Chapter 7: Measuring the Wealth of Nations

Question 1

Define ‘Macroeconomics’.

Answer 1

The study of the economy on a regional, national, or international scale.

Question 2

Define ‘Gross domestic product (GDP)’.

Answer 2

The sum of the market values of all final goods and services produced within a country in a given period of time.

Question 3

Define ‘Gross national product (GNP)’.

Answer 3

The sum of the market values of all final goods and services produced plus capital owned by the residents of a country in a given period of time.

Question 4

Define ‘Consumption’.

Answer 4

Spending on goods and services by private individuals and households.

Question 5

Define ‘Investment’.

Answer 5

Spending on productive inputs, such as factories, machinery, and inventories.

Question 6

Define ‘Inventory’.

Answer 6

The stock of goods that a company produces now but does not sell immediately.

Question 7

Define ‘Government purchases’.

Answer 7

Spending on goods and services by all levels of government.

Question 8

Define ‘Net exports’.

Answer 8

Exports minus imports; the value of goods and services produced domestically and consumed abroad minus the value of goods and services produced abroad and consumed domestically.

Question 9

Define ‘Real GDP’.

Answer 9

GDP calculation in which goods and services are valued at constant prices.

Question 10

Define ‘Nominal GDP’.

Answer 10

GDP calculation in which goods and services are valued at current prices.

Question 11

Define ‘GDP deflator’.

Answer 11

A measure of the overall increase in prices in an economy, using the ratio between real and nominal GDP.
GDP deflator = nGDP/rGDP x100

Question 12

Define ‘GDP per capita’.

Answer 12

A country’s GDP divided by its population.

Question 13

Define ‘Recession’.

Answer 13

A period of significant economic decline.

Question 14

Define ‘Depression’.

Answer 14

A particularly severe or extended recession.

Question 15

Define ‘Green GDP’.

Answer 15

An alternative measure of GDP that subtracts the environmental costs of production from the positive outputs normally counted in GDP.

Question 16

GDP is usually calculated on an annual and quarterly (3 month, typically seasonally adjusted annual rate) basis; only ___ goods and services being produced within that time period are counted.

Answer 16

New.

Question 17

What are the 3 different ways that economists can think about the size of a national economy? (All equivalent)

Answer 17

1. How much is produced (output)
2. How much is spent (expenditures)
3. How much income is earned.

Question 18

What are the 3 different approaches that are used to calculate GDP? (All equivalent)

Answer 18

1. Expenditure: All spending on goods and services produced in an economy and subtracting spending on imports, Y = C + I + G + NX (exports-imports)
2. Income: Income of everyone in a country, Y = wages + interest + rental income + profits
3. Value-added: Valued added at ache stage of production

Question 19

How do you calculate inflation rate?

Answer 19

(deflator_current yr - deflator_previous yr) / deflator_previous yr x100

Question 20

To track changes in an economy over time, we can calculate the real GDP growth rate. How is it measured?

Answer 20

Measure as the % change in real GDP from 1 time period to the next, typically annually or quarterly at an annual rate.
GDP growth rate = (current yr - previous yr) / previous yr x100

Question 21

GDP is a rough measure of the average standard of living in a country, but does not tell us about the distribution of wealth. What are other limitations of GDP?

Answer 21

Its measurement of home production, the underground economy, environmental degradation, and well-being.