B5 Flashcards
What is the equation for Real GDP?
Nominal GDP divided by GDP deflator X 100
What is the difference between Nominal GDP and Real GDP?
Nominal GDP does NOT adjust for inflation, real does.
Which of the following conditions is most true during a recession:
a.
Actual output will exceed potential output.
b.
Potential output will exceed actual output.
c.
Output (real GDP) will be increasing.
d.
The natural rate of unemployment will increase dramatically.
Choice “b” is correct. During a recession, potential output (real GDP) will exceed actual output (real GDP).
Choice “c” is incorrect. Real GDP is falling during a recession.
Choice “d” is incorrect. The natural rate of unemployment will not be affected by the various phases of the business cycle. Actual unemployment will change with the cycle.
Choice “a” is incorrect. Actual output will not exceed potential output except at the peak of the cycle, and perhaps not then.
What does a reduction in Demand mean related to GDP, Profits, Unemployment, and Price?
GDP is down
Profit is down
unemployment is up
price is down
The trough of a business cycle is generally characterized by:
a.
Unused productive capacity and an unwillingness to risk investments.
b.
Declining purchasing power and unused productive capacity.
c.
Shortages of essential raw materials and rising costs.
d.
Increasing purchasing power and increasing capital investments.
Choice “a” is correct. The trough of a business cycle is an economic low point with no positive indicators for the future. It is characterized by unused productive capacity and an unwillingness to risk new investments.
Choice “c” is incorrect. Shortages may occur during a peak.
Choice “d” is incorrect. Increasing purchasing power and increasing capital investments come with recovery.
Choice “b” is incorrect. Declining purchasing power comes with inflation; unlikely in a trough.
A recession can be caused by: a. An increase in aggregate demand. b. A decrease in aggregate supply. c. Both "b" and "d". d. A decrease in aggregate demand.
Choice “c” is correct. Both choices “b” and “d” can cause a recession. A recession is defined as a period of falling GDP and rising unemployment. GDP will fall if there is a decrease in aggregate demand or a decrease in aggregate supply.
Choice “a” is incorrect. An increase in aggregate demand will cause GDP to increase NOT decrease.
Choice “b” is incorrect, per the above explanation.
Choice “d” is incorrect, per the above explanation.
What are the factors that shift aggregate demand:?
TWICE G
Taxes Wealth Interest Rates Consumer Confidence Exchange rates Government Spending
What is the Expenditure Approach:?
GICE
Government
gross private domestic Investment
personal Consumption expenditures
net Exports (exports minus imports)
What is the Income Approach:?
I PIRATED
Income of proprietors Profits of corporations Interest (net) Rental income Adjustments for net foreign income Taxes Employee compensation (wages) Depreciation (capital consumption allowance)
Which of the following is not likely to cause a rightward shift in the aggregate demand curve?
a.
An increase in wealth.
b.
An increase in government spending.
c.
An increase in the level of real interest rates.
d.
An increase in the general level of confidence about the economic outlook.
An increase in the level of real interest rates.
What is the equation for the Consumer Price Index (CPI)?
= current cost of market basket divided by base year cost of market basket X 100
What is the equation for the Inflation Rate?
=CPI(this period) less CPI(last period) divided by CPI(last period) X 100
What is the equation for the real interest rate?
= Nominal interest rate less inflation rate
What is the equation for the measuring the price elasticity of demand?
=% change in quantity demanded divided by % change in price
What is Perfect competition?
large number of suppliers and customers. Firms are small relative to the industry. no barriers to entry, but lots of competitors.
