Download economics - Mr Bello`s Blog

ECONOMICS
Gross Domestic Product - Ch 12
1) Even though economists can calculate GDP accurately, it is still not a perfect yard stick. GDP does not take into
account certain economic activities. What are the limitations of the GDP?

Non Market activities

Underground economy

Negative externalities

Quality of life
2)
Gross
National
________
Product
________
Gross
Domestic
Product
Gross National
Product
_________
Net National
Product
_________
Net National
Product
National
_________
Income
_________
Personal
Income
_________
National
Income
Gross Domestic Product - Ch 12
Page 1
11/16/12
Personal
Income
_________
Disposable
Personal
_________
Income
3) How does gross domestic product (GDP) differ from gross national product?
GDP is the dollar value of all final goods and services produced within a country’s national borders in a
given year. GNP is the annual income earned by U.S. owned firms and residents.
4) Which phase of the business cycle can lead an economy into recession? Contraction
5) How can interest rates push a business cycle into contractions?
If interest rates rise too high, consumers will stop purchasing “big ticket” items, and businesses will not be
able to afford to borrow the money they need in order to invest in their plants and equipment. Output will fall,
a situation that marks the start of a contraction.
6) Why is the stock market considered to be a leading indicator of economic change?
The stock market has historically given advance notice of a new phase of the business cycle. Typically it
turns sharply downward a short time before a recession begins.
7) What is capital deepening, and how does it contributor to economic growth?
It involves increasing the amount of capital per worker. Workers who have more capital to work with are
likely to be more productive and will therefore contribute to economic growth.
8) What role does saving play in the process of economic growth?
It may be used by firms for business investment (loaned by banks) contributing to economic growth.
How do patents encourage technological progress?
They give investors sole rights to produce and sell their
newly invented goods, providing economic incentive to be creative and thus contributing to technological
progress.
Week 12 of 13.
The 12th AND last quiz towards your midterm
Gross Domestic Product - Ch 12
Page 2
11/16/12