ECO 304L Chapter Notes - Chapter Unit 3: Ch 9-12, 16: Investment Goods, Government Operations, Government Spending

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greenwalrus59

7 Oct 2017

School

UT-Austin

Department

Economics

Course

ECO 304L

Professor

M O S T A S H A R I, S H A L A H

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Role of transfer payments: government spending does not include transfer payments, which is money given to individuals as grants from the government rather than as a payment in exchange for services. These grants likely do help the recipients buy consumption. Medicare and other programs are treated as transfer payments. The logic is that the recipient purchases the medical care (and it"s therefore counted as consumption in the gdp equation) and the government makes an insurance payment which counts as a transfer and does not appear directly in gdp. The spending on medical care paid for by government insurance programs is part of personal consumption: for this reason, the g component of gdp is typically much smaller than the standard measure of government spending. However, imports are included in the other components of gdp, so we must subtract imports to get a measure of production in the domestic economy.

Related Questions

1. Provide the formula for the expenditure approach to GDP accounting and include an example of each category of spending.

2. Suppose a consumer buys 10 units of good X and 20 units of good Y every year. The following table lists the prices of goods X and Y in the years 2005-2007. Assume that these two goods constitute the typical market basket. Calculate the price indices for these years with 2005 as the base year. Comment on the inflation picture for these years.

Year	Good X	Good Y
2005	$3	$6
2006	4	7
2007	4.5	7.5

3. Using the expenditure approach, calculate GDP using the following data.

Item	Amount in dollars (billions)
Consumption	7,600
Consumption of Durable Goods	1,600
Consumption of Non Durable Goods	2,800
Consumption of Services	3,200
Investment	2,750
Fixed Investment	1,000
Government purchases of Goods & Services	1,675
Government Transfer Payments	450
Exports	750
Imports	1,600
GDP Equals

4. a. What is the importance of measuring per capita GDP?

b. Why nominal GDP can be misleading?

emeraldkangaroo112

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.

MACROECONOMIC PRINCIPLES Gross Domestic Product (GDP) is the market value of all final goods and services produced within a country in a given period of time.

A) Name the contents of the four components of expenditure.

B) What is meant by nominal GDP; how does it differ from real GDP and how is the latter calculated?

C) The government portion of expenditures in the GDP does not include spending on transfer payments such as Social Security. Why are they excluded? (See page 202 in the textbook, 7th edition; 8th edition page196)

D) Give reasons as to why a higher GDP can be assumed to engender greater well-being in the people whose endeavors attained this elevation. Alternatively, explain why a larger GDP appears not to make people any happier.

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ECO 304L Chapter Notes - Chapter Unit 3: Ch 9-12, 16: Investment Goods, Government Operations, Government Spending

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