Economics 119: Measuring Output and Income

Questions and Answers

The dollar value of all the final goods and services that are produced during a fixed period of time is?

nominal gross domestic product

A(n) ___________ good or service is one sold to the end user and is not used to produce another product for subsequent sale.

Final

A(n) ___________ good or service is used to build or make another product that will be subsequently sold.

Intermediate

Secondhand sales represent the:

reallocation of past production that was already counted as part of GDP in another year Signup and view all the answers

Because informal market transactions result in increase in output produced GDP (overestimates/underestimates) the actual amount of output produced in an economy.

Underestimates Signup and view all the answers

GDP stands for:

Gross Domestic Product Signup and view all the answers

Gross domestic product is equal to the total sum of:

consumption, gross investment, government purchases and net exports Signup and view all the answers

Only ___________ goods and services are included in GDP so that expenditures are not counted twice.

Final Signup and view all the answers

___________ goods and services are not included in GDP so that expenditures are not counted twice.

Intermediate, Second-hand, Used, or Secondhand Signup and view all the answers

Sales of ___________ do not represent new production, just the reallocation of past production that was already counted as part of GDP in another year.

secondhand goods Signup and view all the answers

Informal-market transactions are especially problematic for:

developing countries in which a large fraction of total production is exchanged in informal markets Signup and view all the answers

Gross domestic product is equal to the total sum of four categories:

C + I + G + NX Signup and view all the answers

___________ is the largest component of GDP in the United States.

Consumption Signup and view all the answers

Only ___________ goods and services are included in the estimation of the dollar value of output produced in an economy or nominal GDP.

final Signup and view all the answers

___________ includes all expenditures made by households on goods and services such as clothing, food, electronics, and recreation.

Consumption Signup and view all the answers

___________ goods include such goods as appliances, cars, and furniture.

Durable Signup and view all the answers

When measuring GDP, we classify expenditures into four categories because:

we like to know who is consuming what Signup and view all the answers

In economics, ________ does not solely refer to saving money or buying stocks or bonds.

investment or investing Signup and view all the answers

Transactions that happen either as a result of barter or illegally are not included in the calculation of GDP because:

they cannot be seen Signup and view all the answers

Consumption and government purchases are:

the largest components of GDP Signup and view all the answers

Purchases made by households are called:

consumption Signup and view all the answers

Goods include such goods as food and clothing.

Non-durable Signup and view all the answers

___________ refers to spending by firms on capital goods designed to improve the future productivity of the firm.

Investment Signup and view all the answers

If a transaction happens in a(n) _ market — that is sold by a licensed seller — it will be included in GDP; if the transaction happens instead in a(n) _ market — one that is either illegal or otherwise untraceable — it will not be included in GDP.

formal; informal Signup and view all the answers

Match the following types of investments with their respective concerns:

Savings = Money in the bank or a stock or bond Investment = Occurs when you buy a house or expand a factory Signup and view all the answers

Gross investment includes purchases of:

offices, factories, tools, and machinery Signup and view all the answers

Consumption includes purchases made by

households, consumers Signup and view all the answers

___________ include haircuts, medical and legal services, education, and entertainment, such as a live music concert.

Services Signup and view all the answers

In economics, ___________ does not solely refer to saving money or buying stocks or bonds.

Investment Signup and view all the answers

In economics, the term ____________ refers to the formation of productive capital within an economy.

Investment Signup and view all the answers

When firms build houses and sell them to consumers, they contribute to ___________ investment.

Residential Signup and view all the answers

___________ includes all expenditures made by households on goods and services such as clothing, food, electronics, and recreation.

Consumption Signup and view all the answers

The more ___________ that is available to its workers, the more productive a nation will be.

Capital Signup and view all the answers

Goods that have an average useful life of three years or more are known as ___________ goods.

Durable Signup and view all the answers

Capital ___________ when it becomes obsolete.

depreciates Signup and view all the answers

A new house falls under:

residential investment Signup and view all the answers

___________ investment occurs when firms invest in new buildings or replacement machines, adding to the capital stock that will allow the economy to produce more in the future.

Gross Signup and view all the answers

In economics, depreciation refers to:

capital that is worn out or obsolete Signup and view all the answers

___________ is the amount of capital that is no longer in operation due to wearing out, being used up, or becoming obsolete.

Depreciation Signup and view all the answers

In economics, ___________ includes purchases of housing, tractors, tools, and factories.

investment or investments Signup and view all the answers

Purchases by firms of new capital goods such as offices, factories, tools, and machinery are called:

business fixed investment Signup and view all the answers

Suppose that at the beginning of the year, there are ten cranes in the economy. During the course of the year, four cranes wear out. At the same time, we invest in capital and purchase six new cranes. Gross investment is equal to _ cranes and depreciation is equal to _ cranes.

six; four Signup and view all the answers

The more productive the nation is:

the higher its wages and standards of living are Signup and view all the answers

Consider a piece of machinery that is still in use and highly productive. A(n) ___________ would say that that machine should not be counted in depreciation because it is still part of the productive process.

economist Signup and view all the answers

___________ is the amount of capital that wears out or is used up during a year.

Depreciation Signup and view all the answers

___________ represents the accumulation of new capital.

investment Signup and view all the answers

The expenditures or the dollar value of all the final goods and services that are produced during a fixed period of time is:

nominal gross domestic product Signup and view all the answers

Consider a piece of machinery that is still in use and highly productive. According to a(n) ___________, that machine could be fully depreciated.

accountant Signup and view all the answers

Depreciation is the amount of ___________ that wears out or is used up during a year.

Capital Signup and view all the answers

Goods and services that are manufactured domestically but sold abroad are called ___________

Exports Signup and view all the answers

In economics, ___________ occurs when firms use funds to buy goods and services that will enhance productivity and increase output.

Investment Signup and view all the answers

The level of gross ___________ does not tell how fast the stock of capital in the economy is increasing.

Investment Signup and view all the answers

Nominal gross domestic product measures the dollar value of:

the final goods and services that are produced during a fixed period of time Signup and view all the answers

The goods and services made in other countries that we purchase are called ___________

Imports Signup and view all the answers

Because ___________ are produced domestically, they must be included in gross domestic product.

Exports Signup and view all the answers

Net exports are ___________ when imports exceed exports.

Negative Signup and view all the answers

___________ occurs when households or firms take some of their income or profit and put it in a savings account in the stock market or in some other asset, hoping to make a return on their money and spend it in the future.

Savings Signup and view all the answers

If an economy exports $15 billion worth of goods and services and imports $8 billion worth, the amount of its net exports is $___________ billion.

7 Signup and view all the answers

___________ are not counted in nominal GDP because they are produced somewhere else.

Imports Signup and view all the answers

Because ___________ are not produced domestically, they need to be subtracted from gross domestic product.

Imports Signup and view all the answers

Net exports equals _ minus _.

exports; imports Signup and view all the answers

Suppose that in the last year consumers spent $12 billion on durable goods, $34 billion on non-durable goods, and $44 billion on services. Consumption equals $_____ billion.

90 Signup and view all the answers

Suppose at the beginning of the year there are ten cranes in the economy. During the course of the year, two cranes wear out and are replaced. At the same time, net investment is equal to two cranes. Gross investment is equal to ___________ cranes.

4 Signup and view all the answers

Because imports are not produced domestically, they need to be ___________ from gross domestic product.

subtracted Signup and view all the answers

For the economy as a whole, we keep track of the output flowing between countries using the concept of net ___________

exports Signup and view all the answers

We commonly use the expenditures approach to measure gross domestic product. But we can also measure the total value of all final goods and services in an economy using the:

income approach Signup and view all the answers

Historically, labor compensation has been approximately ____ of total income.

2/3 Signup and view all the answers

In international trade, ___________ include Japanese motorcycles, Chinese clothing, and Colombian coffee.

imports Signup and view all the answers

The income approach to measuring GDP measures the total value of all final goods and services in an economy:

based on the income they generate Signup and view all the answers

In the broadest terms, income is paid to the four ___________ used to produce goods and services.

resources Signup and view all the answers

Real GDP measures the dollar value adjusted for ___________ of all final goods and services produced in a country during a fixed period of time.

Inflation Signup and view all the answers

Nominal GDP is a good snapshot of the current value of production in an economy but it cannot be used to make comparisons over time because:

prices change Signup and view all the answers

The expenditures or the dollar value of all the final goods and services that are produced during a fixed period of time are:

nominal gross domestic product Signup and view all the answers

Real GDP uses prices from a base year also referred to as ___________ prices.

base, constant Signup and view all the answers

RGDP uses current-year quantities and ___________ -year prices.

base Signup and view all the answers

Payments made to labor resources are called ___________

wages, salaries Signup and view all the answers

The dollar value adjusted for inflation of all final goods and services produced in a country during a fixed period of time is called:

real GDP Signup and view all the answers

Economists often make distinctions between nominal units and real units._ refers to a certain dollar amount whereas _ denotes a quantity of goods and services.

Nominal; real Signup and view all the answers

To calculate _ _, multiply the quantities of each good produced in each year by base-year prices.

Real GDP Signup and view all the answers

In calculating real GDP, we use:

current-year quantities and base-year prices Signup and view all the answers

Real GDP per ___________ is the same as real GDP per person.

Capita Signup and view all the answers

Payments made to capital resources are called.

Interest Signup and view all the answers

___________ GDP measures the constant dollar value of all final goods and services produced in a country during a fixed period of time.

Real Signup and view all the answers

Suppose real GDP is roughly $750 billion and the population is approximately 50 million people. Real GDP per capita is $ ___________

1500 or 1,500 Signup and view all the answers

Economists prefer real GDP to nominal GDP because:

they want to measure the actual production that occurred, not the current dollar amount of that production Signup and view all the answers

By dividing _____ GDP by _ GDP, we allow the quantities to cancel out, leaving a ratio of prices between the two years creating a price _______.

nominal; real; index Signup and view all the answers

It does not matter which year you use as the base year as long as you are consistent.

True Signup and view all the answers

Real GDP per capita is the same as:

real GDP per person Signup and view all the answers

Payments made to entrepreneurial ability are called

Profit Signup and view all the answers

Using real GDP together with nominal GDP, we can find out how ___________ change over time.

price Signup and view all the answers

Real GDP uses prices from a base year also referred to as ___________ prices.

base Signup and view all the answers

The GDP price index is calculated by:

dividing the nominal GDP in a given year by the real GDP in a given year Signup and view all the answers

The GDP price index is also called:

GDP deflator Signup and view all the answers

Real GDP uses current-year quantities and ___________ -year prices.

base Signup and view all the answers

The GDP _ _ can be used to track prices from year to year.

price index Signup and view all the answers

(Nominal GDP/Real GDP) x 100 =

GDP price index Signup and view all the answers

The GDP price index can be used to track ___________ from year to year.

Prices Signup and view all the answers

Markets that are part of the ___________ economy that exchange illegal goods and services or engage in illegal transactions are called black markets.

Informal Signup and view all the answers

One problem with developing countries is that measures of GDP often underestimate the amount of production that actually occurs. Why is this true?

Developing countries often have relatively large informal markets Signup and view all the answers

Using _ GDP together with _ GDP, we can find out how prices change over time.

real; nominal Signup and view all the answers

Study Notes

Measuring Output and Income

Nominal Gross Domestic Product (GDP): Represents the dollar value of all final goods and services produced within a specific timeframe.
Final Goods: Products sold to end-users, not utilized to create other goods for sale.
Intermediate Goods: Inputs used to produce final goods, and are excluded from GDP to prevent double counting.
Secondhand Sales: Reflect the reallocation of previously counted production, not new economic output.
Informal Market Transactions: Underestimate actual economic output, especially problematic in developing countries with large unreported sectors.
GDP Components: Calculated as C (Consumption) + I (Gross Investment) + G (Government Purchases) + NX (Net Exports).
Largest GDP Component in the U.S.: Consumption, which includes household spending on a variety of goods and services.
Durable Goods: Items like appliances and cars, which have a lifespan of three years or more.
Non-Durable Goods: Includes consumables such as food and clothing, which are used up quickly.
Investment: Represents firm expenditures on capital goods that enhance productivity, such as housing and machinery.
Depreciation: Reflects capital loss due to wearing out or obsolescence, affecting net investment calculations.

GDP Calculation and Evaluation

Real vs. Nominal GDP: Nominal GDP reflects current dollar value, while real GDP adjusts for inflation, allowing for accurate historical comparisons.
GDP Price Index (or GDP Deflator): A measure that tracks price changes over time, calculated by dividing nominal GDP by real GDP and multiplying by 100.
Net Exports Calculation: Determined by subtracting imports from exports; negative when imports exceed exports.
Gross vs. Net Investment: Gross investment includes total purchases of capital goods, while net investment accounts for depreciation.
Consumption Categories: Comprised of various goods and services purchased by households, typically including durable and non-durable goods.

Income Measures and Economic Performance

Labor Compensation: Historically accounts for about two-thirds of total income generated in the economy.
Investment Funding: Involves using income or profits for buying productive assets to enhance output.
Real GDP Per Capita: An indicator of economic health, calculated by dividing real GDP by the population, reflecting individual productivity levels.
Savings vs. Investments: Savings are funds reserved, while investments are allocated for productive assets to enhance future economic output.
Black Markets: Reflect informal economies that engage in unregulated transactions, complicating GDP measurement, especially in developing nations.
Economic Productivity: The relationship between available capital and workforce productivity influences wages and living standards.

Key Concepts in Economic Measurement

Expenditures Approach: Commonly used to measure GDP based on total spending in the economy on final goods and services.
Income Approach: Alternative method for measuring GDP, based on income generated from production factors.
Current Price Adjustments: Essential for evaluating economic conditions over time, highlighting fluctuations due to inflation or deflation.
Base-Year Prices: Essential for calculating real GDP that measures economic output adjusted for inflation using established price levels from a specific year.
Consumption Expenditure Tracking: Vital for understanding household economic activity and its contribution to overall GDP.
Exports and Imports: Key components of GDP calculations, where exports contribute positively and imports lead to negative adjustments.

By understanding these concepts, students can better grasp the complexities of measuring economic output and income.

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Test your understanding of key concepts in Economics 119, focusing on output and income measurement. This quiz covers definitions of nominal GDP and the distinction between final and intermediate goods. Perfect for students seeking to reinforce their economic knowledge.

Economics 119: Measuring Output and Income

Questions and Answers

The dollar value of all the final goods and services that are produced during a fixed period of time is?

A(n) ___________ good or service is one sold to the end user and is not used to produce another product for subsequent sale.

A(n) ___________ good or service is used to build or make another product that will be subsequently sold.

Secondhand sales represent the:

Because informal market transactions result in increase in output produced GDP (overestimates/underestimates) the actual amount of output produced in an economy.

GDP stands for:

Gross domestic product is equal to the total sum of:

Only ___________ goods and services are included in GDP so that expenditures are not counted twice.

___________ goods and services are not included in GDP so that expenditures are not counted twice.

Sales of ___________ do not represent new production, just the reallocation of past production that was already counted as part of GDP in another year.

Informal-market transactions are especially problematic for:

Gross domestic product is equal to the total sum of four categories:

___________ is the largest component of GDP in the United States.

Only ___________ goods and services are included in the estimation of the dollar value of output produced in an economy or nominal GDP.

___________ includes all expenditures made by households on goods and services such as clothing, food, electronics, and recreation.

___________ goods include such goods as appliances, cars, and furniture.

When measuring GDP, we classify expenditures into four categories because:

In economics, ________ does not solely refer to saving money or buying stocks or bonds.

Transactions that happen either as a result of barter or illegally are not included in the calculation of GDP because:

Consumption and government purchases are:

Purchases made by households are called:

Goods include such goods as food and clothing.

___________ refers to spending by firms on capital goods designed to improve the future productivity of the firm.

If a transaction happens in a(n) _____ market — that is sold by a licensed seller — it will be included in GDP; if the transaction happens instead in a(n) _____ market — one that is either illegal or otherwise untraceable — it will not be included in GDP.

Match the following types of investments with their respective concerns:

Gross investment includes purchases of:

Consumption includes purchases made by

___________ include haircuts, medical and legal services, education, and entertainment, such as a live music concert.

In economics, ___________ does not solely refer to saving money or buying stocks or bonds.

In economics, the term ____________ refers to the formation of productive capital within an economy.

When firms build houses and sell them to consumers, they contribute to ___________ investment.

___________ includes all expenditures made by households on goods and services such as clothing, food, electronics, and recreation.

The more ___________ that is available to its workers, the more productive a nation will be.

Goods that have an average useful life of three years or more are known as ___________ goods.

Capital ___________ when it becomes obsolete.

A new house falls under:

___________ investment occurs when firms invest in new buildings or replacement machines, adding to the capital stock that will allow the economy to produce more in the future.

In economics, depreciation refers to:

___________ is the amount of capital that is no longer in operation due to wearing out, being used up, or becoming obsolete.

In economics, ___________ includes purchases of housing, tractors, tools, and factories.

Purchases by firms of new capital goods such as offices, factories, tools, and machinery are called:

Suppose that at the beginning of the year, there are ten cranes in the economy. During the course of the year, four cranes wear out. At the same time, we invest in capital and purchase six new cranes. Gross investment is equal to ___________ cranes and depreciation is equal to ___________ cranes.

The more productive the nation is:

Consider a piece of machinery that is still in use and highly productive. A(n) ___________ would say that that machine should not be counted in depreciation because it is still part of the productive process.

___________ is the amount of capital that wears out or is used up during a year.

___________ represents the accumulation of new capital.

The expenditures or the dollar value of all the final goods and services that are produced during a fixed period of time is:

Consider a piece of machinery that is still in use and highly productive. According to a(n) ___________, that machine could be fully depreciated.

Depreciation is the amount of ___________ that wears out or is used up during a year.

Goods and services that are manufactured domestically but sold abroad are called ___________

In economics, ___________ occurs when firms use funds to buy goods and services that will enhance productivity and increase output.

The level of gross ___________ does not tell how fast the stock of capital in the economy is increasing.

Nominal gross domestic product measures the dollar value of:

The goods and services made in other countries that we purchase are called ___________

Because ___________ are produced domestically, they must be included in gross domestic product.

Net exports are ___________ when imports exceed exports.

___________ occurs when households or firms take some of their income or profit and put it in a savings account in the stock market or in some other asset, hoping to make a return on their money and spend it in the future.

If an economy exports $15 billion worth of goods and services and imports $8 billion worth, the amount of its net exports is $___________ billion.

___________ are not counted in nominal GDP because they are produced somewhere else.

Because ___________ are not produced domestically, they need to be subtracted from gross domestic product.

Net exports equals ___________ minus ___________.

Suppose that in the last year consumers spent $12 billion on durable goods, $34 billion on non-durable goods, and $44 billion on services. Consumption equals $_____ billion.

Suppose at the beginning of the year there are ten cranes in the economy. During the course of the year, two cranes wear out and are replaced. At the same time, net investment is equal to two cranes. Gross investment is equal to ___________ cranes.

Because imports are not produced domestically, they need to be ___________ from gross domestic product.

For the economy as a whole, we keep track of the output flowing between countries using the concept of net ___________

We commonly use the expenditures approach to measure gross domestic product. But we can also measure the total value of all final goods and services in an economy using the:

Historically, labor compensation has been approximately ____ of total income.

In international trade, ___________ include Japanese motorcycles, Chinese clothing, and Colombian coffee.

The income approach to measuring GDP measures the total value of all final goods and services in an economy:

In the broadest terms, income is paid to the four ___________ used to produce goods and services.

Real GDP measures the dollar value adjusted for ___________ of all final goods and services produced in a country during a fixed period of time.

Nominal GDP is a good snapshot of the current value of production in an economy but it cannot be used to make comparisons over time because:

The expenditures or the dollar value of all the final goods and services that are produced during a fixed period of time are:

Real GDP uses prices from a base year also referred to as ___________ prices.

RGDP uses current-year quantities and ___________ -year prices.

Payments made to labor resources are called ___________

The dollar value adjusted for inflation of all final goods and services produced in a country during a fixed period of time is called:

Economists often make distinctions between nominal units and real units.___________ refers to a certain dollar amount whereas ___________ denotes a quantity of goods and services.

If a transaction happens in a(n) _ market — that is sold by a licensed seller — it will be included in GDP; if the transaction happens instead in a(n) _ market — one that is either illegal or otherwise untraceable — it will not be included in GDP.

Suppose that at the beginning of the year, there are ten cranes in the economy. During the course of the year, four cranes wear out. At the same time, we invest in capital and purchase six new cranes. Gross investment is equal to _ cranes and depreciation is equal to _ cranes.

Net exports equals _ minus _.

Economists often make distinctions between nominal units and real units._ refers to a certain dollar amount whereas _ denotes a quantity of goods and services.

To calculate _ _, multiply the quantities of each good produced in each year by base-year prices.

By dividing _____ GDP by _ GDP, we allow the quantities to cancel out, leaving a ratio of prices between the two years creating a price _______.

The GDP _ _ can be used to track prices from year to year.

Using _ GDP together with _ GDP, we can find out how prices change over time.