Chapter 4 - MONITORING THE VALUE OF PRODUCTION

Question 1

GDP

Answer 1

as the total market value of all final goods and services produced within an economy (a country) in a given period of time (year).

Question 2

closed vs open economy

Answer 2

A closed economy is one that does not interact with other economies in the world. There are no exports, no imports, and no capital flows. An open economy is one that interacts freely with other economies around the world.

Question 3

how to find gdp

Answer 3

Y = C + I + G + ( X - M )
C: Consumer spending
I: Business investment
G: Government spending
(X-M): Net exports (exports minus imports)

Question 4

Measuring US GDP

Answer 4

The Expenditure Approach and The Income Approach

Question 5

The Expenditure Approach

Answer 5

measures the total amount of spending on goods and services that are produced within the domestic borders of the nation.

Question 6

The Income Approach

Answer 6

measures the total income that is earned by all the households in a nation.

Question 7

Nominal GDP

Answer 7

the total value of all goods and services produced in a given period of time, calculated using current market prices

Question 8

Real GDP

Answer 8

an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year

Question 9

how to calculate nominal gdp

Answer 9

GDP = C + I + G + (X-M)
C: Consumer spending
I: Business investment
G: Government spending
(X-M): Total net imports

Question 10

how to calculate real gdp

Answer 10

dividing nominal GDP by the GDP deflator (R). For example, if an economy’s prices have increased by 1% since the base year, the deflating number is 1.01. If nominal GDP was $1 million, then real GDP is calculated as $1,000,000 / 1.01, or $990,099.

Question 11

Standard of living over time (calculate real GDP per person in different years)

Answer 11

dividing the real GDP of each year by the corresponding population in that year

Question 12

phases of Business Cycle

Answer 12

Expansion: The economy expands, and economic activity increases. This phase is characterized by rising profits, output, wages, and consumer spending, as well as a decrease in unemployment.
Peak: The highest point of growth is reached.
Contraction: The economy slows down, and growth and output decrease.
Trough: The economy hits a low point, with supply and demand at their lowest.

Question 13

Limitations of GDP

Answer 13

The exclusion of non-market transactions. The failure to account for or represent the degree of income inequality in society.