PRINCIPLES OF ECONOMICS EXAM B FINAL
PAPER COMPLETE QUESTIONS AND ANSWERS
VERIFIED PREPARATION
◉ Every economy wants....
Answer: 1. Full Employment
2. Stable Prices
3. Growth
◉ The Circular Flow of Resources.
Answer: 1. Market for Outputs (e.g. Q) --> output bought --> 2.
Households --> inputs provided (e.g. labor) --> 3. market for inputs
(e.g. labor, physical capital) --> inputs bought --> 4. Firms --> outputs
sold...
◉ The Circular Flow of $.
Answer: 1. Market for Outputs (e.g. Q) --> market value of output in
$ --> 2. Firms --> GDP= wages and profits $ --> 3. market for inputs --
> GDP = income and received $ --> 4. Households --> GDP = spending
on outputs $
◉ Gross Domestic Product (GDP).
,Answer: the market value of all final goods and services produced
within a country in a year (no intermediate goods or resale items)
◉ Components of GDP (Y).
Answer: Y = Consumption (C) + Investment (I) + Government
Purchases (G) + Net Exports (NX)
◉ Consumption (C).
Answer: spending by households on final goods and services, not
including spending on new houses (68% of GDP)
◉ Examples of Consumption.
Answer: expenditures on services, nondurable goods, durable goods,
and (imputed) rent
◉ Investment (I).
Answer: spending on new capital assets that increase the economy's
productive capacity; includes both the purchase and production of
long-lived assets that contribute to future production (e.g. new
multi-unit houses, R&D, etc.)
◉ Government Purchases (G).
, Answer: government purchases of goods and services (e.g. teachers'
salaries, highways, aircraft carriers) - gov't spending on transfer
payments is not included
◉ transfer payments.
Answer: payments that transfer income from one person to another
(e.g. social security, Medicare), not included in G because this
spending does not result in the production of new G&S
◉ Net Exports (NX).
Answer: exports - imports
◉ exports.
Answer: G&S that are produced domestically in the US and
purchased by foreign buyers
◉ imports.
Answer: G&S produced overseas and purchased by domestic buyers
◉ Measuring GDP: Total Spending.
Answer: add up every dollar of spending; Y = C+I+G+NX ("Gross
Domestic Product")
PAPER COMPLETE QUESTIONS AND ANSWERS
VERIFIED PREPARATION
◉ Every economy wants....
Answer: 1. Full Employment
2. Stable Prices
3. Growth
◉ The Circular Flow of Resources.
Answer: 1. Market for Outputs (e.g. Q) --> output bought --> 2.
Households --> inputs provided (e.g. labor) --> 3. market for inputs
(e.g. labor, physical capital) --> inputs bought --> 4. Firms --> outputs
sold...
◉ The Circular Flow of $.
Answer: 1. Market for Outputs (e.g. Q) --> market value of output in
$ --> 2. Firms --> GDP= wages and profits $ --> 3. market for inputs --
> GDP = income and received $ --> 4. Households --> GDP = spending
on outputs $
◉ Gross Domestic Product (GDP).
,Answer: the market value of all final goods and services produced
within a country in a year (no intermediate goods or resale items)
◉ Components of GDP (Y).
Answer: Y = Consumption (C) + Investment (I) + Government
Purchases (G) + Net Exports (NX)
◉ Consumption (C).
Answer: spending by households on final goods and services, not
including spending on new houses (68% of GDP)
◉ Examples of Consumption.
Answer: expenditures on services, nondurable goods, durable goods,
and (imputed) rent
◉ Investment (I).
Answer: spending on new capital assets that increase the economy's
productive capacity; includes both the purchase and production of
long-lived assets that contribute to future production (e.g. new
multi-unit houses, R&D, etc.)
◉ Government Purchases (G).
, Answer: government purchases of goods and services (e.g. teachers'
salaries, highways, aircraft carriers) - gov't spending on transfer
payments is not included
◉ transfer payments.
Answer: payments that transfer income from one person to another
(e.g. social security, Medicare), not included in G because this
spending does not result in the production of new G&S
◉ Net Exports (NX).
Answer: exports - imports
◉ exports.
Answer: G&S that are produced domestically in the US and
purchased by foreign buyers
◉ imports.
Answer: G&S produced overseas and purchased by domestic buyers
◉ Measuring GDP: Total Spending.
Answer: add up every dollar of spending; Y = C+I+G+NX ("Gross
Domestic Product")
