Tires sold to a truck maker are intermediate goods, so GDP counts their value only within the price of the finished truck.
Missing Word
intermediate
Intermediate goods are used up in making other products. Counting them separately as well as inside the final good would double count them and overstate output.
Category: Measuring GDP
Question 2
The loss in value of machines and buildings from wear and aging over a year is called depreciation.
Missing Word
depreciation
Depreciation measures how much of the capital stock is used up during the year. Subtracting it from GNP gives net national product.
Category: Measuring GDP
Question 3
Economists convert nominal GDP into real GDP by using the GDP deflator, a price index that covers everything counted in GDP.
Missing Word
deflator
The GDP deflator is a price index built from all the final goods and services in GDP, with a value of 100 in the base year. Real GDP equals nominal GDP divided by the deflator, times 100, which removes the effect of price changes.
Category: Real and Nominal GDP
Question 4
The highest point of economic activity, just before a recession begins, is called the peak.
Missing Word
peak
The peak marks the end of an expansion. From there the economy falls into a recession until it reaches a trough.
Category: Business Cycle
Question 5
In the formula GDP = C + I + G + (X - M), the letter G stands for government purchases, which include purchases at the federal, state and local levels.
Missing Word
government
G is government purchases of goods and services by all levels of government, such as spending on roads, schools and the military. Transfer payments like Social Security are not part of G, because they do not buy new output.
Category: Measuring GDP
Question 6
Long-lasting goods such as cars and refrigerators are classified as durable goods.
Missing Word
durable
Durable goods are products expected to last for years. Food and clothing, which are used up more quickly, are classified as nondurable goods.
Category: Measuring GDP
Question 7
GDP per capita is found by dividing a country's GDP by its population.
Missing Word
population
Dividing by the number of people adjusts for country size. A large country can have a big total GDP while its people are, on average, much less well off than people in a smaller country.
Category: Comparing Countries
Question 8
A sustained rise in the overall level of prices is called inflation.
Missing Word
inflation
Inflation means the general price level is rising, not just the price of one product. Keeping it low is one of the main goals of macroeconomic policy, along with growth and low unemployment.
Category: Goals and Policy Tools
Question 9
The branch of economics that studies the economy as a whole, including growth, unemployment and the price level, is macroeconomics.
Missing Word
macroeconomics
Macroeconomics looks at economy-wide totals and averages. Microeconomics, by contrast, studies the choices of individual households, firms and markets.
Category: Goals and Policy Tools
Question 10
Changes in taxes and public spending, decided by lawmakers rather than by the central bank, are known as fiscal policy.
Missing Word
fiscal
Fiscal policy is the use of taxes and government spending to influence the economy, and in the United States it is set by Congress and the president. Its counterpart, monetary policy, is run by the central bank through the money supply and interest rates.
Category: Goals and Policy Tools
Question 11
Goods produced in the United States and sold to buyers in other countries are U.S. exports.
Missing Word
exports
Exports add to a country's GDP because they are domestic production. Goods bought from abroad are imports and are subtracted, since they were produced elsewhere.
Category: Measuring GDP
Question 12
Central bank actions that manage the money supply and interest rates make up monetary policy.
Missing Word
monetary
Monetary policy is one of the two main tools governments use to influence the economy. The other, fiscal policy, works through government spending and taxes.
Category: Goals and Policy Tools
Question 13
An especially long and deep recession, such as the one in the 1930s, is called a depression.
Missing Word
depression
A depression is far more severe and lasting than an ordinary recession. The Great Depression of the 1930s is the main example in U.S. history.
Category: Business Cycle
Question 14
A country that sells more to other countries than it buys from them in a year runs a trade surplus.
Missing Word
surplus
A trade surplus means exports are greater than imports, so net exports, X - M, are positive. When imports are greater than exports, the country instead runs a trade deficit and net exports are negative.
Category: Measuring GDP
Question 15
Health care, legal advice and education are output that is not a physical object, so they are classified as services.
Missing Word
services
Services are activities done for buyers rather than objects they take home. They make up the largest and fastest-growing part of output in the U.S. economy.
Category: Measuring GDP