ECON 201 Lecture Notes - Lecture 4: Income Approach, Discouraged Worker, Business Cycle

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sapphiretiger55

6 Sep 2018

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University of Maryland

Department

Economics

Course

ECON 201

Professor

John Neri

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ECON 201 Lecture Notes - Lecture 2: Annual Percentage Rate, Aggregate Demand, Government Budget Balance

ECON 201 Lecture Notes - Lecture 4: Income Approach, Discouraged Worker, Business Cycle

ECON 201 Lecture Notes - Lecture 5: Hyperinflation, Gdp Deflator, Core Inflation

Document Summary

Gdp data is compiled by the bureau of economic analysis. In every transaction, one person"s expenditure is another person"s income. Gdp is measured as the sum of consumption expenditure, business investment expenditure, government expenditure on goods and services, and net exports. Gdp is measured as the sum of factor payments earned by all households in the economy (wages, salaries, rent, interest, profit) Factor payments-payments to owners of resources used in production. Total output of the economy=total income earned in the economy=total expenditure. Value added-revenue a firm receives minus amount paid for by goods and services purchased from other firms (intermediate goods) Gdp=sum of values added by all the firms in the economy. Nominal gdp is economic output without the inflation adjustment. Real gdp is the total value of goods and services produced in a year in reference to prices of a base year. We describe real gdp in terms of 2009 dollars.

Related Questions

The expenditure and resource cost-income approaches to calculating GDP arrive at the same final number, but they calculate that number in different ways. To illustrate, consider the possible effects of the following transactions on GDP:

Ralph pays The Home Station $1,200 to plant a new lawn in his backyard. He's attracted by The Home Station's guarantee that he'll be happy with the new lawn, or he'll get his money back.

The Home Station pays Al's Lawn Care $850 to plant the lawn.

Al's Lawn Care buys grass seed worth $200 from Green Center Nursery.

Compute contributions to GDP, using the expenditure approach. Assume that Green Center Nursery receives the grass seed at no charge and that other costs are zero.

Hint: Add the amount of money spent by buyers of final goods and services.

Which of the following would be included in the expenditure method of calculating GDP? Check all that apply.

-The Home Station spends $850.

-Ralph spends $1,200.

-Al's Lawn Care spends $200.

The total contribution to GDP, measured by the expenditure method, is $______

Now use the following table to compute contributions to GDP, employing the resource cost-income approach. In particular, indicate the costs of intermediate goods and the value-added at each stage of production.

Stage of Production	Sale Value	Cost of Intermediate Goods	Resource Cost-Income
Green Center Nursery	$200	?	?
Al's Lawn Care	$850	?	?
The Home Station	$1,200	?	?

The contribution to GDP that you found using the expenditure approach corresponds to the sum of the _____ at each stage of production.

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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.

What is the market for factors of production?

What is the market for factors of production?
1. The market for factors of production is where households and firms interact to trade factors of production for factor payments. For example this is where people provide firms with labor and firms pay them with wages.
What is the money market?
1. The money market is where households, firms, and the government may save and/or invest their money to earn interests. Money market includes banks, stock market, bonds market, and other financial institutions where economic actors can buy and sell financial assets to earn interests and/or dividends.
Who are the three economic actors in the circular flow model?
1. In a circular flow model, the three main economic actors are the households, firms, and the government. Households include the typical individual consumers. Firms include businesses and similar producers in the economy. Finally, the government refers to the whole government system from federal to local level.
How is the national income of an economy determined?
1. The national income of an economy is determined by measuring the total value of the output produced in an economy or the total income earned by the actors in the economy. In a circular flow model, we can see that the value of total output produced should equal the total value of income generated and earned in the economy. This is because every dollar spent by someone in the economy is received by another person in the economy as income.
What is GDP?
1. The gross domestic product or GDP represents the sum total of the value of the final goods and services produced within the economy for a given year. It is the most commonly used measure of its economy’s productivity and income.

ECON 201 Lecture Notes - Lecture 4: Income Approach, Discouraged Worker, Business Cycle

ECON 201 Lecture Notes - Lecture 2: Annual Percentage Rate, Aggregate Demand, Government Budget Balance

ECON 201 Lecture Notes - Lecture 4: Income Approach, Discouraged Worker, Business Cycle

ECON 201 Lecture Notes - Lecture 5: Hyperinflation, Gdp Deflator, Core Inflation

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