Comprehension. Ex. 1.Complete the following sentences, use the prompts below:

Ex. 1. Complete the following sentences, use the prompts below:

1. ________________ is the most widely used measure of a nation’s economic performance and is the market value of all final goods produced in the country during a period of time.

2. To avoid double counting. GDP does not include _________________.

3. The ___________________ sums the four major spending components of GDP consisting of: consumption, investment, government, and net exports.

4. GDP less depreciation of fixed capital equals __________________.

5. _______________ is total income received by households and is calculated as national income less corporate taxes, retained earnings, Social Security taxes plus transfer payments and net interest from government securities.

6. ________________ is personal income minus personal taxes.

7. ________________ measures all final goods produced in a given time period valued at the prices existing during the time period of production.

8. ________________ is the value of all final goods and services produced during any time period valued at prices existing in a base year.

9. ________________ is the market value of all final goods and services produced by a nation’s residents no matter where they are located.

10. A government payment to individuals not in exchange for goods or services currently produced is called a _____________.

11. ________________ are finished goods and services produced for the ultimate user.

Words for reference: gross domestic product (GDP); intermediate goods; expenditure approach; net domestic product; personal income; disposable personal income; nominal GDP; real GDP; gross national product (GNP); transfer payment; final goods.

Ex. 2. Based on your understanding of the text, are the following TRUE or FALSE?

1. Gross domestic product is the market value of all intermediate and final goods and serviced produced within a country in a given period of time.

2. Market prices measure the amount people are willing to pay the different goods and reflect the value of those goods.

3. GDP includes all items produced in the economy and sold both legally and illegally in the markets.

4. GDP does not include the market value of the housing services.

5. GDP excludes most items that are produced and consumed at home.

6. The value of intermediate goods is not included into the value of the final goods.

7. GDP excludes intangible services.

8. GDP is the market value of all final goods and services produced by nation’s residents no matter where they are located.

9. GDP measures the value of production that takes place within a specific integral of a time, which is usually a month.

10. How do nominal and real GDP differ?

11. What is the GDP deflator?

Ex. 3. Answer the questions.

1. What factors are taken into account to describe the overall performance of the economy?

2. How can Gross Domestic Product be defined?

3. How do they manage to compare the value of absolutely different goods?

4. How do you understand the fact that GDP tries to be comprehensive?

5. Does GDP include the value of intermediate good?

6. What are the tangible goods and intangible services that GDP includes?

7. Does GDP include transactions involving items produced in the past?

8. Are items produced abroad by subsidiaries included in a nation’s GDP?

9. What are most common intervals for measuring GDP?

10. How do real and nominal GDP differ?

Text 2

The text is followed by a set of questions. Read the text and answer the accompanying questions, basing your answers on what is stated or implied in the text.

Spending in the economy takes many froms. At any moment, the Smith family may be having lunch at Burger King; Genaral Motors may be building a car factory; the Navy may be procuring a submarine; and British Airways may be buying an airplane from Boeing. GDP includes all of these various forms of spending on domestically produced goods and services.

To understand how the economy is using its scarce resources, economists are often interested in studying the composition of GDP among various types of spending. To do this, GDP (which we denote as Y) is divided into four components: consumption (C), investment (I), government purchases (G), and net exports (NX):

We have just seen an example of each component. Consumption is spending by households on goods and services, such as the Smiths' lunch at Burger King. Investment is the purchase of capital equipment, inventories, and structures, such as the General Motors factory. Investment also includes expenditure on new housing. (By convention, expenditure on new housing is the one form of household spending categorized as investment rather than consumption.) Government purchases include spending on goods and services by local, state, and federal governments, such as the Navy's purchase of a submarine. Net exports equal the purchases of domestically produced goods by foreigners (exports) minus the domestic purchases of foreign goods (imports). A domestic firm's sale to a buyer in another country, such as the Boeing sale to British Airways, increases net exports.