ECO 201 Chapter 21 Measuring GDP and Economic Growth Questions and Answers Solved Correctly
Business Cycle - Answers A periodic but irregular up-and-down movement of total production and other
measures of economic activity.
Chained-dollar real GDP - Answers Value production in the prices of adjacent years, find the average of
two percentage changes, and link (chain) back to the reference base year.
Consumption expenditure - Answers Firms sell and households buy consumer goods and services in
goods markets. The total payment for these goods and services is consumption expenditure.
Cycle - Answers A tendency for a variable to alternate between upward and downward movements.
Depreciation - Answers The decrease in the value of a firm's capital that results from wear and tear and
obsolescence.
Expansion - Answers A period during which real GDP increases.
Exports - Answers Firms in the United States sell goods and services to the rest of the world.
Final Good - Answers (or service) is an item that is bought by its final user during a specified time period.
Government expenditure - Answers Governments buy goods and services from firms.
Gross domestic product (GDP) - Answers The market value of the final goods and services produced
within a country in a given time period.
Gross investment - Answers The total amount spent both buying new capital and replacing depreciated
capital.
Imports - Answers Firms in the United States buy goods and services from the rest of the world.
Intermediate good - Answers (or service) an item that is produced by one firm, bought by another firm,
and used as a component of a final good or service.
Investment - Answers The purchase of new plant, equipment, and buildings and the additions to
inventories.
Net exports - Answers The value of exports (x) minus the value of imports (m).
Net investment - Answers The amount by which the value of capital increases.
Nominal GDP - Answers The value of final goods and services produced in a given year when valued at
the prices of that year.
Potential GDP - Answers The maximum level of real GDP that can be produced while avoiding shortages
of labor, capital, land, and entrepreneurial ability that would bring rising inflation.
Business Cycle - Answers A periodic but irregular up-and-down movement of total production and other
measures of economic activity.
Chained-dollar real GDP - Answers Value production in the prices of adjacent years, find the average of
two percentage changes, and link (chain) back to the reference base year.
Consumption expenditure - Answers Firms sell and households buy consumer goods and services in
goods markets. The total payment for these goods and services is consumption expenditure.
Cycle - Answers A tendency for a variable to alternate between upward and downward movements.
Depreciation - Answers The decrease in the value of a firm's capital that results from wear and tear and
obsolescence.
Expansion - Answers A period during which real GDP increases.
Exports - Answers Firms in the United States sell goods and services to the rest of the world.
Final Good - Answers (or service) is an item that is bought by its final user during a specified time period.
Government expenditure - Answers Governments buy goods and services from firms.
Gross domestic product (GDP) - Answers The market value of the final goods and services produced
within a country in a given time period.
Gross investment - Answers The total amount spent both buying new capital and replacing depreciated
capital.
Imports - Answers Firms in the United States buy goods and services from the rest of the world.
Intermediate good - Answers (or service) an item that is produced by one firm, bought by another firm,
and used as a component of a final good or service.
Investment - Answers The purchase of new plant, equipment, and buildings and the additions to
inventories.
Net exports - Answers The value of exports (x) minus the value of imports (m).
Net investment - Answers The amount by which the value of capital increases.
Nominal GDP - Answers The value of final goods and services produced in a given year when valued at
the prices of that year.
Potential GDP - Answers The maximum level of real GDP that can be produced while avoiding shortages
of labor, capital, land, and entrepreneurial ability that would bring rising inflation.
