Module 5 Flashcards Preview

Macroeconomics > Module 5 > Flashcards

Flashcards in Module 5 Deck (105)
Loading flashcards...

The difference between GDP and GNP is likely to be what?

1. Insignificant, if a lot of domestic workers find employment in other countries

2. Very small, if a large number of foreign companies are located in the country

3. Very large, if many foreign citizens are employed within a country

4. Very large, if nearly all of the country's citizens are employed within the country


Output produced by foreign citizens working with in a country is counted in GDP, but is not counted in GNP.


Which would be counted in GDP, but not in GNP?

1. Cars produced in a Japanese owned factory located in Detroit

2. Cell phones produced by a US firm located in Malaysia

3. Services provided by Canadian doctors treating US citizens in Canada

4. Financial services provided by the US consultant working in Italy


GDP includes the value of output produced by a foreign owned plant located within the US.


True or false. In the United States, gross domestic product (GDP) is currently the most widely used measure of total output.


News articles and reports about the US economy most often referred to GDP.


Dannon purchased plastic containers for $20,000 and fruit for $30,000, and then added $40,000 in value by producing individual yogurts. Based on this data, Dannon's activities caused GDP to increase by how much?






GDP includes the value of the final good, which includes the value added at each stage of production, or $20,000 plus $30,000 plus $40,000.


True or false. Most US output is produced by the government sector, including federal, state, and local government entities.


Government produce output is roughly 20% of GDP in the United States.


Consumption expenditures are divided into

1. Consumer durables, nondurables, and services

2. Fixed investment (plants and equipment), residential construction, and changes in inventory

3. Federal, state, and local levels

4. Exports and imports


Consumer durables are long-lasting items like refrigerators and washing machines. Consumer nondurables are items that have a very short life, like a loaf of bread or shirt. Examples of consumer services include haircuts and dining out.


True or false. Consumption expenditures refers to spending on goods but not services.


Consumption expenditure includes expenditures on consumer durables, nondurables,and services.


Gross private domestic expenditures include

1. Consumer durables, nondurables, and services

2. Exports and imports

3. Federal, state, and local levels

4. Fixed investments such as plant and equipment, residential construction, and changes


Investment occurs when someone starts a new business or grows an existing business. Investment activities include building factories or stores, purchasing equipment, and adding inventory. Residential construction is also counted as an investment.


True or false. If John uses his savings to purchase stock in Coca-Cola, he's making an investment expenditure as defined in the national income accounts.


Investment expenditure referred to the purchase of plant and equipment, residential construction, and changes in inventory.


True or false. The value of government expenditure included in GDP is smaller than the true amount spent by government, because it does not include transfer payments.



True or false. When net exports are negative, imports exceed exports.



Everything that is produced in a year must be purchased by

1. Households

2. Households, business, firms, the government, or foreign entities

3. Household or business firms

4. The foreign sector


The sum of spending by the four buying sectors is GDP.


Which is the correct formula for GDP?

1. GDP = C + I + G + X - M

2. GDP = C + I + G + X + M

3. GDP = C + I + G

4. GDP = C + I + G - X - M



If personal consumption expenditures equal $10,000, gross private domestic investment equals $2000, government purchases of goods and services equals $3000, exports equal $2200, and imports equal $2800, then GDP is equal to what?



True or false. A negative value for net exports causes GDP to increase.



Income earned by the resources, land, labor, capital, and entrepreneurship.

National income


The sum of rent, wages and salaries, interest, and profits.

National income


GDP minus depreciation.

Net national product (NNP)


True or false. In the process of producing GDP, income is generated.



GNP minus depreciation

NNP (Net national product)

GMP includes gross private domestic investment, but NLP includes net private domestic investment. The difference between gross and net private domestic investment is depreciation, or the value of capital that has been used up, worn out, or become obsolete.


The income earned by resources, consisting of wages, rent, interest, profit, and proprietors net income.

1. GDP

2. GNP

3. NI


Several adjustments have been made to convert GDP to NI and measure only income payments to resources.


Total market value of all final product produced within a country during a given period of time.

1. GDP

2. GNP

3. NNP


GDP is output produced on US soil and includes production by foreign owned businesses and foreign workers.


Total market value of all final products produced by a nations citizens during a given time period.

1. GDP

2. GNP

3. NNP


GNP is output produced by US resources, whether production happens in the United States or in a foreign country.


Income received by households.

Personal income


Income the household sector has left after taxes.

Disposable income


Which is not one of the major differences between NI and PI?

1. Depreciation of capital equipment

2. Transfer payments, such as unemployment benefits

3. Payments by workers and employers into the Social Security system

4. Corporate income taxes and undistributed corporate profits


Depreciation is the difference between GNP and NNP.


True or false. Disposable income is the income households earned before income taxes are deducted.


Disposable income is the income in the household sector has left after taxes. DI can be spent on consumption or saved.


True or false. The amount of income households receive is equal to the amount of income households earn.


PI is the amount of income households receive and NI is the amount of income households earn.


The flow out that occurs when resource income is received but not spent directly on purchases from domestic firms. Examples are saving, taxes, and purchases of imported goods.



The flow in that represents spending not paid for out of resource income. Examples are Business investment, government expenditures, and sales of exported goods.