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Gross Domestic Product measures the...

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market value of the final goods and services produced in a given year with in a country

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How are final goods and services valued when measuring nominal GDP?

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at current market prices

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If you make dinner for yourself...

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only the market value of ingredients that you purchased this year is added to GDP

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Which of the following is included in U.S. GDP? 1. The rental value of homes owned by citizens 2. the production of Suburban SUV's by GM plant in Mexico 3. Tickets sold by U2 for concerts held in the United States

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#1 and #3

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Which of the following is classified as a final good or service? 1. Tires bought by GM to put on new Tahoes 2. mustard bought by subway to put on its sub sandwiches 3. your purchase of online access to the Wall Street Journal

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#3 only

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What describes a final good?

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A final good is bought by its final consumer

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A restaurant buys fish to offer as a daily menu special. The purchase of the fish by the restaurant is...

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an intermediate good

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consumption expenditure includes spending

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by households

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investment is defined as the purchase of

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the purchase of new capital goods and additions to inventories

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When measuring GDP,

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the expenditure on goods and services by all levels of government are included

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net exports of goods and services is equal to the value of...

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exports minus the value of imports

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Gross Domestic Product equals

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Y=C+I+G+NX

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Last year in Candamica, consumption expenditure was $20 billion, government expenditure on goods and services was $7 billion, net exports of goods and services was $5 billion and investment was $2 billion hence, total expenditure was...

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$34 billion

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Undistributed profits ____counted as part of GDP because ___________.

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are, they are considered income paid to households and loaned back to firms

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total expenditure equals total income

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because firms pay out everything they receive as income to the factors of production

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in order to measure gross domestic product we can follow

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two approaches: the expenditure approach and the income approach

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the expenditure approach to measuring GDP is done by using data on only

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consumption expenditure, investment, government expenditure on goods and services, and net exports of goods and services

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the largest expenditure category in the United States is

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consumption expenditure

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the value of used goods ____ counted as part of GDP_______.

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are not; because they were counted during the period when they were counted as new goods.

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Spending on financial assets ______counted as part of GDP_________.

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are not; because their purchase is not spending on goods or services

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The income approach to measuring GDP is based on...

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summing wages, interest, rent, and profits

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according to the income approach to measuring GDP, the largest income category is

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wages

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adding wages, interest, rent, and profits yields

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net domestic product at factor cost

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after calculating net domestic product at factor cost, to calculate GDP using the income approach in part we must add

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indirect taxes and depreciation

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GDP equals...

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Wages + IRP (interest, rent, profit) + indirect taxes + depreciation

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Real GDP is the value of final goods and service produced in a year

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expressed in the prices of a base year

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nominal GDP increases

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if either prices and or total production increases

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if real GDP is greater than nominal GDP for a particular year then...

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prices must have fallen between the current year and the base year

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GDP is

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an imperfect measure of the standard of living

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Although imperfect which of the following is used to measure the standard of living?

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real GDP/ person

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the business cycle describes

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the behavior of real GDP over time

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the relationship between real GDP and potential GDP over the business cycle can be best summarized by which of the following statements?

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Real GDP fluctuates around potential GDP

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a business cycle has two turning points which are the

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trough and peak

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a standard definition of recession is

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a decrease in GDP that lasts for at least six months

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a recession runs from the

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peak of the business cycle to its trough

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the U.S. economy is experiencing falling output, falling employment, falling incomes and rising unemployment. These conditions best describe a business cycle _______.

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Recession

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The NBER describes a recession as

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a period of significant decline in total output, income, employment and trade usually lasting from 6 months to a year

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which of the following describe the United States economy in 2008 and 2009?

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the economy was in a recession

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U.S. real GDP

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excludes the value of underground production and leisure time.

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As measured, GDP omits which of the following? 1. illegal sales of goods and services 3. changes in the amount of leisure time 3. household production of goods and services

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1, 2, & 3

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excluding household and underground production leads to

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underestimation of both real GDP and nominal GDP

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Goods and services such as environmental quality, leisure time, and household production are not included in GDP because they are not

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bought in markets

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babysitting services the oldest son provides for his parents

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does not count as real GDP nor nominal GDP

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pat gives up $40,000 per year job to stay at home and take care of the house. By doing so, Pat saves $15,000 in child care and house cleaning services which he now performs himself. The direct effect on GDP from Pat's decision is a decrease of...

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$55,000

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which of the following is likely to be an unreported economic activity

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tips paid to a taxi driver

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the calculation of GDP using the income approach excludes

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environmental quality

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The human development index was proposed because

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of the limitations of real GDP as a measure comparing the standard of living in different nations

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GDP handles household production by

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ignoring it

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a country with a real GDP per person similar to real GDP person in the United States but with limited political freedom is generally considered to have

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a lower standard of living then the United States

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Using the chained-dollar method to calcite real GDP, real GDP is calculated by...

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valuing the current output at last year's real GDP prices. OR valuing the current output at current years prices....it depends on which gives the larger value of real GDP

Foundations of Macroeconomics Ch.5 – Flashcards

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