Econ 101 CHP 7

The circular-flow diagram illustrates all of the following in the U.S. economy EXCEPT: growing income inequality. flows of money. the purchase and sale of factors of production. flows of goods and services.

The total income of households after taxes and government transfers is called: aggregate spending. investment. disposable income. private savings.

Figure: Circular-Flow Model Reference: Ref 7-1 (Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is an increase in government spending, which of the following is likely to happen? an increase in the nominal GDP an increase in the unemployment rate a decrease in the inflation rate a decrease in the real GDP

An example of a government transfer is a(n): Social Security payment. bequest from a deceased relative. salary for a member of the armed forces. expenditure on an interstate highway.

Investment spending is spending on: -productive physical capital. -productive physical capital, bonds, and shares of stock. -bonds. -shares of stock.

Goods that are produced in a particular period but NOT sold in that period: -are classified as intermediate goods. -are finally included in depreciation when they are sold. -go into inventory and are called consumption. -end up in inventory and are included in investment.

Figure: Expanded Circular-Flow Model Reference: Ref 7-2 (Figure: Expanded Circular-Flow Model) Look at the figure Expanded Circular-Flow Model. What is GDP? $200 $700 $1,080 $1,000

The equation that breaks GDP down by the four sources of aggregate spending is: GDP = C + I + G - X - IM. GDP = C + I + G + X - IM. GDP = C + I + G + X + IM. GDP = C - I - G - X + IM.

Enchanté Inc., a designer clothing company, buys $400 worth of silk and $30 worth of accessories to produce each dress. If the value added by Enchanté is equal to $200, then according to the value-added approach, the price of the designer dress should be: $200. $830. $230. $630.

A country's exports minus its imports during a period are: gross exports. gross imports. net exports. net imports.

The dollar value of final goods and services only is counted in GDP because: -we can measure only the value of final goods and services, not the value of inputs. -only final goods and services matter for the economy. -if we counted the value of all goods, we would count inputs, like the value of steel in a new automobile, more than once. -intermediate goods reduce GDP.

Which of the following transactions is included in the nation's gross domestic product? A college student buys a pizza and has it delivered to her dorm room. A group of college students volunteer to rake leaves at an assisted living facility for senior citizens. A construction company purchases lumber to build a new house. A college student buys a used textbook from his roommate.

A country's GNP: -must be larger than its GDP. -is the total factor income earned by residents of a country. -excludes factor income earned abroad by Americans. -includes factor income earned by foreigners.

Table: Lemonade and Cookies 2013 Output 2013 Prices 2014 Output 2014 Prices 200 glasses $1 per glass 220 glasses $1 per glass 100 cookies $2 per cookie 100 cookies $2.25 per cookie Reference: Ref 7-9 (Table: Lemonade and Cookies) Look at the table Lemonade and Cookies. Assume that an economy produces only lemonade and cookies. If 2013 is the base year, real GDP in 2013 was: $445. $400. $425. $420.

Reference: Ref 7-10 (Table: Peanut Butter and Jelly Economy) Look at the table Peanut Butter and Jelly Economy. From 2010 to 2011 real GDP ____ by _____. decreased; 12.5% increased; 43.75% increased; 12.5% decreased; 50%

Economists frequently use GDP per capita to reflect: -the impact of prices on GDP. -both people who are employed and those who are unemployed. -people who are employed. -differences in living standards across countries.

A price index: -always includes a base year. -always includes a base year, measures the cost of purchasing a market basket of output across different years, and is normalized to 100 for the base year. -measures the cost of purchasing a market basket of output across different years. -is normalized to 100 for the base year.