AP Macro – Ch. 22 Measuring the Economy 1
A _____ good is directly consumed by individuals and counted as part of the GDP.
Final / AP Macro – Ch. 22 Measuring the Economy 2
A ______good is used only in the production of other goods and is NOT counted as part of the GDP.
Intermediate
AP Macro – Ch. 22 Measuring the Economy 3
A nation’s ______reflects the total market value of all final goods and services produced within an economy in a given year.
Gross Domestic Product
(GDP)
/ AP Macro – Ch. 22 Measuring the Economy 4
What are the two basic issues Macroeconomics focuses on?
1.  Long-run economic growth
2.  Fluctuations in economic performance
AP Macro – Ch. 22 Measuring the Economy 5
______refers to a period when the economy fails to grow for at least six months (two quarters).
Recession / AP Macro – Ch. 22 Measuring the Economy 6
Why do we measure gross domestic product by multiplying the quantities of goods by their prices?
Because it allows us to express the values of products in a common unit of measurement.
AP Macro – Ch. 22 Measuring the Economy 7
Macroeconomics involves the study of economics from the standpoint of the ______economy.
Aggregate (total) / AP Macro – Ch. 22 Measuring the Economy 8
What goods are not counted in the GDP?
Intermediate goods, illegal goods, and used goods.
AP Macro – Ch. 22 Measuring the Economy 9
When there are sustained increases in real GDP over time, we say that the economy is undergoing ______.
Economic growth / AP Macro – Ch. 22 Measuring the Economy 10
Calculating real GDP requires recalculating nominal GDP, but holding prices ______.
Constant
AP Macro – Ch. 22 Measuring the Economy 11
What is the difference between nominal and real GDP?
Read GDP controls for price changes, while nominal GDP does not. / AP Macro – Ch. 22 Measuring the Economy 12
Why do count only finished goods and services?
Because counting all goods and services would lead to double-counting of many items.
AP Macro – Ch. 22 Measuring the Economy 13
______goods are those consumed, but have a life of a year or more (TV’s, refrigerators, cars, etc.).
Durable / AP Macro – Ch. 22 Measuring the Economy 14
For the purpose of GDP accounting, what do we include in consumption expenditures?
Durable goods, non-durable goods, and services.
AP Macro – Ch. 22 Measuring the Economy 15
What are the four components of GDP?
Consumption, Investment, Government Spending, and Net Exports. / AP Macro – Ch. 22 Measuring the Economy 16
What is the largest component of GDP?
Consumption
AP Macro – Ch. 22 Measuring the Economy 17
Consumption expenditures constitute about ______% of GDP.
67% / AP Macro – Ch. 22 Measuring the Economy 18
______is the wear and tear on private investment.
Depreciation
AP Macro – Ch. 22 Measuring the Economy 19
______is the total amount of new private investment purchases.
Gross Investment / AP Macro – Ch. 22 Measuring the Economy 20
Which consumer good is counted in Investment as opposed to Consumption?
New Housing
AP Macro – Ch. 22 Measuring the Economy 21
What is the fastest growing component of consumption?
Services / AP Macro – Ch. 22 Measuring the Economy 22
What does private investment expenditures consist of?
Any increase in inventories, newly produced housing, and spending on new plant and equipment during the year.
AP Macro – Ch. 22 Measuring the Economy 23
______is what is left over from total new private investment after depreciation.
Net Investment / AP Macro – Ch. 22 Measuring the Economy 24
What are transfer payments?
Any payment from one person or institution to another made for purposes other than to remunerate work.
AP Macro – Ch. 22 Measuring the Economy 25
Welfare payments, Social Security, and Interest on the National Debt are examples of ______.
Transfer Payments / AP Macro – Ch. 22 Measuring the Economy 26
Why are transfer payments excluded from government purchases in GDP accounting?
Because nothing is being produced in return for the payment.
AP Macro – Ch. 22 Measuring the Economy 27
In the U.S., for how much does government spending count in all dollars spent?
One dollar out of every four spent. / AP Macro – Ch. 22 Measuring the Economy 28
Where does the majority of spending in the category of government purchases come from?
State and Local Spending
AP Macro – Ch. 22 Measuring the Economy 29
How are transfer payments included in GDP accounting?
Indirectly, through the consumption and savings behavior of recipients. / AP Macro – Ch. 22 Measuring the Economy 30
______are domestically produced goods that are sold abroad, less goods that are produced abroad that are sold domestically.
Net exports
AP Macro – Ch. 22 Measuring the Economy 31
A ______occurs when a country sells more abroad than it purchases from abroad. / AP Macro – Ch. 22 Measuring the Economy 32
A ______occurs when a country purchases more from abroad than other countries purchase from it.
AP Macro – Ch. 22 Measuring the Economy 33
What happens to a country when it runs a trade deficit?
It must sell assets to individuals or governments in foreign countries. / AP Macro – Ch. 22 Measuring the Economy 34
What happens to a country when it runs a trade surplus?
Individuals or governments in foreign countries must sell assets to the individuals or governments in the country.
AP Macro – Ch. 22 Measuring the Economy 35
Exports ______GDP.
Increase / AP Macro – Ch. 22 Measuring the Economy 36
Imports ______GDP.
Decrease
AP Macro – Ch. 22 Measuring the Economy 37
______is the income created when GDP is produced?
National Income / AP Macro – Ch. 22 Measuring the Economy 38
______includes income of domestic firms producing in the U.S. and income of U.S. firms producing in foreign countries.
Gross National Product
(GNP)
AP Macro – Ch. 22 Measuring the Economy 39
What is the difference between GDP and GNP?
GDP includes income of U.S. firms producing in foreign countries, but excludes income of foreign firms producing in the U.S. / AP Macro – Ch. 22 Measuring the Economy 40
GNP less deprecation equals ______.
Net National Product
AP Macro – Ch. 22 Measuring the Economy 41
What is not included in national income accounting?
Depreciation / AP Macro – Ch. 22 Measuring the Economy 42
What is the largest component of national income?
Compensation of employees by firms. (salaries)
AP Macro – Ch. 22 Measuring the Economy 43
The amount of income that households keep after paying taxes is ______.
Personal Disposable Income / AP Macro – Ch. 22 Measuring the Economy 44
Personal income and personal disposable income refer to payments ultimately flowing to ______.
Households
AP Macro – Ch. 22 Measuring the Economy 45
What happens to real GDP if nominal GDP rises?
It can rise, fall or stay the same. / AP Macro – Ch. 22 Measuring the Economy 46
The ______of a variable is the percentage change in the variable from one period to another.
Growth Rate
AP Macro – Ch. 22 Measuring the Economy 47
______is the amount of goods and services in the economy that will be purchased at all possible price levels.
Aggregate demand / AP Macro – Ch. 22 Measuring the Economy 48
______is the total amount of goods and services in the economy available at all possible price levels.
Aggregate supply
AP Macro – Ch. 22 Measuring the Economy 49
A(n) ______is a period of economic growth as measured by a rise in real GDP.
Expansion / AP Macro – Ch. 22 Measuring the Economy 50
When real GDP stops rising, the economy has reached its ______, the height of an economic expansion.
Peak
AP Macro – Ch. 22 Measuring the Economy 51
After reaching its peak, the economy enters a period of ______, an economic decline marked by falling real GDP.
Contraction / AP Macro – Ch. 22 Measuring the Economy 52
When the economy has “bottomed out,” it has reached the ______, the lowest point in an economic contraction, when real GDP stops falling.
Trough
AP Macro – Ch. 22 Measuring the Economy 53
______is a decline in real GDP (output) combined with a rise in the price level (inflation).
Stagflation / AP Macro – Ch. 22 Measuring the Economy 54
A ______is a period of macroeconomic expansion followed by a period of macroeconomic contraction.
Business cycle
AP Macro – Ch. 22 Measuring the Economy 55
______is the average of all prices in the economy.
Price Level / AP Macro – Ch. 22 Measuring the Economy 56
______measures GDP in current prices.
Nominal GDP
AP Macro – Ch. 22 Measuring the Economy 57
______is GDP expressed in constant or unchanging prices.
Real GDP / AP Macro – Ch. 22 Measuring the Economy 58
What are the four main economic variables that affect business cycles?
1.  business investment
2.  interest rates and credit
3.  consumer expectations
4.  external shocks