A+ Test Prep Chp 23

nominal GDP divided by real GDP multiplied by 100.

T

value of all final goods and services produced by domestic residents of a country in a given period of time

$12 million

105

f

base-year prices and current quantities.

U.S. imports increase and so U.S. net exports decrease.

the first but not the second

f

$20,000

is included in GDP only if it is sold in the market.

B and A

U.S. consumption purchases increase by $10,000 and U.S. GDP increases by $10,000

not for the current production of goods and services. They are not included in GDP.

household purchases of newly constructed homes.

$4 million

is 1.5 times its original value.

market prices.

goods produced by Mexican citizens working in the United States

households spend all of their income but the government does not buy goods or services.

U.S. net factor payments from abroad are positive, and GNP is larger than GDP.

t

4 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP.

$9 billion.

f

67, and this indicates that the price level has decreased by 33 percent since the base year.

The 2014 sale affected neither 2014 GDP nor 2011 GDP.

2017

the amount she paid to buy gasoline and new parts, but not the value of her time.

U.S. investment and GDP increase by the same amount.

both unemployment benefits and social security payments

Both a new textbook and a haircut.

only when production of goods and services decreases. Real GDP uses prices from a base year, so real GDP reflects only changes in the production of goods and services.

$58.5 billion The GDP deflator = 100 X nominal GDP/real GDP. So 130 = 100 x nominal GDP/$45 billion. So 1.3 = nominal GDP/$45 billion and $58.5 = nominal GDP.

only the purchases of new houses GDP includes final goods and services. Incorrect. GDP includes final goods and services. Stocks and bonds are not final goods or services. Residential construction is included in the investment.

both U.S. consumption and U.S. imports The consumer purchases are part of U.S. consumption. They are also imports and so are subtracted out of GDP. Overall, U.S. GDP is unchanged.

Legal and medical services, and the value of such items is included in GDP. Intangibles are services and final services are included in GDP.

2014 2011 Real GDP = $1.50 x 50 + $2 x 75 = $225. 2012 Real GDP = $1.50 x 60 + $2 x 80 = $250. 2013 Real GDP = $1.50 x 50 + $2 x 120 = $315. 2014 Real GDP = $1.50 x 60 + $2 x 120 = $330.

It will adjust for seasonality and multiple by four. GDP is reported on a seasonally adjusted annual basis.

t.v

Gasoline, clothing, and food

GDP and expenditures both fell. GDP measures both income and expenditures so they must move in the same direction.

GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services. GDP equals both a nation's income and expenditures, income is the flow of wages, rents, and profits from firms to households, and GDP is generally regarded as the best single measure of a society's well-being.

five times the price of a pair of socks does to GDP. GDP adds up the price (market value) of goods and services.

The value of the goods and services produced by the coffeehouse is included in Portuguese GDP, but not in U.S. GDP. GDP includes production within a country whoever produces it.

both the surgical services and prescription drugs are included in GDP. Both goods and services are included in GDP.

equals the income of its residents. Gross domestic production measures income.

excluded from GDP because they do not reflect the economy's current production. Unemployment benefits are a type of government transfer payment. They do not represent a payment for current production of goods or services. So, they are excluded from GDP

Only the value of the new parts and paint. Only current production is included in GDP, so the value added by the new parts and paint and John's work is counted. The purchase of the car produced in the past is not.

True There are only these two markets.

not included in current GDP because GDP only measures the value of final goods and services produced in the current year. GDP only measures the value of final goods and services produced in the current year at market prices.

t GDP includes government purchases of goods and services. Transfer payments are not payments made for current production.

The federal government buys fighter jets, a state government repairs highways, a local government pays its police Government purchases include purchases of all final goods and services by all levels of government.

f Nominal GDP = (GDP Deflator x Real GDP)/100. An increase in real GDP makes nominal GDP higher, but a decrease in the GDP deflator makes nominal GDP lower. Without specific information it is not possible to tell if nominal GDP rose or fell.

purchases of new capital goods, but not purchases of stocks and bonds GDP includes final goods and services. Purchases of stocks and bonds are not expenditures on final goods or services. New capital goods such as business equipment and business structures are included in the investment component of GDP.

nominal GDP is $600, real GDP is $500, and the GDP deflator is 120 Nominal GDP uses current prices and quantities and so is 100 X $4.50 + 50 X $3.00 = $500. Real GDP uses base year prices and current quantities and so is 100 x $3.00 + 50 x $4.00 = $500. The GDP deflator is 100 x Nominal GDP/GDP Deflator = 100 x $600/$500 = 100 x 1.2 = 120.

t Changes in inventory are part of investment.

t Households receive these payments in return for the factors of production they supply to firms

exports minus imports which equals Y - C - I - G. Net exports equal exports - imports. Since Y = C + I + G + NX, Y - C - I - G = NX. So, NX = the difference between domestic production and an economy's expenditures.

B B represents payments made by households for goods and services.

$150,000 The apples sold to produce apple juice are an intermediate good, and so are not included separately in GDP.

the total income of everyone in the economy, and the total expenditure on the economy's output of goods and services. GDP equals both a nation's income and expenditure.

U.S. imports increase but U.S. exports are unchanged. U.S. purchases of foreign goods are U.S. imports. Stocks are not currently produced goods or services so purchases of them do not count as either exports or imports.

the unemployment rate rises and profits fall. Recessions are periods of reduced economic activity. Profits fall and unemployment rises.

included in U.S. GDP, but it is not included in U.S. GNP. U.S. GDP includes all production within a country, GNP includes production of U.S. citizens wherever they work.

False Consumer services are included in consumption and new home construction is included in investment.

Included in current period GDP as inventory investment. Changes in inventory are included in the investment component of GDP. The firm adding inventory is considered the final purchaser in that period.

both GDP and consumption spending will be higher. Pizza is a consumption good and is included in GDP.

either prices or quantities of goods and services must have risen. Nominal GDP is the dollar value of final goods and services produced within the economy, so it changes if either prices or quantities change.

excludes most goods and services produced at home and most goods and services produced illegally. GDP excludes some production that is difficult to measure. For example, the production of illegal drugs is not counted in GDP because the value of this production is difficult to measure. Similarly, common household chores, such as you dusting your house, are never recorded or reported and are thus excluded from GDP. For these reasons, GDP excludes most goods and services produced at home and most goods and services produced illegally.

$400 GDP is the market value of all final goods and services produced within a country

a positive contribution both to investment and to GDP. New capital goods such as business equipment and business structures are included in the investment component of GDP.

real GDP but not nominal GDP. Real GDP reflects changes in quantities. Nominal GDP reflects changes in prices and quantity.

Y and W Y identifies households and W identifies firms.

$408. Gross National Product equals Gross Domestic Product plus income earned by citizens abroad minus income foreigners earn in Urshek.

$18,000 GDP includes both rents and estimated rents of owner-occupied homes.

D D represents households obtaining goods and services from firms.

$25 The price paid includes the price of gasoline and John's time. Gas is an intermediate good, so its value is not included separately. Services, such as snow plowing, are included in GDP.

M M represents the supply of labor, land, and capital by households.

net factor payments from abroad are negative, and its GDP is larger than its GNP. Net factor payments from abroad equal income earned by Danish citizens abroad - income earned by foreign citizens in Denmark = -$200 million. GNP = GDP + net factor payments from abroad. So GDP exceeds GNP by $200 million.

the market value of all final goods and services produced within a country in a given period of time GDP is measured by the market value of all final goods and services produced within a country in a given period of time. This means that intermediate goods, goods produced in other countries or goods produced in other time periods are not included in GDP for the time period of interest.

$700 Y = C + I + G + NX so $9,000 = $5,400 + $1,800 + $2,000 + $500 - imports = $9,700 - imports. So, imports = $700

f Factors of production also include land and labor.

$7,500 Y = C + I + G + NX = $5,000 + $1,200 + $1,000 + $700 - $400 = $7,500

t Payments are expenditures for buyers and income for sellers.

Depreciation losses are subtracted from the total income of a nation's citizens. Net National Product subtracts depreciation from GDP.

wages, rent, and profits. In the simple circular-flow diagram households spend all the income they receive from all their factors of production.

C, D, M, and K The flow of goods and services is represented by the inside arrows.

False The inflation rate is computed as the percentage change, not the change, in the price level. Here the price level is measured by the GDP deflator. Inflation = percentage change in the price level = (210 -200)/200 = 10/200 = .05 = 5%.

in German GDP, but is not included in U.S. GDP. GDP only includes production within a country whoever produces it.

2012 The inflation rate is calculated as (GDP Deflator Year 2 - GDP Deflator Year 1)/GDP Deflator Year 1, where the GDP deflator in a given year is (Nominal GDP/Real GDP) x 100. Therefore, the inflation rates for each year are as follows: 2011: (100-96)/96=3.5%; 2012: (88-100)/100 = -12%; 2013: (138.1-88)/88=56.9%; 2014: (127.3-138.1)/138.1=-7.8%. Therefore, 2012 experienced the lowest level of inflation.

GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad. GNP is production by U.S. factors of production wherever they are located. So, income earned by foreigners in the U.S. must be subtracted out and income earned by U.S. citizens abroad must be added.

Mike's but not Tom's. U.S. GDP includes all production within the U.S. regardless of who produces it.

U.S. consumption purchases increase by $800 and U.S. GDP increases by $800. Both consumption and GDP contain only the value of final goods and services. Both exclude the value of used goods.

the money that flows from households to firms equals expenditure. In the circular flow diagram money flows from firms to households in the factor markets, money flows from households to firms in the market for goods and services, profits are paid out to households, and the money that flows from households to firms equals expenditure.

Includes the value of government services but not the value of services provided by major household appliances purchased in a previous period. GDP includes the value of government services but not the value of services produced by major household appliances purchased in a previous period.

2013 2011 GDP deflator: 225/225*100 = 100 (The deflator is always 100 in the base year). 2012 GDP deflator: 220/250*100 = 88. 2013 GDP deflator: 435/315*100 = 138.1. 2014 GDP deflator: 420/330*100 = 127.3.

Consumption of services

2012 Nominal GDP for 2011 = $1.50 x 50 + $2 x 75 = $225. Nominal GDP for 2012 = $1 x 60 + $2 x 80 = $220. Nominal GDP for 2013 = $1.50 x 50 + $3 x 120 = $435. Nominal GDP for 2014 = $2 x 60 + $2.50 x 120 = $420.

f Households also receive income from land and capital they supply to firms.