Principles of Economics Chapter 23: Measuring a Nation’s Income
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Questions and Answers

Which branch of economics focuses on economy-wide phenomena such as inflation, unemployment, and economic growth?

  • Econometrics
  • Macroeconomics (correct)
  • Microeconomics
  • Development economics
  • What does GDP stand for?

  • Gross Domestic Production
  • General Demand and Price
  • Growth in Domestic Profit
  • Gross Domestic Product (correct)
  • Which factor is NOT considered one of the components of GDP?

  • Investment in machinery and buildings
  • Exports minus imports
  • Government spending
  • Household savings (correct)
  • What does GDP measure in an economy?

    <p>Total economic output</p> Signup and view all the answers

    How is GDP corrected for inflation?

    <p>GDP is adjusted using the consumer price index (CPI)</p> Signup and view all the answers

    Does GDP measure society's well-being?

    <p>No, GDP only measures economic output and does not capture well-being</p> Signup and view all the answers

    What does Gross Domestic Product (GDP) measure?

    <p>Both total income and total expenditure</p> Signup and view all the answers

    Why does income equal expenditure for the economy as a whole?

    <p>Because every dollar a buyer spends is a dollar of income for the seller</p> Signup and view all the answers

    In the scenario where Nalah pays James $50 to mow her lawn, what happens with total income?

    <p>Total income rises by $50</p> Signup and view all the answers

    What are factor payments in the context of the circular-flow diagram?

    <p>Payments made by firms to households for factors of production like labor, land, and capital</p> Signup and view all the answers

    What do households do in the circular-flow diagram?

    <p>Sell factors of production to firms and consume goods &amp; services</p> Signup and view all the answers

    What is depicted in the circular-flow diagram?

    <p>Gross Domestic Product (GDP) as spending, revenue, factor payments, and income</p> Signup and view all the answers

    Which term refers to inputs like labor, land, capital, and natural resources in the context of the circular-flow diagram?

    <p>Factors of production</p> Signup and view all the answers

    What is measured by Gross Domestic Product (GDP)?

    <p>Both total expenditure on goods and services produced within a country's borders and total income earned by a country's residents and businesses</p> Signup and view all the answers

    What happens to total expenditure when Nalah pays James $50 to mow her lawn?

    <p>Total expenditure rises by $50</p> Signup and view all the answers

    What do firms do in the circular-flow diagram?

    <p>Produce goods &amp; services and buy factors of production from households</p> Signup and view all the answers

    Study Notes

    Macroeconomics

    • Macroeconomics focuses on economy-wide phenomena such as inflation, unemployment, and economic growth.

    Gross Domestic Product (GDP)

    • GDP stands for Gross Domestic Product.
    • GDP measures the total value of all final goods and services produced within a country's borders over a specific time period.
    • GDP measures the economy's production in a particular period.
    • GDP is corrected for inflation using the GDP deflator.
    • GDP does not measure society's well-being; it only measures economic activity.

    Income and Expenditure

    • Income equals expenditure for the economy as a whole due to the circular-flow diagram.
    • When Nalah pays James $50 to mow her lawn, total income increases by $50, as James earns $50, and total expenditure also increases by $50, as Nalah spends $50.

    Circular-Flow Diagram

    • The circular-flow diagram depicts the flow of resources, goods, and services, and payments between households, firms, markets, and the government.
    • Households provide resources like labor, land, capital, and natural resources to firms in the circular-flow diagram.
    • Firms produce goods and services using the resources provided by households in the circular-flow diagram.
    • Factor payments refer to payments made to households for providing resources like labor, land, capital, and natural resources.

    GDP Calculation

    • GDP measures the value of all final goods and services produced within a country's borders over a specific time period.
    • Total expenditure increases by the same amount as total income when a transaction occurs, as in the case of Nalah paying James $50 to mow her lawn.

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    Description

    Test your knowledge of Chapter 23 from the Principles of Economics textbook by N. Gregory Mankiw. This quiz covers topics related to measuring a nation's income, as presented in the ninth edition of the book.

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