ECON 114 Midterm 1 Review PDF

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Midterm 1 Review Practice Test 1: An example of an intermediate good or service would be a desk bought by an accountant for her office. Value added refers to the difference between the value of a firm’s output and the value of the inputs it has purchased from others. The quantity of real GDP demanded is composed of the purchases of consumers, firms, governments, and net exporters. Goods and services that we buy from other countries are our imports. A distinguishing characteristic of public transfer payments is that the recipients make no contribution to current production in return for them. An economy is enlarging its stock of capital goods when gross investment exceeds replacement investment. If depreciation exceeds domestic investment, it can be concluded that net investment is negative. Ceteris paribus means other things equal. An example of a final good in national income accounts would be new flowers purchased by a homeowner. The goods and services we sell to people in other countries are our exports. Transfer payments are included when calculating GDP because they increase the spending of recipients. In calculating GDP, economists use the value of final goods and services because by using final goods and services, they avoid double counting. Disposable income is aggregate income minus taxes plus transfer payments. GDP includes final, but not intermediate, goods. Subtracting the purchase of intermediate products from the value of the sales of final products determines the amount of value added from the economic activity. Telephone service for a home is included in GDP. As a consequence of the condition of scarcity, individuals and communities have to make choices from among alternatives. Gross domestic product measures and reports output in dollar amounts. The slope of a horizontal line is zero.

As defined in national income accounting, investment includes business expenditures on machinery and equipment. Gross domestic product is the market value of all the final goods and services produced in a country during a given time period. Net domestic investment refers to total investment less the amount of investment goods used up in producing the year’s output. Potential GDP does not vary with the price level. The change in capital from year to year is equal to gross investment minus depreciation. The inescapable economic fact is that there are unlimited wants and limited resources. Opportunity cost is best defined as the value of the best foregone alternative. Stocks and bond sales are not included in GDP because they are not goods and services. The term “final goods and services” refers to goods and services purchased by ultimate users, as opposed to resale or further processing. If intermediate goods and services were included in GDP, GDP would be overstated. National income accountants consider the purchase of a new house to be investment. January 24th: -

ten principles of economics, summary of each

Mock test: DDBBCCCACCECC Online Test: Over time, people have come to rely more on market-produced goods and less on goods they produce for themselves. This would make GDP rise over time. The government sending your grandfather his pension cheque is an example of a transfer payment. If GDP rises, income and expenditure must both rise. Because it is difficult for economists to use experiments to generate data, they must use whatever data the world gives them. The goal of theories is to help scientists understand how the world works. A marginal change is a small, incremental adjustment. For economists, the two types of statements about the world are positive and normative.

If Russel spends an hour studying instead of playing tennis, the opportunity cost is the enjoyment and exercise he would have received had he played tennis. A model is made compelling by its When a firm produces consumer goods and adds some to inventory rather than selling them, the increase in inventory is counted in the current GDP as investment. If an economy is producing efficiently, there is no way to produce more of one good without producing less of the other. In an economy consisting of only households and firms, GDP can be computed by An element that is not a characteristic of economic models is that models cannot be used to make predictions. A not common characteristic of economic models is that they are useful to economists but not policy makers. In economics, the cost of something is what you give up to obtain it. A common thread between economics and other sciences is that real-world observations often lead to theories. The best single measure of a country’s economy is gross domestic product. The goal of macroeconomics is to explain changes that affect the economy as a whole. Intermediate goods are excluded in GDP computations because their value is already counted in the value of final goods. The difference between nominal and real GDP is that nominal GDP values production at current prices, while real GDP values production at constant prices. Canadian exports of goods and services are included in Canadian GDP. A rational decision maker only takes an action when marginal benefit is greater than marginal cost. An economy is experiencing scarcity when a society cannot produce all the goods and services people wish to have. Evaluating a positive statement involves examining evidence. Scarcity exists when there is less of a good or resource available than people wish to have. “There is no such thing as a free lunch” means that to get one thing, we must give up something else. Economists make assumptions to make the world easier to understand.

Economy means “one who manages a household.” Efficiency means that a society is getting the most it can from its scarce resources. People make decisions at the margin by comparing costs and benefits. “Equity is more important than efficiency” is not a positive statement....