Macro Economics Chapter 05 Power Point

Question 2

What is national income accounting?

Answer 2

•The system used to measure the aggregate income and expenditures for a nation

Question 3

Who was Simon Kuznets?

Answer 3

•He explained the first national accounting system, he is called the father of GDP

Question 4

What is gross domestic product?

Answer 4

•GDP is the most widely reported measure of a nation’s economic performance

Question 5

What does GDP measure?

Answer 5

•The market value of all final goods and services produced in a nation during a period of time, usually a year

Question 6

What is an advantage of using GDP?

Answer 6

•GDP measures value using dollars, rather than a list of the number of goods and services

Question 7

Does GDP measure secondhand transactions?

Answer 7

•No, current GDP does not include the sale of a used car or the sale of a home constructed some years ago

Question 8

Does GDP measure nonproductive financial transactions?

Answer 8

•No, GDP does not count purely private or public financial transactions such as giving gifts, stocks, bonds, or transfer payments

Question 9

What is a transfer payment?

Answer 9

•A government payment to individuals, not in exchange for goods or services currently produced

Question 10

What are intermediate goods?

Answer 10

•Goods and services used as inputs for production of final goods

Question 11

Does GDP count intermediate goods?

Answer 11

•No, to avoid double counting, GDP only measures final goods and services

Question 12

What are final goods?

Answer 12

•Finished goods and services produced for the ultimate user

Question 13

Does GDP measure the whole economy?

Answer 13

•Yes, GDP includes markets for products, resources, consumers, workers, and businesses

Question 14

What is a circular flow model?

Answer 14

•A model that show us how all the pieces of the puzzle fit together. Business: “Factor Markets” through “factors of production” to “Businesses” through “supply” to “Product Markets” through “goods and services” to “Households”. Society: “Factor Markets” through “demand” to “Households” through “spending” to “Product Markets” through “demand” to “Business” though “factor payments” to “Factor Markets”

Question 15

What additional sectors does a complex circular flow model contain?

Answer 15

•Financial markets•Government•Foreign markets

Question 16

What is a flow?

Answer 16

•A rate of change in a quantity during a given time period

Question 17

What is a stock?

Answer 17

•A quantity measured at one point in time

Question 18

What are the two approaches we use to measure GDP?

Answer 18

•Expenditure•Income

Question 19

What is the expenditure approach?

Answer 19

•The national income accounting method that measures GDP by adding all the spending for final goods and services

Question 20

What are the four sectors of GDP?

Answer 20

•Consumption•Investment•Government•Foreign (X - M)

Question 21

What is the income approach?

Answer 21

GDP = C + I + G + (X -M) •The method that measures GDP by adding all incomes

Question 22

What are the income components of GDP?

Answer 22

GDP = C + I + G + (X -M) GDP = compensation of employees + rents + profits + net interest + indirect taxes + depreciation

Question 23

What is compensation of employees?

Answer 23

•Income earned from wages, salaries, and certain supplements paid to labor

Question 24

What is rental income of persons?

Answer 24

•Rent and royalties received by property owners who permit others to use their assets

Question 25

What are two income categories?

Answer 25

•Proprietors’ income•Corporate profits

Question 26

What is proprietors’ income?

Answer 26

•All forms of income earned by unincorporated businesses

Question 27

What are corporate profits?

Answer 27

•All income earned by the stockholders of corporations regardless of whether stockholders receive it

Question 28

What is net interest?

Answer 28

•Interest earned from loans to businesses

Question 29

What are indirect business taxes?

Answer 29

•Taxes levied as a percentage of the prices of goods sold and therefore collected as part of the revenue received by firms

Question 30

What is depreciation?

Answer 30

•An allowance for the capital worn out producing GDP

Question 31

What are shortcomings of GDP?

Answer 31

•Nonmarket transactions•Distribution, kind, & quality of products•Neglect of leisure time•Underground economy•Economic bads

Question 32

What is a conclusion?

Answer 32

•GDP is a quantitative, rather than qualitative, measure of the output of goods and services

Question 33

What other national accounts measure economic performance?

Answer 33

•National Income•Personal Income•Disposable Personal Income•Nominal and Real GDP•GDP Chain Price Index

Question 34

What is national income?

Answer 34

•NI is the total earned by resource owners, including wages, rents, interest, and profits

Question 35

What is personal income?

Answer 35

•PI is the total income received by households that is available for consumption, saving, and payment of personal taxes

Question 36

What is disposable personal income?

Answer 36

•DI is the amount of income that households have to spend or save after payment of personal taxes

Question 37

What is nominal GDP?

Answer 37

•The value of all final goods based on the prices existing during the time period of production. Real GDP =nominal GDP x 100/ GDP chain price index

Question 38

What is real GDP?

Answer 38

•The value of all final goods produced during a given time period based on the prices existing in a selected base year. Real GDP =nominal GDP x 100/ GDP chain price index

Question 39

What is the chain price index?

Answer 39

•A measure that compares changes in the prices of all final goods during a given period to the prices of those goods in a base year. Real GDP =nominal GDP x 100/ GDP chain price index