LectureNotes-Test1

Question 1

Define GDP

Answer 1

current market value of all final goods and services produced within nation’s borders during a specific time period, such as a year

Question 2

Describe microeconomics?

Answer 2

Microeconomics studies allocation of resources among competing alternatives.

Focuses on individual consumer.

Question 3

Describe macroeconomics

Answer 3

Macroeconomics studies behavior of whole (entire) economies.

Highly aggregated

All consumers

Question 4

Macroeconomics is the study of _______ and _______ of national ________ and policies that ________ use to affect economic __________ .

Answer 4

…study of structure and performance of national economies and policies that governments use to affect economic performance.

Question 5

_____ plays an important part in explaining ______ and _______ in the economy.

Answer 5

Money plays……in explaining inflation and growth…..

Question 6

Equation for Expenditure Approach

Answer 6

GDP=C+I+G+NE

• consumption spending
• investment spending
• government spending
• net export spending

Question 7

Consumption (C) component

Answer 7

• largest component of GDP
• accounts for approx. 2/3 (66%) of GDP
• derived by focusing on the expenditures of households and private, non-profit institutions

Question 8

Investment (I) component

Answer 8

• approx. 12% of GDP

* purchases by businesses for capital expenditures AND purchases of new houses

Question 9

Net Investment (In)=?

Answer 9

gross investment (Ig) - depreciation of capital (replacement of worn-out capital)

Question 10

Government (G) Spending component

Answer 10

• approx 9% of GDP
• spending by Fed, State, and local gov’t
• determined by looking at SPENDING incurred by the gov’t in providing services to public

Question 11

Net Export (NE) Spending

Answer 11

• approx 13% of GDP
• difference between export of G&S and import of G&S
• NE= X gs - IM gs