Chapter 8 HW (Exam 2)
Unlock all answers in this set
Unlock answersquestion
In a circular flow of expenditure and income, why must the total value of production in an economy, equal the total value of income?
answer
Every penny spent on a good or service must end up as someone's income
question
Personal income is
answer
National income minus retained corporate earnings plus government transfer payments and interest on government bonds
question
[Related tot he Making the Connection] According to Dan Sichel, an economist at Wellesley College, the amount of times a singer spends working on a record album in a recording studio is "quite analogous to a factory investing in a new machine." Which of the following statements is correct?
answer
Song development time produces songs, similar to investment in a factory produces physical goods.
question
Which equation represents the relationship between GDP and the four major expenditure components?
answer
Y=C+I+G+NX
question
What are the four major components of expenditures in GDP?
answer
Consumption. Investment, Government Purchases, and Net Exports
question
Product/Quantity/Price Sweatshirt/50/$35 Dental Exams/40/$75 Coffee drinks/1000/$4 Coffee beans/2000/$0.50 Suppose that a simple economy produces only four goods and services: sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are used in the production of the coffee drinks. Using the information in the above table, nominal GDP for this simple economy equals
answer
$8,750
question
During a business cycle expansion, total production ___________ and total employment ___________.
answer
increases; increases
question
One major component of GDP that can be negative is
answer
Net exports
question
Which of the following goods is directly counted in GDP?
answer
a 12 inch Subway sandwich purchased by a student
question
Transfer payments are not included in GDP calculations because
answer
transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service
question
In an economy with rising prices, compared to the base year,
answer
nominal GDP is larger than real GDP in years after the base year
question
Real GDP is
answer
the value of goods and services evaluated at base year prices
question
Over time, prices may change relative to each other. To take this change into account, the Bureau of Economic Analysis calculates
answer
real GDP using chain weights
question
The difference between the price the firm sells a good for and the price the firm paid other firms for intermediate goods is called
answer
value added
question
All of the following are correct EXCEPT
answer
Gross domestic income does not include health insurance benefits received by the employees
question
Which component of gross domestic income is the largest?
answer
wages
question
Which of the following is not a durable good?
answer
clothing
question
To calculate personal income from national income, which of the following must the BEA do?
answer
add government transfer payments
question
The purchase of a new house is included in
answer
investment expenditures
question
Which of the following transactions is not counted in GDP?
answer
a consumer purchases illegal goods from street vendor
question
National income is
answer
GDP minus depreciation
question
In the circular flow model, the value of total income for an economy ____ the value of total production.
answer
equals
question
In calculating GDP, the Bureau of Economic Analysis uses the sum of the market value of final goods and services produced. This means that the BEA
answer
values goods and services at their market prices, multiples them by the quantity produced, and then adds them up.
