Macroeconomics Test Questions
Econ 103
Ch 4:
Page 88
(page 490 in Economics)
1.
Define GDP and distinguish between a final good and an intermediate good.
Provide examples.
GDP is the market value of all the final goods and services produced within a country in a given time period. A final good or service is an item that is sold to the final user, that is, the final consumer, government, a firm making investment, or a foreign entity. An intermediate good or service is an item that is produced by one firm, bought by another firm, and used as a component of a final good or service. For instance, bread sold to a consumer is a final good, but wheat sold to a baker to make the bread is an intermediate good. Distinguishing between final goods and services and intermediate goods and services is important because only final goods and services are directly included in GDP; intermediate goods must be excluded to avoid double counting them.
For example, counting the wheat that went into the bread as well as the bread would double count the wheat—once as wheat and once as part of the bread.
2.
Why does GDP equal aggregate income and also equal aggregate expenditure?
GDP equals aggregate income because one way to value production is by the cost of the factors of production employed. GDP equals aggregate expenditure because another way to value production is by the price that buyers pay for it in the market.
3.
What is the distinction between gross and net?
“Gross” means before subtracting depreciation or capital consumption. “Net” means after subtracting depreciation or capital consumption. The terms apply to investment, business profit, and aggregate production.
Page 91
(page 493 in Economics)
1.
What is the expenditure approach to measuring GDP?
The expenditure approach measures GDP by focusing on aggregate expenditures. Data are collected on the different components of aggregate expenditure and then summed.
Specifically, the Bureau of Economic Analysis
Ch 4:
Page 88
(page 490 in Economics)
1.
Define GDP and distinguish between a final good and an intermediate good.
Provide examples.
GDP is the market value of all the final goods and services produced within a country in a given time period. A final good or service is an item that is sold to the final user, that is, the final consumer, government, a firm making investment, or a foreign entity. An intermediate good or service is an item that is produced by one firm, bought by another firm, and used as a component of a final good or service. For instance, bread sold to a consumer is a final good, but wheat sold to a baker to make the bread is an intermediate good. Distinguishing between final goods and services and intermediate goods and services is important because only final goods and services are directly included in GDP; intermediate goods must be excluded to avoid double counting them.
For example, counting the wheat that went into the bread as well as the bread would double count the wheat—once as wheat and once as part of the bread.
2.
Why does GDP equal aggregate income and also equal aggregate expenditure?
GDP equals aggregate income because one way to value production is by the cost of the factors of production employed. GDP equals aggregate expenditure because another way to value production is by the price that buyers pay for it in the market.
3.
What is the distinction between gross and net?
“Gross” means before subtracting depreciation or capital consumption. “Net” means after subtracting depreciation or capital consumption. The terms apply to investment, business profit, and aggregate production.
Page 91
(page 493 in Economics)
1.
What is the expenditure approach to measuring GDP?
The expenditure approach measures GDP by focusing on aggregate expenditures. Data are collected on the different components of aggregate expenditure and then summed.
Specifically, the Bureau of Economic Analysis