ECON 201 Lecture Notes - Lecture 6: Price Level

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erinsea-lion256

19 Jan 2017

School

Department

Economics

Course

ECON 201

Professor

Daisoon Kim

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Document Summary

Gdp measures the output or size of the aggregate economy. Firm-to-firm purchases: we can write the circular flow as an equation: Y = c + i + g + (x-m) Remember, these are on the aggregate level! Gdp measures the total value of all final goods and services produced in the economy during a given year. It doesn"t include the value of intermediate goods: no intermediate goods because the cost of final goods covers the cost of intermediate goods. Aggregate spending: the sum of c, i, g, (x-m) It"s the total spending on domestically produced final goods and services in the economy. 3 ways: add up the value added of all producers, add up all spending on domestically produced final g/s (basically the equation, add up all income paid to factors of production. What is and what"s not included in gdp. Included: domestically produced final g/s (including capital goods, new construction of structures, changes to inventories.

Related Questions

An improvement in technology causes the production possibilities frontier (PPF) to

	shift to the right.
	pivot upward.
	shift to the left.
	pivot downward.

(7)

Which of the following is not shown by the circular flow model?

	The flow of resources in one direction and money in the other
	The equality of aggregate spending and aggregate income
	The interaction of households, firms, and the government
	The total amount of goods and services the economy can produce

(8)

Gross domestic product (GDP) is defined as

	the market value of all final goods and services produced in an economy in a given period of time.
	the market value of all consumption goods and services produced in an economy in a given period of time.
	the market value of all investment goods and services produced in an economy in a given period of time.
	the real value of all investment goods and services produced in an economy in a given period of time.

(9)

Real GDP

	includes all domestic and foreign transactions.
	includes the dollar value of domestic transactions only.
	tries to isolate the effect of changing output, holding prices constant.
	measures GDP in terms of prices of goods and services produced.

(10)

When economists talk about economic growth, they are usually referring to

	the percentage change in nominal GDP.
	the percentage change in real GDP.
	the percentage change in nominal investment.
	the percentage change in real investment.

chocolateant769

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.

Real GDP (Y) can be decomposed into the sum of spending by consumers (C), firms (I), the government (G) and net exports (X-M). Y = C + I + G + NX. A common approach taken in exploring real GDP developments is to explore how each of these four spending components identified will develop in the near future. For example, if consumer confidence (an example of a forward looking indicator) is increasing, this is usually taken as a signal that C will be increasing at a 'healthy' growth rate in the near future. If consumer confidence is decreasing, then C is expected to be flat. Since the spending components feed into real GDP (go back to the circular flow diagram), the development of C gives some indication about near future developments in real GDP or economic growth. Thus, one can explore expected changes in C, I, G, and NX to get a handle on the expected real GDP growth for the next quarter or year. Your assignment is to develop a report that describes expectations for US RGDP in the short term (6 months to 1 year) and medium term (2 to 3 years). This type of macroeconomic outlook report is important and of interest to every type of business enterprise as it is the basic indicator of future output and input market conditions. Your report should be addressed to someone who has only a basic understanding of economics; thus, you should as part of your report, explain the definition of each of the spending components (an any other technical terms you use). You may use charts and graphs as appropriate. The finished report should be 3 to 5 pages, and include a Executive Summary of no more than 200 words. While you are free to use whatever references you want (please make sure that your report appropriately documents any resources)

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ECON 201 Lecture Notes - Lecture 6: Price Level

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