IB ECONS

Define the term "national income accounting".

• A method to measure only government spending
• A process to measure the monetary value of all goods and services produced in a country during a year
• A system to calculate only the income earned by households
• A procedure for determining the level of imports and exports

Define the term "GDP" as used in national income accounting.

• The value of all intermediate goods produced in the country
• The monetary value of all final output of goods and services produced within a country during a year
• The total government expenditure on public services
• The value of all foreign investment in the country

Define the "income method" of measuring national income.

• Summing up the values of final goods and services produced
• Calculating national income by adding all factor incomes (wages, rent, interest, and profits)
• Adding up all consumption and investment expenditures
• Measuring only the output of manufacturing sectors

Define the "output method" in national income accounting.

• It sums the value of all intermediate goods produced
• It measures national output by calculating the value of all final goods and services produced
• It calculates only government spending on goods and services
• It measures net exports only

Define the "expenditure method" of measuring national income.

• It adds up the wages and salaries paid in the economy
• It aggregates total spending on goods and services, expressed as GDP = C + I + G + (X - M)
• It measures only private consumption expenditure
• It calculates national income by summing up only exports and imports

Define the term "transfer payments" in the context of GDP calculation.

• Payments that generate corresponding output in the economy
• Payments, such as unemployment benefits, that are not included in GDP because no output is produced
• Payments made by firms to purchase raw materials
• Payments that are recorded as government expenditure in GDP

Define the term "circular flow of income".

• A model that explains how income and spending circulate between households and firms in an economy
• A method of calculating national output using only the expenditure approach
• A system for measuring the level of imports and exports
• A technique to estimate inflation over time

Define what is meant by "leakages" in the circular flow of income model.

• Injections that add money to the economy
• Withdrawals such as savings, taxes, and import expenditure that remove money from the economy
• The total amount of government spending
• Increases in investment spending

Define "injections" in the circular flow of income model.

• Money that leaves the economy through saving and taxes
• Payments made by households for consumption
• Additions to the economy such as investment, government spending, and export earnings
• Only the revenues from foreign trade

Define the condition for equilibrium in the circular flow of income model.

• When total exports equal total imports
• When leakages equal injections (i.e., S + T + M = I + G + X)
• When household savings are at a minimum
• When government spending equals taxes