ECO100Y5 Lecture Notes - Lecture 8: Price Level, Nominal Interest Rate, Menu Cost

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Macroeconomics: the study of economics as a whole, including topics such as inflation, unemployment, and economic growth. National product (output): the most comprehensive measure of the nation"s overall level of economic activity. Nominal national income (current-dollar national income): total national income measured in current dollars. Real national income: national income measured in constant (base-period) dollars. Gross domestic product (gdp): the market value of all final goods and services produced in the geographic area in a year. Consumption: spending by households on goods and services, not including spending on new houses. Non-durable goods: goods that are immediately consumed in one use or ones that have a lifespan, such as food. Semi-durable goods: goods with durability of about one year, such as clothing or footwear. Durable goods: goods that doesn"t quickly wear out, such as car. Investment: spending by firms on new factories, office buildings, machinery, and additions to inventories. Business fixed investment: firm spend on new factories, office buildings, and machinery.

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The components of GDP in the accompanying table were produced by the Bureau of Economic Analysis. Category Components of GDP in 2013 (billions of dollars)

Consumer spending

Durable goods $1,263.0

Nondurable goods 2,622.9

Services 7,615.7

Private investment spending

Fixed investment spending 2,564.0

Nonresidential 2,047.1

Structures 456.4

Equipment and intellectual property products 1,590.7

Residential 516.9

Change in private inventories 106.1

Net exports

Exports 2,259.9

Imports 2,757.2

Government purchases of goods and services and investment spending

Federal 1,245.9

National defense 770.7

Nondefense 475.1

State and local 1,879.6

1) Calculate 2013 consumer spending.

2) Calculate 2013 private investment spending.

3) Calculate 2013 net exports.

4) Calculate 2013 government purchases of goods and services and government investment spending.

5) Calculate 2013 gross domestic product.

6) Calculate 2013 consumer spending on services as a percentage of total consumer spending.

7) Calculate 2013 exports as a percentage of imports.

8) Calculate 2013 government purchases on national defense as a percentage of federal government purchases of goods and services.

greenserval409

1. In the actual economy, households

a. spend all of their income.

b. divide their income among spending, taxes, and saving.

c. buy all goods and services produced in the economy.

d. Both (a) and (c) are correct.

2. Gross domestic product is defined as

a. the quantity of all final goods and services demanded within a country in a given period of time.

b. the quantity of all final goods and services supplied within a country in a given period of time.

c. the market value of all final goods and services produced within a country in a given period of time.

d. Both (a) and (b) are correct.

3. GDP adds together many different kinds of products into a single measure of the value of economic activity by using prices determined by

a. banks.

b. economists.

c. the government.

d. markets.

4. Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

a. caused measured GDP to fall.

b. not caused any change in measured GDP.

c. caused measured GDP to rise.

d. probably changed measured GDP, but in an uncertain direction; the direction of the change depends on the difference in the quality of the cleaning that has resulted.

5. A steel company sells some steel to a bicycle company for $150. The bicycle company uses steel to produce a bicycle, which it sells for $250. Taken together, these two transactions contribute

a. $150 to GDP.

b. $250 to GDP.

c. between $250 and $400 to GDP, depending on the profit earned by the bicycle company when it sold the bicycle.

d. $400 to GDP.

6. The total sales of all firms in the economy for a year

a. equals GDP for the year.

b. is larger than GDP for the year.

c. is smaller than GDP for the year.

d. Any of the above is possible.

7. GDP is equal to

a. the market value of all final goods and services produced within a country in a given period of time.

b. Y.

c. C + I + G + NX.

d. All of the above are correct.

8. The consumption component of GDP includes spending on

a. durable goods and nondurable goods, but not spending on services.

b. durable goods and services, but not spending on nondurable goods.

c. nondurable goods and services, but not spending on durable goods.

d. durable goods, nondurable goods, and services.

periwinkletoad580

Question 1 Gross domestic product (GDP) measures the economy's production of

A) final goods and services.

B) intermediate goods.

C) consumer goods and services.

D) capital goods.

Question 2 Because GDP is measured in dollars per year, GDP is called a

A) stock.

B) flow.

C) cycle.

D) chain.

Question 3 Which of the following would not be included in the gross private domestic investment (I) category of GDP?

A) A retailer's additions to its inventories.

B) A bakery's purchase of a new oven.

C) A trader's purchase on NASDAQ stocks.

D) Newly built residential construction.

Question 4 Which of the following government payments would be included in the government consumption expenditures and gross investment (G) category of GDP?

A) A firefighter's monthly paycheck.

B) A retired grandmother's Social Security check.

C) A retired colonel's veteran's benefits.

D) A laid-off auto worker's unemployment conpensation check.

Question 5 The largest component in the income approach to measuring GDP is

A) compensation of employees.

B) rents.

C) profits.

D) net interest.

Question 6 Which approach to calculating GDP attempts to measure employee compensation, rents, profits, and net interest?

A) The circular-flow approach.

B) The product-market approach.

C) The income approach.

D) The expenditure approach.

Question 7 In recent years, people have benefited from greater amounts of leisure time. This trend

A) has caused GDP to rise.

B) has caused GDP to fall.

C) made GDP fluctuate randomly.

D) is not accounted for in the GDP statistic.

Question 8 National income (NI) is calculated by adjusting GDP for

A) depreciation of capital.

B) investment and net exports.

C) Social Security insurance contributions and transfer payments.

D) corporate and personal income taxes.

Question 9 If an economy's real GDP has increased, we can conclude that the economy

A) is inflationary.

B) has increased its production.

C) suffers from recession.

D) needs a tax cut.

Question 10 In the circular flow model, investment, government spending, and exports are classified as

A) injections.

B) leakages.

C) transfers.

D) consumption expenditures.

ECO100Y5 Lecture Notes - Lecture 8: Price Level, Nominal Interest Rate, Menu Cost

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