, income

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Goods and services purchased from international sources are:

imports

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True or false: Calculating national income helps us understand FOR WHOM our output was produced.

true

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

produced outside but purchased inside

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Depreciation charges _____ GDP to the level of net domestic product (NDP).

reduce

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

final

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Suppose consumption is $100b, imports are $20b, exports are $10b, government spending is $40b, and investment is $60b. Given this, GDP =

190 C+ I + G + (X − M) = $100 + $60 + $40 + ($10 − $20) = $190 billion.

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American-owned factors of production employed in other nations creates an _____ of income for U.S. households.

Inflow

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GDP can be measured using the _____ approach, which adds the items that make up national earnings on the supply side.

income

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Which of the following is added to or subtracted from national income to arrive at personal income?

Transfer payments, Capital income, Indirect business taxes, Corporate profits

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The income created when GDP is produced is called:

national income

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If households have paid $1,400 billion in personal taxes from a personal income of $6,200 billion, then disposable income will be

4800

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The reimbursement businesses receive for the wear and tear that occurs on the capital resources they own is called

depreciation

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The flow of income illustrates that:

the dollar value of output will always equal the dollar value of income

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The view of GDP as the sum of money spent on purchases is called:

the expenditure approach.

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