chap 10

Question 1

microeconomics

Answer 1

the study of how individual households and firms make decisions, interact with one another in markets

Question 2

macroeconomics

Answer 2

the study of the economy as a whole

Question 3

how does the circular flow diagram illustrate GDP

Answer 3

as spending, revenue, factor payments and income

Question 4

factors of production

Answer 4

workers, inputs like labor, land, capital, and natural resources

Question 5

factor payments

Answer 5

are payments to the factors of production (wages, rent, etc)

Question 6

CFD - households

Answer 6

own the factors of production, sell/rent them to firms for income & buy and consume goods and services

Question 7

CFD - firms

Answer 7

buy/hire factors of production, use them to produce goods and services & sell goods and services

Question 8

Gross Domestic Product [GDP] (Y)

Answer 8

measures total income of everyone in the economy

also measures total expenditure on the economy’s output of g&s

Question 9

for GDP, income equals

Answer 9

expenditure

every dollar a buyer spends is income to the seller

Question 10

value added

Answer 10

the value of the firm’s output minus the value of the intermediate goods the firm used to produce that output

Question 11

GDP = the market value of

Answer 11

final goods, produced within a country in a given period of time

Question 12

components of GDP

Answer 12

consumption, investment, government spending, net exports

Question 13

consumption (C)

Answer 13

the value of all goods and services bought by households

Question 14

durable goods (consumption)

Answer 14

last a long time: cars, home appliances

Question 15

non-durable goods (consumption)

Answer 15

last a short time: food, clothing

Question 16

services (consumption)

Answer 16

work done for consumers: dry cleaning, air travel

Question 17

investment (I)

Answer 17

spending on the factor of production (new capital)

spending on good bought for future use

Question 18

business fixed investment (I)

Answer 18

spending on plant and equipment that firms will use to produce other g&s

Question 19

residential fixed investment (I)

Answer 19

spending on housing units by consumers and landlords

Question 20

inventory investment (I)

Answer 20

the change in the value of all firms inventories

Question 21

stock

Answer 21

a quantity measured at a point in time: person’s wealth

Question 22

flow

Answer 22

a quantity measure per unit time (flow): a person’s annual saving

Question 23

government spending (G)

Answer 23

all government spending on g&s

excludes transfer payments (unemployment payments) they do not represent spending on g&s

Question 24

net exports

Answer 24

NX = EX - IM

the value of total exports (EX) minus the value of total imports (IM)

Question 25

Y = (value of total output)

Answer 25

C + I + G + NX (aggregate expenditure)

Question 26

why? output = expenditure

Answer 26

output goes into inventory so it is investment | firms purchase unsold output

Question 27

goods are valued at their market prices, so:

Answer 27

all goods measured in the same units | things that don't have a market value are excluded: housework you do for yourself

Question 28

when are the good included in GDP produced

Answer 28

in the current year, not goods from the past

Question 29

Gross National Product (GNP)

Answer 29

total income earned by the nation's factors of production, regardless of where located

Question 30

GNP vs GDP?

Answer 30

GNP: nation's factors anywhere, only citizens of the country, anywhere in the world GDP: domestically-located, regardless of nationality, foreigners or citizens, on the countries land

Question 31

nominal GDP

Answer 31

values output using current prices, not corrected for inflation measured using current prices

Question 32

real GDP

Answer 32

values output using the prices of a base year, corrected for inflation measured using constant prices from a base year

Question 33

GDP deflator = (equation)

Answer 33

100 * (nominal GDP/real GDP)

Question 34

percent increase in GDP deflator can be used to measure

Answer 34

the economy's inflation rate

Question 35

real GDP per capita is the main indicator of

Answer 35

the average person's standard of living

Question 36

GDP does not include:

Answer 36

quality of environment, leisure time, non-market activity (child care a parent does for their own child), distribution of income