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APPLIED ECONOMICS HANDOUTS NO. 2

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Questions and Answers

What is the main purpose of government spending according to the text?

To provide public goods and safety like infrastructure, education, and healthcare (correct)

To increase the country's GDP through exports

To make factor payments to households for land, labor, capital, and entrepreneurship

To earn income from taxes and licenses

Where does the government get the money for its spending according to the text?

From factor payments received from households

From the country's exports

From the country's GDP

From taxes and licenses paid by firms, households, and foreigners (correct)

How does spending by foreigners on a country's goods and services affect that country's GDP?

It only affects the country's exports, not its GDP

It increases the country's GDP because the money is flowing into the economy (correct)

It decreases the country's GDP because the money is spent on foreign goods and services

It has no effect on the country's GDP

What is the income approach to GDP according to the text?

Quantifying the total earnings received by a nation's households in a specific period Signup and view all the answers

What is the formula for calculating GDP using the expenditure approach?

GDP = C + I + G + (X - M) Signup and view all the answers

What is the definition of imports according to the text?

Money spent by a country on goods and services produced by other countries Signup and view all the answers

Which of the following is NOT a component of GDP in the expenditure approach?

Imports from other countries Signup and view all the answers

What does the 'C' term represent in the GDP equation?

Consumption by households and individuals Signup and view all the answers

What is the purpose of calculating GDP using the expenditure approach?

To measure the total output of goods and services produced within a country Signup and view all the answers

What does the 'I' term represent in the GDP equation?

Investment by firms on capital goods Signup and view all the answers