management exam 1 chapters 2, 5, 6, 7, 8

question

Sunk Cost

answer

a cost that has already been paid and cannot be recovered (economists correctly avoid it when making other decisions)

question

comparative advantage

answer

the ability to produce a good at a lower opportunity cost than another producer

question

absolute advantage

answer

the ability to produce a good using fewer inputs than another producer

question

linear graphs for production possibilities

answer

constant opportunity cost

question

market system

answer

households and firms make all economic decisions with minimal government regulation (Adam Smith "Invisible Hand")

question

market economy weakness

answer

-income is distributed unequally
(prices are determined by supply and demand, so people with skills in high demand usually earn more than people with skills in low demand)

question

command economy

answer

An economic system in which the government controls a country's economy.

question

command economy weaknesses

answer

- persistant shortages and surpluses
- many goods are available only through the black market

question

traditional economy

answer

An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.

question

traditional economy weaknesses

answer

- economy has a low growth rate
(but more equal distribute of wealth)

question

stock variables

answer

measured at a point in time (quantity of money, value of houses, capital stock)

question

flow variable

answer

a measure of something over an interval of time, such as your spending per week

question

leading economic indicators

answer

Variables that predict, or lead to, a recession or recovery; examples include consumer confidence, stock market prices, business investment, and big-ticket purchases, such automobiles and homes

question

Coincident Economic Indicators

answer

Variables that reflect peaks and troughs in economic activity as they occur; examples include employment, personal income, and industrial production

question

Lagging Economic Indicators

answer

variables that follow, or trail, changes in overall economic activity; examples include the interest rate and the average duration of unemployment

question

vertical axis of aggregated demand and supple curve measures

answer

an economy's price level (price index; compare it to last years price level)

question

supply side policy:

answer

- increases tax cut
- increases the supply of labor
- increases aggregated supply
- real GDP increases and price level decreases

question

Keynesian economics

answer

- increases tax cut
- increases consumption spending
- increases aggregated demand
- real GDP increases and price level increases

question

Gross Domestic Product (GDP)

answer

The Market Value of all final goods and services produced by resources in the Unites States in a given period of time, such as a year or a quarter

question

Graincorp, a U.S. agricultural company, produces corn syrup at a plant in Iowa on September 19, 2017. It sells the corn syrup to Crunchy's for use in the production of cereal that will be made in the United States in 2017

answer

Not included in GDP because the corn syrup is an intermediate good. The cost of the corn syrup will be included in the cost of the cereal, which is a final good and included in GDP.

question

An accountant starts a client's 2017 tax return on April 14, 2018, finishing it just before midnight on April 15, 2018.

answer

Not included. Because the accountant provides her services during 2018, the value of those services will be included in 2018 GDP, not 2017 GDP.

question

Consumption

answer

consists of expenditures by individuals on goods and services, such as the new video camera made in the United States that Deborah buys and the sweater that Carlos buys

question

Investment

answer

consists of spending on capital goods, household purchases of new housing, and (net) additions to inventories. Because Felix uses the tools in his plumbing business, that purchase is considered an investment.

question

government purchases

answer

consist of any purchase by a state, local, or federal government. Therefore, when the state of Pennsylvania repaves highway PA 320, that is considered part of government purchases.

question

New exports =

answer

Exports - Imports

question

GDP=
(expenditure approach)

answer

Consumption + Investment + Government Expenditures + Net Exports

question

Expenditure Approach to GDP

answer

computes the value of production by adding amounts spent on final goods and services by consumers, firms, and the government, then accounting for differences between exports and imports generated by trade with the rest of the world.

question

Income approach to GDP

answer

a method of calculating GDP by adding all payments for resources used to produce output in the nation during the year

question

1. Manuel pays Better Buy $1,100 to for a new high-definition television (HDTV) and its installation. He's attracted by Better Buy's guarantee that he'll be happy with the new HDTV, or he'll get his money back.
2. Better Buy pays Firedog $750 to install the HDTV.
3. Firedog buys hardware worth $100 from The Home Station.
which is included in calculating GDP using the expericure approach?

answer

1. The only final good is the HDTV

question

The contribution to GDP that you found using the expenditure approach corresponds to the sum of the_______________ at each stage of production.

answer

value added

question

aggregated demand

answer

the sum of consumption, investment, and government purchases, adjusted for net exports.

question

national income

answer

is divided into income accruing to households (disposable income) and to the government (net taxes).

question

the income and expenditure approaches to measuring GDP can be combined to form the

answer

circular flow model

question

Injections in the circular flow

answer

government spending, investment, exports

question

Leakages (CIRCULAR FLOW OF INCOME)

answer

savings, taxes, imports

question

domestic product

answer

is defined as the sum of consumption, investment, and government purchases, adjusted for net exports.

question

disposal income

answer

amount of money that consumers earn after paying taxes and receiving transfers. All of that money must go to either consumption or saving.

question

GDP does not include:

answer

quality, air + pollution, and household production (doing your own laundry)

question

GDP does include

answer

value of foreign components of US made goods (The components of an MP3 player that are produced in China)

question

price index

answer

a number that compares prices in one year with some earlier base year

question

Why do price indexes such as CSPI overstate inflation?

answer

it assumes that the quality doesn't change from year to year, that if the price of (textbooks)increases people buy used or choose to not buy any, and it doesnt account for new items on the market that consumers want to include.

question

GDP deflator

answer

a measure of the price level, calculated by dividing nominal GDP(current prices) by real GDP (value of all goods and services produced in the economy*using base year prices) base year prices) and multiplying by 100

question

CPI (Consumer Price Index)

answer

reflects only prices of all goods and services bought by the typical consumer

question

A decrease in the price of a Chinese-made car that is popular among U.S. consumers

answer

shows up in consumer price index because its bought by a typical consumers

question

Income Approach to GDP

answer

depreciation + indirect business taxes + employee compensation + proprietors income + corporate profits + net interest + rental income

question

national income (GDP)

answer

GDP - depreciation

question

personal income (GDP)

answer

national income + transfer payments and other income
- corporate profits and FICA contributions

1 of 47

question

Sunk Cost

answer

a cost that has already been paid and cannot be recovered (economists correctly avoid it when making other decisions)

question

comparative advantage

answer

the ability to produce a good at a lower opportunity cost than another producer

question

absolute advantage

answer

the ability to produce a good using fewer inputs than another producer

question

linear graphs for production possibilities

answer

constant opportunity cost

question

market system

answer

households and firms make all economic decisions with minimal government regulation (Adam Smith "Invisible Hand")

question

market economy weakness

answer

-income is distributed unequally
(prices are determined by supply and demand, so people with skills in high demand usually earn more than people with skills in low demand)

question

command economy

answer

An economic system in which the government controls a country's economy.

question

command economy weaknesses

answer

- persistant shortages and surpluses
- many goods are available only through the black market

question

traditional economy

answer

An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.

question

traditional economy weaknesses

answer

- economy has a low growth rate
(but more equal distribute of wealth)

question

stock variables

answer

measured at a point in time (quantity of money, value of houses, capital stock)

question

flow variable

answer

a measure of something over an interval of time, such as your spending per week

question

leading economic indicators

answer

Variables that predict, or lead to, a recession or recovery; examples include consumer confidence, stock market prices, business investment, and big-ticket purchases, such automobiles and homes

question

Coincident Economic Indicators

answer

Variables that reflect peaks and troughs in economic activity as they occur; examples include employment, personal income, and industrial production

question

Lagging Economic Indicators

answer

variables that follow, or trail, changes in overall economic activity; examples include the interest rate and the average duration of unemployment

question

vertical axis of aggregated demand and supple curve measures

answer

an economy's price level (price index; compare it to last years price level)

question

supply side policy:

answer

- increases tax cut
- increases the supply of labor
- increases aggregated supply
- real GDP increases and price level decreases

question

Keynesian economics

answer

- increases tax cut
- increases consumption spending
- increases aggregated demand
- real GDP increases and price level increases

question

Gross Domestic Product (GDP)

answer

The Market Value of all final goods and services produced by resources in the Unites States in a given period of time, such as a year or a quarter

question

answer

Not included in GDP because the corn syrup is an intermediate good. The cost of the corn syrup will be included in the cost of the cereal, which is a final good and included in GDP.

question

An accountant starts a client's 2017 tax return on April 14, 2018, finishing it just before midnight on April 15, 2018.

answer

Not included. Because the accountant provides her services during 2018, the value of those services will be included in 2018 GDP, not 2017 GDP.

question

Consumption

answer

consists of expenditures by individuals on goods and services, such as the new video camera made in the United States that Deborah buys and the sweater that Carlos buys

question

Investment

answer

question

government purchases

answer

consist of any purchase by a state, local, or federal government. Therefore, when the state of Pennsylvania repaves highway PA 320, that is considered part of government purchases.

question

New exports =

answer

Exports - Imports

question

GDP=
(expenditure approach)

answer

Consumption + Investment + Government Expenditures + Net Exports

question

Expenditure Approach to GDP

answer

question

Income approach to GDP

answer

a method of calculating GDP by adding all payments for resources used to produce output in the nation during the year

question

answer

1. The only final good is the HDTV

question

The contribution to GDP that you found using the expenditure approach corresponds to the sum of the_______________ at each stage of production.

answer

value added

question

aggregated demand

answer

the sum of consumption, investment, and government purchases, adjusted for net exports.

question

national income

answer

is divided into income accruing to households (disposable income) and to the government (net taxes).

question

the income and expenditure approaches to measuring GDP can be combined to form the

answer

circular flow model

question

Injections in the circular flow

answer

government spending, investment, exports

question

Leakages (CIRCULAR FLOW OF INCOME)

answer

savings, taxes, imports

question

domestic product

answer

is defined as the sum of consumption, investment, and government purchases, adjusted for net exports.

question

disposal income

answer

amount of money that consumers earn after paying taxes and receiving transfers. All of that money must go to either consumption or saving.

question

GDP does not include:

answer

quality, air + pollution, and household production (doing your own laundry)

question

GDP does include

answer

value of foreign components of US made goods (The components of an MP3 player that are produced in China)

question

price index

answer

a number that compares prices in one year with some earlier base year

question

Why do price indexes such as CSPI overstate inflation?

answer

question

GDP deflator

answer

question

CPI (Consumer Price Index)

answer

reflects only prices of all goods and services bought by the typical consumer

question

A decrease in the price of a Chinese-made car that is popular among U.S. consumers

answer

shows up in consumer price index because its bought by a typical consumers

question

Income Approach to GDP

answer

depreciation + indirect business taxes + employee compensation + proprietors income + corporate profits + net interest + rental income

question

national income (GDP)

answer

GDP - depreciation

question

personal income (GDP)

answer

national income + transfer payments and other income
- corporate profits and FICA contributions

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