Chapter 7: GDP and Real GDP

Question 0

Final Good

Answer 0

A good in the hands of its final user

Question 1

Gross Domestic Product

Answer 1

The total market value of all goods and services produced within a country during a specific time period.

Question 2

Intermediate Good

Answer 2

A good that is an input to the production of a final good.

Question 3

Double Counting

Answer 3

Counting a good more than once when computing GDP.

Question 4

Name 4 expenditure components

Answer 4

• Consumption
• Investment
• Government Purchases
• Net Exports

Question 5

Consumption

Answer 5

The sum of spending on durable goods, nondurable goods and services.

Question 6

Investment

Answer 6

The sum of all purchases or newly produced capital goods, changes in business inventories and purchases of new residential housing.

Question 7

Inventory investment

Answer 7

Changes in the stock of unsold goods.

Question 8

Fixed Investment

Answer 8

Business purchases of capital goods, such as machinery and factories and purchases of new residential housing.

Question 9

Government Purchases

Answer 9

Federal, stare and local government purchases of goods and services and gross investment in highways, bridges and so on.

Question 10

Government transfer payments

Answer 10

Payments to persons that are not made in return for currently supplied goods and services.

Question 11

Imports

Answer 11

Total domestic spending on foreign goods.

Question 12

Exports

Answer 12

Total foreign spending on domestic goods.

Question 13

Net Exports

Answer 13

Exports minus imports

Question 15

GDP =

Answer 15

C + I + G + (EX - IM)

Question 16

Two ways in which firms’ inventory investment can rise:

Answer 16

• Planned inventory investment

- Unplanned inventory investment

Question 17

Planned inventory investment

Answer 17

Firms may deliberately produce more units of a good and add them to inventory

Question 18

Unplanned inventory investment

Answer 18

Consumers don’t buy as many units of output as produced, and unsold units are added to inventory.

Question 19

National Income

Answer 19

Total income earned by citizens and businesses.

The sum of payments to resources.

Question 20

National Income =

Answer 20

Compensation to employees + proprietors’ income + Corporate profits + Rental income of persons + Net interest

Question 21

5 Components of national income

Answer 21

• Compensation of employees
• Proprietors’ income
• Corporate profits
• Rental income of persons
• Net interest

Question 22

Compensation of employees

Answer 22

Total of

• wages and salaries paid,
• employers’ contributions to Social Security and employee benefit plans,
• monetary value of fringe benefits, tips and paid vacations.

Question 23

Proprietors’ incom

Answer 23

Income earned by self-employed individuals and unincorporated business owners

(unInc. farms incl.).

Question 24

Corporate profits

Answer 24

Income earned by stockholders of corporations.
Includes:
- Dividends
- Retained income
- Corporate profit tax

Question 25

Net interest

Answer 25

Interest income received by households and governments minus interest payed.

Question 26

(Using National income) | GDP =

Answer 26

``` National income - Income earned from the rest of the world + Income earned by the rest of the world + Indirect business taxes + Capital consumption allowance + Statistical discrepancy ```

Question 27

Income earned from the rest of the world

Answer 27

Income that citizens living abroad earned by producing and selling goods.

Question 28

Income earned by the rest of the world

Answer 28

Income that non-citizens (foreigners) earned by producing and selling goods within the country-borders.

Question 29

3 Main indirect business taxes

Answer 29

- Excise taxes - Sales taxes - Property taxes

Question 30

Why are indirect business taxes not part of national income?

Answer 30

They are not considered a payment to any resource. | They can be considered monies collected by government, not payments to land, labor, capital or entrepreneurship.

Question 31

Why should indirect taxes be added when computing GDP from national income?

Answer 31

Indirect taxes are included in the purchases of goods and services and so are included when the expenditure approach is used to compute GDP.

Question 32

Capital Consumption Allowance (Depreciation)

Answer 32

The estimated amount of capital goods used up in production through natural wear, obsolescence and accidental destruction.

Question 33

The 5 measures for output produced in an economy

Answer 33

- Gross domestic product - National income - Net domestic product - Personal income - Disposable income

Question 34

Net Domestic product

Answer 34

GDP minus depreciation (capital consumption allowance)

Question 35

Personal Income

Answer 35

The amount that individuals actually receive.

Question 36

Personal Income equals

Answer 36

``` National income - undistributed corporate profits - social insurance taxes - corporate profits taxes + transfer payments ```

Question 37

Disposable income

Answer 37

The portion of personal income that can be used for consumption or saving.

Question 38

Disposable income equals

Answer 38

Personal income - personal taxes.

Question 39

Real GDP

Answer 39

The value of the entire output produced annually within a country's borders, adjusted for price changes.

Question 40

Real GDP =

Answer 40

∑ (Base-year prices x current-year quantities)

Question 41

Economic growth

Answer 41

Increases in Real GDP

Question 42

Business Cycle

Answer 42

Recurrent swings (up and down) in Real GDP

Question 43

Five phases in the business cycle

Answer 43

- Peak - Contraction - Trough - Recovery - Expansion

Question 44

Peak

Answer 44

Real GDP is at a temporary high.

Question 45

Contraction

Answer 45

The contraction phase represents a decline in Real GDP.

Question 46

Reccesion

Answer 46

Two consecutive quarter declines in Real GDP.

Question 47

Trough

Answer 47

The low point in Real GDP, just before it begins to turn up.

Question 48

Recovery

Answer 48

Real GDP is rising. It begins at the tough and ends at the initial peak.

Question 49

Expansion

Answer 49

Increases in Real GDP beyond the recovery.

Question 50

A business cycle measures from ____ to ____

Answer 50

peak to peak

Question 51

Typical business cycle length

Answer 51

four to five years.