Why does GDP equal aggregate income and also equal aggregate expenditure?
What will be an ideal response?
GDP equals aggregate income because one way to value production is by the cost of the factors of production employed. The cost of the factors production employed—wages, interest, rent, and profit—equal aggregate income and therefore aggregate income equals GDP. GDP equals aggregate expenditure because another way to value production is by the price that buyers pay for the production in the market. Aggregate expenditure equals the sum of consumption expenditure, investment, government expenditure, and exports minus imports, which is the total amount spent buying the production in the market. Therefore GDP equals aggregate expenditure.
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Refer to the table above. The government sector balance is a
A) $900 billion surplus. B) $500 billion deficit. C) $2,900 billion trade deficit. D) $2,900 billion balanced budget. E) $900 billion deficit.
Economists assume people behave rationally, which means that people
A) never make a mistake. B) do not intentionally make decisions that make themselves worse off. C) have the necessary information to always make correct decisions. D) always understand the consequences of their decisions.
Borrowing in one's own currency has many advantages for low-income nations (such as Chile). Which of the following is NOT an advantage?
A) Service payments are usually retained in the nation. B) Defaults are typically not an issue. C) The nation is never obliged to repay—it can roll over the debt in perpetuity. D) More national debt actually helps credit markets deepen and mature.
Since rent control ________ the total surplus of the market, the policy generates a ________.
A. decreases; producer surplus B. increases; producer surplus C. decreases; deadweight loss D. increases; deadweight loss