ECON 1BB3 Chapter Notes - Chapter 5: Gdp Deflator

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emeraldraccoon887

13 Dec 2015

School

McMaster University

Department

Economics

Course

ECON 1BB3

Professor

Bridget O' Shaughnessy

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ECON 1BB3 Full Course Notes

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To judge a nation"s overall economy if it is doing well or poorly, we look to the country"s economy"s total income. The total income of everyone in the economy. Total expenditure on the economy"s output of goods and services. The reason that gdp can measure both these things is that both total income and total expenditure are the same. For an economy as a whole, income must equal expenditure. This it true because every transaction has two parties: a buyer and a seller. Every dollar of spending by a buyer is a dollar income for the seller. The transactions contributes equally to the economy"s income and to its expenditures. Gdp rises/drops whether measured as total income or total expenditure. A good illustration of the equality of income and expenditure is the circular-flow diagram. Describes the transactions between households and firms in a simple economy.

Related Questions

Which of the following statements about GDP is correct

A) Money continuously flows from households to firms and then back to households, and GDP measures this flow of money

B) GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy’s output of goods and services.

C) While not perfect, GDP is generally regarded as the best single measure of a society’s economic well-being.

D) All of the above are correct.

emeraldmarten620

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.

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.

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ECON 1BB3 Chapter Notes - Chapter 5: Gdp Deflator

ECON 1BB3 Full Course Notes

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