16 Questions
Which branch of economics focuses on economy-wide phenomena such as inflation, unemployment, and economic growth?
Macroeconomics
What does GDP stand for?
Gross Domestic Product
Which factor is NOT considered one of the components of GDP?
Household savings
What does GDP measure in an economy?
Total economic output
How is GDP corrected for inflation?
GDP is adjusted using the consumer price index (CPI)
Does GDP measure society's well-being?
No, GDP only measures economic output and does not capture well-being
What does Gross Domestic Product (GDP) measure?
Both total income and total expenditure
Why does income equal expenditure for the economy as a whole?
Because every dollar a buyer spends is a dollar of income for the seller
In the scenario where Nalah pays James $50 to mow her lawn, what happens with total income?
Total income rises by $50
What are factor payments in the context of the circular-flow diagram?
Payments made by firms to households for factors of production like labor, land, and capital
What do households do in the circular-flow diagram?
Sell factors of production to firms and consume goods & services
What is depicted in the circular-flow diagram?
Gross Domestic Product (GDP) as spending, revenue, factor payments, and income
Which term refers to inputs like labor, land, capital, and natural resources in the context of the circular-flow diagram?
Factors of production
What is measured by Gross Domestic Product (GDP)?
Both total expenditure on goods and services produced within a country's borders and total income earned by a country's residents and businesses
What happens to total expenditure when Nalah pays James $50 to mow her lawn?
Total expenditure rises by $50
What do firms do in the circular-flow diagram?
Produce goods & services and buy factors of production from households
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.
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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