Concept and Indicators Flashcards

Which approach to measuring GDP sums wages, profits, rents, and interest across the economy?

Answer: Income approach

The income approach (also called the income-distribution approach) sums all factor payments: wages, rent, interest, and profit.

Inventory investment in GDP accounting refers to:

Answer: Changes in the stock of unsold goods held by firms

When firms produce more than they sell, inventories rise and are counted as investment; a drawdown of inventories reduces I.

Which sector's spending is represented by the variable 'G' in the GDP formula C + I + G + NX?

Answer: All levels of government (federal, state, local) on goods and services

G includes federal, state, and local government purchases of goods and services but excludes transfer payments like Social Security.

Purchasing Power Parity (PPP) adjustments to GDP are used primarily to:

Answer: Compare living standards across countries by accounting for price level differences

PPP-adjusted GDP converts each country's output using prices that reflect what goods actually cost locally, enabling fairer cross-country comparisons.

Which of the following would be classified as 'investment' (I) in the GDP expenditure approach?

Answer: A business purchasing a new factory

Business fixed investment—structures, equipment, and intellectual property—is the I component; financial assets and consumer durables are classified differently.

The Bureau of Economic Analysis (BEA) publishes the U.S. National Income and Product Accounts (NIPAs) primarily to:

Answer: Provide comprehensive measures of U.S. economic output, income, and spending

The NIPAs, produced by the BEA, are the official statistical framework tracking GDP, GNP, national income, and related aggregates.

An economy produces only two goods: 100 apples at $1 each and 50 oranges at $2 each. What is GDP?

Answer: $200

GDP = (100 × $1) + (50 × $2) = $100 + $100 = $200.