Econ Exam 2 Questions with Answers Correctly
Solved Solutions
1. Which of the following statistics is usually regarded as the best single measure of a society's
economic well-being?: Gross domestic product
2. In the actual economy, goods and services are purchased by: Households, firms, and the
government.
3. If an economy's GDP falls, then it must be the case that the economy's: In- come and
expenditure both fall.
4. In the GDP accounts, production equals: Income
5. An economy's gross domestic product is: An economy's gross domestic prod- uct is
6. Consumption: Spending by households on goods and services, with the excep- tion of
purchases of new housing.
7. Investment: Spending on business capital, residential capital, and inventories.
8. Government Purchases: Spending on goods and services by local, state, and federal
governments.
9. Net exports: Spending on domestically produced goods by foreigners (exports) minus
spending on foreign goods by domestic residents (imports).
10.Nondurable goods: Goods that wear out easily and can only be used for a short period of time
(such as food, clothing, gasoline, etc.)
11.Durable goods: Goods that do not wear out easily and can be used repeatedly (such as
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, books, electronics, cars, appliances, etc.)
12.Business Capital: Capital that includes business structures (such as factories or office
buildings), equipment (such as a worker's computer), and intellectual property products (such
as the software that runs the computer).
13.Residential Capital: Capital that includes the landlord's apartment building and a
homeowner's personal residence.
14.Transfer payments: Payments from the government to households, but not in exchange for
any goods or services being produced (so they are not included in GDP). Examples include
Social Security benefits and unemployment insurance benefits.
15.Nominal GDP: The production of goods and services valued at current prices.
16.Real GDP: The production of goods and services valued at constant (base-year) prices.
17.GDP deflator: A measure of the price level calculated as the ratio of nominal GDP to real
GDP times 100.
18.Gross National Product: Total production performed by citizens of a nation, including
overseas production.
19.Net National Product: The total income earned by a nation's residents (GNP) in the
production of goods and services. Net National Product = GNP - depreciation.
20.Depreciation: The wear and tear on the physical capital of an economy.
21.National Income: The total income earned by a nation's residents (GDP) in the production of
goods and services. National Income = GDP - depreciation.
22.Personal Income: Income that households and noncorporate businesses re- ceive. Personal
income = national income + transfer payments - retained earnings.
23.Disposable personal income: Income that households and noncorporate busi- nesses have left
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Solved Solutions
1. Which of the following statistics is usually regarded as the best single measure of a society's
economic well-being?: Gross domestic product
2. In the actual economy, goods and services are purchased by: Households, firms, and the
government.
3. If an economy's GDP falls, then it must be the case that the economy's: In- come and
expenditure both fall.
4. In the GDP accounts, production equals: Income
5. An economy's gross domestic product is: An economy's gross domestic prod- uct is
6. Consumption: Spending by households on goods and services, with the excep- tion of
purchases of new housing.
7. Investment: Spending on business capital, residential capital, and inventories.
8. Government Purchases: Spending on goods and services by local, state, and federal
governments.
9. Net exports: Spending on domestically produced goods by foreigners (exports) minus
spending on foreign goods by domestic residents (imports).
10.Nondurable goods: Goods that wear out easily and can only be used for a short period of time
(such as food, clothing, gasoline, etc.)
11.Durable goods: Goods that do not wear out easily and can be used repeatedly (such as
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, books, electronics, cars, appliances, etc.)
12.Business Capital: Capital that includes business structures (such as factories or office
buildings), equipment (such as a worker's computer), and intellectual property products (such
as the software that runs the computer).
13.Residential Capital: Capital that includes the landlord's apartment building and a
homeowner's personal residence.
14.Transfer payments: Payments from the government to households, but not in exchange for
any goods or services being produced (so they are not included in GDP). Examples include
Social Security benefits and unemployment insurance benefits.
15.Nominal GDP: The production of goods and services valued at current prices.
16.Real GDP: The production of goods and services valued at constant (base-year) prices.
17.GDP deflator: A measure of the price level calculated as the ratio of nominal GDP to real
GDP times 100.
18.Gross National Product: Total production performed by citizens of a nation, including
overseas production.
19.Net National Product: The total income earned by a nation's residents (GNP) in the
production of goods and services. Net National Product = GNP - depreciation.
20.Depreciation: The wear and tear on the physical capital of an economy.
21.National Income: The total income earned by a nation's residents (GDP) in the production of
goods and services. National Income = GDP - depreciation.
22.Personal Income: Income that households and noncorporate businesses re- ceive. Personal
income = national income + transfer payments - retained earnings.
23.Disposable personal income: Income that households and noncorporate busi- nesses have left
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