Aggregate Output, Prices, and Economic Growth

Question 1

Two ways of viewing GDP

Answer 1

(1) Output

(2) Income

Question 2

The implicit price deflator for GDP, or simply the GDP deflator, is defined as

Answer 2

Value of current year output at current year /

Value of current year output at base year prices × 100

Question 3

GDP =

Answer 3

C + I + G + (X – M)

Question 4

The _______ represents the proportion of an additional unit of disposable income
that is consumed or spent.

Answer 4

Marginal propensity to

consume (MPC)

Question 5

The quantity theory of money equation provides a straightforward connection
among the nominal money supply (M), the price level (P), and real income/expenditure (Y):

Answer 5

MV = PY

Question 6

Thus, the _________ is measured

by the rate of increase in the economy’s productive capacity or potential GDP

Answer 6

sustainable rate of economic growth

Question 7

There are five important

sources of growth for an economy:

Answer 7

■ Labor supply;
 ■ Human capital;
 ■ Physical capital;
 ■ Technology; and
 ■ Natural resources

Question 8

The GDP Deflator =

Answer 8

Nominal GDP/Real GDP.

Question 9

National income = GDP –

Answer 9

CCA (Capital consumption allowance)

Question 10

S =

Answer 10

I + (G – T) + (X – M). This form of the
relationship shows that private saving must fund investment expenditures, the
government fiscal balance, and net exports (= net capital outflows).

Question 11

The IS curve represents

Answer 11

combinations of income and the real interest rate at which planned expenditure equals income.