Chapter 6/Chapter 7

Question 1

National Income Accounting

Answer 1

A measure for national output and real GDP

Question 2

GDP

Answer 2

the market value of all final G/S produce in a year at the market price within a nation’s borders

Question 3

Three main factors national income accounting does

Answer 3

1. Evaluates the economic condition of the economy
2. Can compare national accounts over years
3. Provides a measurement to compare nations

Question 4

Final G/S

Answer 4

Are G/S being purchased for final use by the purchaser

Question 5

Intermediate G/S

Answer 5

G/S that are used in the production of final G/S

Question 6

Two major types of non-production transactions

Answer 6

1) Purely financial transactions
2) Second Sales

Question 7

Purely financial transaction

Answer 7

1) Public Transfer payments
ex: social security payments
2) Private Transfer payments-a transfer from one person to another
ex: money from your mom
3) Security Transactions-Buying and selling of stocks and bonds are not included in GDP.

Question 8

Why do new issued stocks and bonds indirectly effect GDP, while old stocks and bonds don’t

Answer 8

The sales of NEW stocks and bonds are indirectly in GDP, since money is taken from savers to businesses that spend the proceeds on capital goods. Those capital goods contribute to output. Whereas buying and selling old stocks and bonds is simply transferring ownership from one person to another.

Question 9

Personal Consumption Expenditures

Answer 9

Expenditures by households on final G/S with the exception of new housing.

Question 10

Gross Investment

Answer 10

Net investment + CCA (depreciation)

Question 11

Net Investment

Answer 11

Gross - CCA (depreciation)

Question 12

Depreciation (CCA)

Answer 12

Investment in replacement capital

Question 13

Relationship between Net Investment and Economic Growth

Answer 13

Net investment is positive the PPC shifts out
Net investment is negative the PPC shifts in
Net investment is zero the PPC remains the same

Question 14

Government purchases (G)

Answer 14

Includes all government spending on final G/S

Question 15

Net Exports (Xn)

Answer 15

Exports - Imports

Question 16

Nominal GDP

Answer 16

A measure of national output based on current prices of G/S. Doesn’t take into account inflation

Question 17

Real GDP

Answer 17

Measures output in constant prices (Eliminates the influence of price changes contained in nominal GDP)

Question 18

Implicit GDP Deflator

Answer 18

A measure of price changes across the economy that reflects all of the final G/S included in GDP/Measures inflation

Question 19

Consumer Price Index

Answer 19

Designed to measure the impact of price changes on the cost of the typical bundle of G/S purchased by households
1.Index number
2. What does the number mean
3.Change to percentage

Question 20

Producer Price Index

Answer 20

Measures the average price changes received by the producer

Question 21

COLA

Answer 21

Cost of living adjustments means that an increase in wages to match the rising cost of G/S

Question 22

Problems with GDP

Answer 22

1) Underground Economy: Many economic activities are not reported therefore not calculated.
2) Improved Product Quality: GDP doesn’t reflect product quality
3) Real GDP doesn’t include leisure time.
4) Must look at Real GDP person: The real GDP increases but, the population increases even more, causing the standard of living to decrease

Question 23

Exchange Rate

Answer 23

is the rate at which one country’s currency can be traded for another country’s currency

Question 24

Appreciation

Answer 24

when the value of one currency rises in value in relation to another currency

Question 25

Depreciation

Answer 25

when the value of one currency falls in value in relation to another currency

Question 26

Three things Financial Statements do

Answer 26

1) Summarize financial performance
2) Measure the achievement of goals
3) Provide feedback for financial planning

Question 27

Balance Sheet
Three components

Answer 27

determines your financial position at a point in time
1) Assets-items that are owned and that have a market value
2) Liabilities-bills and other obligations owed to creditors
3) Net worth-Total Assets - Total Liabilities

Question 28

Current Liabilities
Two types of them

Answer 28

Is any debt that must be paid within one year
1) Unpaid bills
2) Portions of installments that are due within one year

Question 29

Assets
Three main categories

Answer 29

Assets are things you own that have market value
1) Liquid Assets: Cash or other asset that can be easily converted to cash
2) Life-style assets: Assets that depreciate quickly in value, and help you achieve a certain life-style
3) Investment assets: Purchased for the purpose of increasing your net worth over time

Question 30

Net Present Value

Answer 30

Is the sum of the discounted cash flows for an investment project