Ch 19 Princ Econ: Measuring Total Production and Income

question

business cycle

answer

- Fluctuations in economic activity, such as employment and production

question

economic expansion

answer

- the situation that occurs when an economy is growing and people are spending more money; their purchases stimulate the production of goods and services, which in turn stimulates employment

question

economic recession

answer

- A period of economic decline when demand for work is low or even stops.

question

Microeconomics

answer

the study of how households and firms make decisions and how they interact in markets, and how the government attempts to influence their choices

question

Macroeconomics

answer

- the study of economy-wide phenomena, including inflation, unemployment, and economic growth

question

Gross Domestic Product (GDP)

answer

- A measurement of the total goods and services produced within a country.

question

final goods and services

answer

- goods and services sold to the final, or end, user

question

intermediate goods and services

answer

- parts of other goods and services

question

example of an intermediate good

answer

- tires for a car

question

example of a final good

answer

- a car

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firms sell goods and services to three groups:

answer

- domestic households, foreign firms and households, and the government

question

Exports

answer

- Goods and Services sold to other countries

question

Factors of production

answer

- land, labor, capital, and entrepreneurial ability

question

Income is divided into four categories:

answer

- wages, interest, rent, and profit

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Firms and wages

answer

- firms pay wages to households in exchange for labor services

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firms and interest

answer

- firms use interest for the use of capital

question

firms and rent

answer

- firms rent for natural resources like land

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firms and profit

answer

- profit is the income that remains after a firm has paid wages, interest, and rent

question

transfer payments

answer

- payments by the government to households for which the government does not receive a new good or service in return

question

GDP is divided into four expenditure categories:

answer

- consumption
- investment
- government purchases
- net exports

question

Expenditures made by households are divided into three categories

answer

- expenditures on services
- expenditures on nondurable goods
- expenditures on durable goods

question

production and employment increase during _________

answer

- expansions

question

production and employment decrease during __________

answer

- recessions

question

inflation rate

answer

- the percentage increase in the price level from one year to the next

question

GDP is used to measure ________ _______

answer

- total production

question

GDP only includes

answer

- final goods

question

GDP also helps with measuring the value of total....

answer

- income

question

factors of production

answer

- land, labor, capital, entrepreneurship

question

Four ways that households use their income:

answer

- purchase domestic goods
- purchase imports
- pay taxes
- stocks or bonds

question

circular flow diagram

answer

- a visual model of the economy that shows how dollars flow through markets among households and firms

question

Why does the BEA divide its statistics on GDP expenditures into consumption, investment, government purchases, and net exports?

answer

- to understand why GDP fluctuates and to forecast future GDP

question

Expenditures are made by households and are divided into three categories:

answer

- services: education
- nondurable goods: food
- durable goods: automobiles

question

Spending on GDP investment is divided into three categories

answer

- Business fixed investment
- residential investment
- changes in business inventories

question

business fixed investment

answer

- business purchases of factories, offices, machinery, and equipment

question

residential investment

answer

- expenditures by households and firms on new houses and apartment buildings

question

changes in business inventories

answer

- changes in the stocks of goods that have been produced but not yet sold

question

government consumption and gross investment (G)

answer

expenditures by federal, state, and local governments for teachers, highways, and aircrafts

question

net exports

answer

- exports minus imports

question

Equation for GDP

answer

Y = C + I + G + NX

question

answer

- GDP

question

answer

- consumption

question

answer

- investment

question

answer

- purchases

question

answer

- net exports

question

Another way to calculate GDP

answer

- value added method

question

Value added

answer

- additional market value a firm gives to a product
- equal to the difference between the price for which the firm sells a good and the price it paid other firms for intermediate goods

question

What two types of production does the BEA not include when calculating GDP?

answer

- production in the home
- production in the underground economy

question

Production in the home

answer

- goods and services not bought ad sold in markets

question

underground economy

answer

- buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are illegal

question

GDP per capita

answer

- GDP divided by population

question

nominal GDP

answer

- the value of final goods and services evaluated at current-year prices

question

real GDP

answer

- GDP expressed in constant, or unchanging, prices

question

Holding prices constant means that

answer

- purchasing power of a dollar remains the same

question

price level

answer

- a measure of the average prices of goods and services in the economy

question

GDP Deflator (Price Level)

answer

- Nominal GDP/Real GDP x 100

question

national income accounting

answer

- the methods the BEA uses to track total production and total income in the economy

question

GNP (Gross National Product)

answer

- The value of goods and services produced by U.S. residents no matter where they live.

question

Consumption of fixed capital (depreciation)

answer

- Value of worn-out equipment and structures

question

Consumption of fixed capital MINUS GDP

answer

- national income

question

National income will always be

answer

- smaller than GDP by an equal amount to depreciation

question

personal income

answer

- income received by households

question

disposable personal income

answer

- The income households have available to spend on goods and services.

question

Gross domestic income

answer

- GDP calculated as the sum of income payments to households

1 of 63

question

business cycle

answer

- Fluctuations in economic activity, such as employment and production

question

economic expansion

answer

- the situation that occurs when an economy is growing and people are spending more money; their purchases stimulate the production of goods and services, which in turn stimulates employment

question

economic recession

answer

- A period of economic decline when demand for work is low or even stops.

question

Microeconomics

answer

the study of how households and firms make decisions and how they interact in markets, and how the government attempts to influence their choices

question

Macroeconomics

answer

- the study of economy-wide phenomena, including inflation, unemployment, and economic growth

question

Gross Domestic Product (GDP)

answer

- A measurement of the total goods and services produced within a country.

question

final goods and services

answer

- goods and services sold to the final, or end, user

question

intermediate goods and services

answer

- parts of other goods and services

question

example of an intermediate good

answer

- tires for a car

question

example of a final good

answer

- a car

question

firms sell goods and services to three groups:

answer

- domestic households, foreign firms and households, and the government

question

Exports

answer

- Goods and Services sold to other countries

question

Factors of production

answer

- land, labor, capital, and entrepreneurial ability

question

Income is divided into four categories:

answer

- wages, interest, rent, and profit

question

Firms and wages

answer

- firms pay wages to households in exchange for labor services

question

firms and interest

answer

- firms use interest for the use of capital

question

firms and rent

answer

- firms rent for natural resources like land

question

firms and profit

answer

- profit is the income that remains after a firm has paid wages, interest, and rent

question

transfer payments

answer

- payments by the government to households for which the government does not receive a new good or service in return

question

GDP is divided into four expenditure categories:

answer

- consumption
- investment
- government purchases
- net exports

question

Expenditures made by households are divided into three categories

answer

- expenditures on services
- expenditures on nondurable goods
- expenditures on durable goods

question

production and employment increase during _________

answer

- expansions

question

production and employment decrease during __________

answer

- recessions

question

inflation rate

answer

- the percentage increase in the price level from one year to the next

question

GDP is used to measure ________ _______

answer

- total production

question

GDP only includes

answer

- final goods

question

GDP also helps with measuring the value of total....

answer

- income

question

factors of production

answer

- land, labor, capital, entrepreneurship

question

Four ways that households use their income:

answer

- purchase domestic goods
- purchase imports
- pay taxes
- stocks or bonds

question

circular flow diagram

answer

- a visual model of the economy that shows how dollars flow through markets among households and firms

question

Why does the BEA divide its statistics on GDP expenditures into consumption, investment, government purchases, and net exports?

answer

- to understand why GDP fluctuates and to forecast future GDP

question

Expenditures are made by households and are divided into three categories:

answer

- services: education
- nondurable goods: food
- durable goods: automobiles

question

Spending on GDP investment is divided into three categories

answer

- Business fixed investment
- residential investment
- changes in business inventories

question

business fixed investment

answer

- business purchases of factories, offices, machinery, and equipment

question

residential investment

answer

- expenditures by households and firms on new houses and apartment buildings

question

changes in business inventories

answer

- changes in the stocks of goods that have been produced but not yet sold

question

government consumption and gross investment (G)

answer

expenditures by federal, state, and local governments for teachers, highways, and aircrafts

question

net exports

answer

- exports minus imports

question

Equation for GDP

answer

Y = C + I + G + NX

question

answer

- GDP

question

answer

- consumption

question

answer

- investment

question

answer

- purchases

question

answer

- net exports

question

Another way to calculate GDP

answer

- value added method

question

Value added

answer

- additional market value a firm gives to a product
- equal to the difference between the price for which the firm sells a good and the price it paid other firms for intermediate goods

question

What two types of production does the BEA not include when calculating GDP?

answer

- production in the home
- production in the underground economy

question

Production in the home

answer

- goods and services not bought ad sold in markets

question

underground economy

answer

- buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are illegal

question

GDP per capita

answer

- GDP divided by population

question

nominal GDP

answer

- the value of final goods and services evaluated at current-year prices

question

real GDP

answer

- GDP expressed in constant, or unchanging, prices

question

Holding prices constant means that

answer

- purchasing power of a dollar remains the same

question

price level

answer

- a measure of the average prices of goods and services in the economy

question

GDP Deflator (Price Level)

answer

- Nominal GDP/Real GDP x 100

question

national income accounting

answer

- the methods the BEA uses to track total production and total income in the economy

question

GNP (Gross National Product)

answer

- The value of goods and services produced by U.S. residents no matter where they live.

question

Consumption of fixed capital (depreciation)

answer

- Value of worn-out equipment and structures

question

Consumption of fixed capital MINUS GDP

answer

- national income

question

National income will always be

answer

- smaller than GDP by an equal amount to depreciation

question

personal income

answer

- income received by households

question

disposable personal income

answer

- The income households have available to spend on goods and services.

question

Gross domestic income

answer

- GDP calculated as the sum of income payments to households

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