Ch. 5 - Measuring Nation's Income

Question 1

Macroeconomics is….

Answer 1

study of economy as a whole; economy wide phenomena; income vs. expenditure

Question 2

GDP is…

Answer 2

Gross Domestic Product; total income of everyone in the economy; income = expenditure b/c for every dollar spent is a dollar of income for the seller
-market value of all final goods and services produced w/i a country in a given period of time.

Question 3

Circular Flow Diagram shows the GDP as

Answer 3

spending, revenue, factor payments, and income

Question 4

Factor Payments are…

Answer 4

to the Factors of Production (labour land capital)

Question 5

Factors of Production are… (3)

Answer 5

labour, land, capital

Question 6

final goods are…. are not….

Answer 6

intended for the end user … not components in the production of other goods.

Question 7

GDP includes tangible goods (eg?) and intangible services (eg?)

Answer 7

1. DVDs, beer, etc

2. cell service, concerts, cleaning, etc

Question 8

T/F. Goods produced in the past are included in the current GDP.

Answer 8

False

Question 9

How often is GDP calculated? (usually 2 times)

Answer 9

Per year or per quarter (3 months)

Question 10

4 components of GDP are…

Answer 10

Consumption (c); investment (I); gov’t purchases (G); net exports (nx)

Question 11

GDP formula is…

Answer 11

y = c + i + g + nx

Question 12

Consumption is…

Answer 12

total spending by households on G+S

renters = rent; homeowners = input (rental value)

Question 13

Investment is…

Answer 13

total spending on goods to prod more goods in the future

-eg. equipment (tools), structures (factories), inventories (prod. but not sold)

Question 14

T/F investment includes purchase of stocks or bonds

Answer 14

false

Question 15

Gov’t Purchases is…

Answer 15

spending by all levels of gov’t (salaries, public works, etc)

Question 16

T/F. Gov’t purchases excludes CPP and elderly/employment/insurance benefits.

Answer 16

True

Question 17

Net Exports is…. (formula)

Answer 17

exports - imports

Question 18

exports are….

Answer 18

foreign spending on G+S here

Question 19

imports are….

Answer 19

portions of G, C, I spent on G+S abroad

Question 20

Which is corrected for inflation? Real or Nominal GDP?

Answer 20

real

Question 21

Nominal GDP is…

Answer 21

values output using current Price

-change reflects both P + Q

Question 22

Real GDP is…

Answer 22

output using P of a base year

-change only reflects Q (b/c essentially P is constant)

Question 23

GDP Deflator is…

Answer 23

measure of the overall level of Prices

Question 24

GDP Deflator formula is…

Answer 24

= 100 x (nominal GDP/real GDP)

Question 25

How do you measure an economy's inflation rate?

Answer 25

compute the % increase in GDP from year to year

Question 26

GDP + the economic well being is a perfect measure?

Answer 26

No.

Question 27

GDP is the main indicator of

Answer 27

average person's standard of living

Question 28

What doesn't GDP measure that affects ppl's well-being? (4)

Answer 28

1. environment quality 2. leisure time 3. parental care (non market activity) 4. equitable income distribution

Question 29

How does a high GDP help w/ living standards?

Answer 29

Brings in more money for gov't to spend on schools, environment etc.

Question 30

T/f. Life expectancy and literacy have -'ve correlations w/ GDP

Answer 30

False. Both positively correlate.