Chapter 9

Question 1

How do free markets work to maximize the wealth of nations?

Answer 1

Through value creation.

Question 2

Some value is consumed quickly, some slowly, and some is?

Answer 2

Saved.

Question 3

All value that is created does what?

Answer 3

Benefits someone.

Question 4

Income is NOT the same as wealth, wealth is?

Answer 4

A stock. Your bank account balance plus the portion of your car that you own, plus the portion of your house that you own.

Question 5

Income?

Answer 5

A flow. How much your paycheck is.

Question 6

Income reflects value creation, while wealth reflects

Answer 6

Accumulated past value that has been saved.

Question 7

Each unit of a good or service is valued at?

Answer 7

Its price, not the amount of gain to society from its manufacture.

Question 8

Market price reflects?

Answer 8

Value and cost, though not as well as social gain.

Question 9

Final Goods

Answer 9

Those sold to a final user

Question 10

Intermediate Goods

Answer 10

Those not sold to a final user

Question 11

Gross Domestic Product (GDP)

Answer 11

Current market value of all final goods and services produced within the country’s borders in one year.

Question 12

How much was USA GDP in 2013?

Answer 12

Over 16.8T

Question 13

Are services of middlemen in selling used goods counted in GDP?y

Answer 13

Yes, but the actual good, such as a used car, is not.

Question 14

Transfer Payments

Answer 14

Taking from one person and giving to another, but not in return for any good or service. Not counted in GDP.

Question 15

Bads

Answer 15

Unwanted phenomena such as disease, crime, and garbage.

Question 16

Keynesian economics assert that bad may do what to GDP?

Answer 16

Increase it, because we pay to lessen their efforts.

Question 17

Expenditure Approach

Answer 17

Add up the current market values of all final goods and services.

Question 18

Income approach

Answer 18

Adds up all the payments to factors of production generated by production. This is the method the government uses.

Question 19

Though income and output are defined in different ways, are they equal?

Answer 19

Yes, they are equal

Question 20

Consumption

Answer 20

Spending by consumers on nondurable goods, durable goods, and services. Durable goods are those which last for at least a year.

Question 21

Investment

Answer 21

Spending by business on capital changes in business inventories, and spending on new residential housing. Does not mention stocks or bonds.

Question 22

Government purchases

Answer 22

Spending by all levels of government on goods and services. Transfer payments do not fit this definition.

Question 23

Net Exports

Answer 23

Exports - imports. Both make the economy better off.

Question 24

Real GDP

Answer 24

What GDP would be if prices had remained the same as they were in a base year.

Question 25

How big the US National debt?

Answer 25

About 17.8T, and GDP is about 17.3T

Question 26

Economic Growth

Answer 26

Percentage change in Real GDP. Best measure of whether an economy is getting better or worse.

Question 27

We only look at ____ in Real GDP.

Answer 27

growth rates; which are the same, no matter which base year is used

Question 28

Recession

Answer 28

Two quarters in a row of negative economic growth

Question 29

Through the data series, how long were we in recession?

Answer 29

9% of the time.

Question 30

If growth is over 3%, the economy is considered?

Answer 30

``` Strong. 2.5%-3% = Acceptable 2-2.5% = Weak 0-2% = Sick Less than 0% = Horrible ```

Question 31

Economic growth is not a cause of the inflation, it is?

Answer 31

A short run result of money growth

Question 32

In the 3rd quarter of 2014, the economy grew by?

Answer 32

4.9%, and 4 of the last 5 quarters have been strong.

Question 33

Business Cycle

Answer 33

Describes the ups and downs of the economy.

Question 34

Expansion

Answer 34

Increase in Real GDP.

Question 35

At the peak of the business cycle, Real GDP is at a?

Answer 35

Temporary high.

Question 36

Contraction

Answer 36

When Real GDP falls.

Question 37

At the trough of the business cycle, Real GDP is at a?

Answer 37

Temporary low.

Question 38

Recovery

Answer 38

As Real GDP grows from the trough

Question 39

Per Capita GDP

Answer 39

GDP divided by the population

Question 40

To look at growth in wellbeing over time in a single country, we use?

Answer 40

Real Per Capita GDP.

Question 41

Values are influenced by population growth, including?

Answer 41

Immigration.

Question 42

What does Per Capita GDP not take into account?

Answer 42

The distribution of income within a country.

Question 43

What is a major reason that incomes are higher in some countries than in others?

Answer 43

Greater economic freedom.

Question 44

In evaluating any measure of economic health,

Answer 44

both the level of economic achievement and also economic growth must be considered.

Question 45

Economic growth is not only rated to the level of economic freedom, but also to?

Answer 45

The change in economic freedom.