Understanding GDP and GDI Concepts
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Questions and Answers

What does the expenditure approach to deriving Gross Domestic Product sum?

  • Taxes and subsidies
  • Aggregate demand and aggregate supply
  • Consumption, investment, government spending, and net exports (correct)
  • Government investment and foreign aid

    • Which of the following is NOT included in Gross Domestic Income (GDI)?

  • Consumption spending (correct)
  • Wages and salaries
  • Profits from corporations
  • Investment income

    • U.S. Gross Domestic Product (GDP) does NOT include which of the following?

  • Goods produced by U.S. workers in other countries
  • The value of goods produced in Canada by U.S. owned firms (correct)
  • Domestic production of American companies
  • The value of services provided to U.S. citizens

    • Which of the following transactions is included in Gross Domestic Product?

    <p>Tips received by a waitress who reports them to the IRS</p> Signup and view all the answers

    What is the amount of income households receive after personal income taxes have been paid known as?

    <p>Disposable personal income</p> Signup and view all the answers

    GDP is equal to GDI.

    <p>True</p> Signup and view all the answers

    Durable consumer goods include all of the following EXCEPT?

    <p>Google stock</p> Signup and view all the answers

    Which of the following are examples of the gross private domestic investment component of Gross Domestic Product?

    <p>Both A and B</p> Signup and view all the answers

    Which of the following is NOT included in GDP?

    <p>All of the above</p> Signup and view all the answers

    Nondurable consumer goods and services include all of the following EXCEPT?

    <p>Houses</p> Signup and view all the answers

    Which of the following is NOT a reason why the long-run aggregate supply (LRAS) shifts to the right?

    <p>Increases in the general price level</p> Signup and view all the answers

    All of the following would shift the LRAS curve to the right except?

    <p>A decrease in the overall price level</p> Signup and view all the answers

    Reduction in quantity of money shifts aggregate demand (AD) to the left.

    <p>True</p> Signup and view all the answers

    Demand-side inflation occurs when?

    <p>Increases in aggregate demand are not matched by increases in aggregate supply.</p> Signup and view all the answers

    What does the aggregate demand curve represent?

    <p>The total quantity of goods and services demanded across all levels of the economy at a given price level.</p> Signup and view all the answers

    If the economy grows steadily over several years and the aggregate demand curve remains unchanged, what will the economy experience?

    <p>Secular deflation</p> Signup and view all the answers

    What does aWeak U.S. dollar in international markets affect?

    <p>It will cause a decrease in short-run aggregate supply (SRAS) and an increase in aggregate demand.</p> Signup and view all the answers

    Which of the following explains why the aggregate demand curve is downward sloping?

    <p>The real-balance effect</p> Signup and view all the answers

    An increase in the amount of circulating money would cause?

    <p>A shift of the aggregate demand curve to the right</p> Signup and view all the answers

    What does the long-run aggregate supply curve (LRAS) represent?

    <p>All of the above</p> Signup and view all the answers

    A decrease in the amount of physical capital shifts the LRAS curve to the left.

    <p>True</p> Signup and view all the answers

    If Europe and Asia both fall into deep economic recessions, what impact will this have on U.S. aggregate demand?

    <p>U.S. aggregate demand will decrease</p> Signup and view all the answers

    A decrease in the value of the home currency may increase demand from abroad.

    <p>True</p> Signup and view all the answers

    Supply chain inflation is caused by?

    <p>A decrease in aggregate supply and no change in aggregate demand.</p> Signup and view all the answers

    What does the Keynesian multiplier show?

    <p>The total spending in an economy can be a multiple of some initial spending.</p> Signup and view all the answers

    All of the following are flow variables EXCEPT?

    <p>Total value of real estate in a country</p> Signup and view all the answers

    Disposable income is used for?

    <p>Consumption, saving, and investment</p> Signup and view all the answers

    Study Notes

    Gross Domestic Product (GDP)

    • GDP can be calculated using the expenditure approach: consumption, investment, government spending, and net exports.
    • Gross Domestic Income (GDI) is the total income earned by all factors of production in an economy.
    • GDI includes compensation of employees, profits of corporations, rental income, and net interest.
    • GDP does not include the value of goods produced in other countries by U.S. owned firms. So, for example, the value of cars manufactured by a US based company in Mexico would not be counted in US GDP.
    • GDP includes tips that waitresses report to the IRS.
    • Disposable personal income (DPI) refers to the amount of income households receive after personal income taxes have been paid.
    • GDP = GDI
    • Durable consumer goods, such as cars, furniture, and appliances, are goods that last for at least three years.
    • Nondurable consumer goods are goods that are used up within three years.
    • Gross private domestic investment includes purchases of new capital goods, residential construction, changes in business inventories, and spending on research and development.
    • Intermediate goods are goods that are used in the production of other goods. They are not included in GDP in order to avoid double counting.
    • Black market transactions are not included in GDP.
    • Gifts to relatives not included in GDP.

    Aggregate Supply and Aggregate Demand

    • Long-Run Aggregate Supply (LRAS) shifts to the right when there is an increase in the supply of labor, capital, or technology.
    • LRAS does not shift to the right due to increases in the general price level.
    • LRAS does not shift to the right when there is a decrease in the overall price level.
    • An increase in the general price level does not shift the SRAS curve to the right.
    • Demand-Side Inflation occurs when aggregate demand increases more than aggregate supply.
    • The aggregate demand curve is downward sloping due to the real-balance effect.
    • If the aggregate demand curve remains unchanged, a steady increase in economic growth will cause secular deflation.
    • An increase in the amount of money circulating in the economy will cause the aggregate demand curve to shift to the right.
    • The LRAS represents maximum possible level of output, full employment level output, and the full adjustment level of output.
    • A decrease in the amount of physical capital can shift the LRAS curve to the left.
    • Real GDP decreases and the price level increases due to physical capital decreases
    • Simultaneous economic recessions in Europe and Asia will decrease US aggregate demand due to lowered demand for US goods.
    • A decrease in the value of the home currency can lead to an increase in demand from abroad, causing AD to increase.
    • Supply chain inflation is caused by a decrease in aggregate supply and no change in aggregate demand.

    Recessionary and Inflationary Gaps

    • A recessionary gap occurs when equilibrium real GDP is less than full-employment real GDP. This can happen if there is a reduction in aggregate demand.
    • A weakening of the U.S. dollar will typically lead to a decrease in short-run aggregate supply (SRAS) and an increase in aggregate demand.
    • Real GDP can be expanded beyond a level that is consistent with its long-run growth path, however prices and wages are flexible, allowing for necessary adjustments.
    • Money illusion occurs when an individual feels better off if their nominal wage rises by 5% but the price levels rise by 7%.
    • Keynes argued that wages are sticky or inflexible because of long-term labor contracts and the existence of labor unions.
    • A major hurricane causing production problems in the Gulf Coast, would shift the SRAS curve to the left, but will have no effect on the LRAS curve.

    The Keynesian Multiplier

    • The Keynesian multiplier shows that an initial increase in spending will lead to a larger increase in total spending in the economy.
    • Flow variables are measured over a period of time.
    • The total amount of money circulating in an economy is a flow variable.
    • The total value of real estate in a country is a stock variable.
    • Disposable income can be used for consumption, saving, and investment.
    • The Keynesian multiplier is greater than one because of consumption spending, which is a function of income.
    • Investment spending is generally not as sensitive to changes in income as consumption spending.

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    Description

    This quiz explores the definitions and calculations related to Gross Domestic Product (GDP) and Gross Domestic Income (GDI). It will cover key components such as consumption, investment, and disposable personal income. Test your knowledge on how GDP is utilized and its distinction from GDI.

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