Chpater 4: Monitoring the Value of Production: GDP

Question 1

What is GDP?

Answer 1

The market value of all the final goods and services produced within a country in a given time period.

Question 2

Define a final good.

Answer 2

An item that is bought by its final user during a specified time period.

Question 3

Define an intermediate good.

Answer 3

An item that is produced by one firm, bought by another firm, and used as a component of a final good or service.

Question 4

What are the components of the economy as per the circular flow model?

Answer 4

• Firms
• Households
• Governments
• Rest of world

Question 5

What are the two types of aggregate economic markets?

Answer 5

• Goods markets (goods and services)
• Factors markets (productive resources)

Question 6

What does ‘Y’ represent in economic terms?

Answer 6

Income

Question 7

What does ‘C’ represent in economic terms?

Answer 7

Consumption expenditure

Question 8

What does ‘I’ represent in economic terms?

Answer 8

Investment

Question 9

What does ‘G’ represent in economic terms?

Answer 9

Government expenditure

Question 10

What does ‘X’ and ‘M’ represent in economic terms?

Answer 10

• X = Exports
• M = Imports

Question 11

What does ‘NX’ stand for?

Answer 11

Net exports = X - M

Question 12

What does the circular flow diagram illustrate about households?

Answer 12

• Sell factor services to firms and receive incomes = Y
• Spend C on goods and services

Question 13

What is the equation for total output in an economy?

Answer 13

Y = C + I + G + NX

Question 14

What are the two ways Statistics Canada measures GDP?

Answer 14

• Expenditure approach
• Income approach

Question 15

What is the expenditure approach equation for GDP?

Answer 15

Y = C + I + G + NX

Question 16

What is included in the income approach to GDP?

Answer 16

• Wages, salaries, and supplementary labour income
• Other factor incomes

Question 17

How is Net domestic income at market prices calculated?

Answer 17

Net domestic income at factor cost + Indirect taxes – Subsidies

Question 18

What is the difference between nominal GDP and real GDP?

Answer 18

• Nominal GDP: Valued at current prices
• Real GDP: Valued at constant prices

Question 19

What is potential GDP?

Answer 19

The maximum level of real GDP that can be produced while avoiding shortages.

Question 20

What is a business cycle?

Answer 20

The periodic but irregular up-and-down movement in economic activity.

Question 21

What are the two phases of a business cycle?

Answer 21

• Expansion
• Recession

Question 22

What is a recession?

Answer 22

A period during which real GDP decreases for at least two successive quarters.

Question 23

What is an expansion?

Answer 23

A period during which real GDP increases.

Question 24

What is the Lucas wedge?

Answer 24

The accumulated loss of output that results from a slowdown in the growth rate of real GDP per person.

Question 25

List some factors that influence the standard of living not included in GDP.

Answer 25

* Household production * Underground economic activity * Health and life expectancy * Leisure time * Environment quality * Political freedom and social justice

Question 26

What are the two special problems in international comparisons of economic welfare?

Answer 26

* Converting real GDP into the same currency units * Using the same prices to value goods and services

Question 27

How does purchasing power parity affect the comparison of U.S. and Chinese GDP?

Answer 27

U.S. real GDP per person is only 3.8 times that of China when adjusted for purchasing power.