B5 - Economic Measures/Indicators

Question 1

Method of Measuring GDP:

Expenditures Approach FORMULA (GICE)

Answer 1

Government purchases
+Investment
+Consumption
-Exports (net)

Net Exports is Exports - Imports

Question 2

Regarding increases in price levels, a period of inflation:

Answer 2

Increases the price level, which is negatively related to the purchasing power of money

Question 3

In regards to Aggregate Demand and Aggregate Supply, which would lead to the most inflation?

Answer 3

Aggregate demand increases and aggregate supply decreases.

Question 4

What type of unemployment is not consistent with full employment?

Answer 4

Cyclical unemployment. When the economy is operating at full employment, there is no cyclical unemployment

Question 5

A sharp rise in the price of oil (a major input) would result in:

Answer 5

Cost (Push) inflation

Question 6

The discount rate set by the Federal Reserve is the:

Answer 6

Rate that the central bank charges for loans to commercial banks.

Question 7

An increase in the discount rate would cause:

Answer 7

The money supply to decrease and interest rates to rise.

Question 8

What type of unemployment is shown when individuals do not have the qualifications or skills necessary to fill available jobs?

Answer 8

Structural

Question 9

Real interest rate FORMULA

Answer 9

Real interest rate = Nominal interest rate - Inflation rate

Question 10

Inflation Rate FORMULA

Answer 10

Inflation rate = ((CPI this period - CPI last period)/CPI last period)) x 100

Question 11

The inflation rate measures:

Answer 11

The rate at which the overall price level increases

Question 12

Stagflation is:

Answer 12

A combination of rising unemployment and a rising price level

Question 13

Method of Measuring GDP

Income Approach “I PIRATED”

Answer 13

I PIRATED
Income of proprietors
\+ Profits of corporations
\+ Interest (net)
\+ Rental income
\+ Adjustments for net foreign income/misc
\+ Taxes (indirect business)
\+ Employee compensation
\+ Depreciation (consumption of fixed capital)

= Domestic Income

Question 14

What is one action that is an acknowledged preventive measure for a period of deflation?

Answer 14

Increasing the money supply

Question 15

What is GDP?

Answer 15

The total dollar (monetary) value of all new final products and services produced within the economy in a given time period. The emphasis is on the FINAL goods and services.

Question 16

What is Consumer Price Index (CPI) ?

Answer 16

Measurement of the costs of a market basket of goods commonly purchased by consumers. It represents monthly data and is a measurement of what HAS BEEN paid for items, NOT what consumers WILL pay.

Question 17

What is deflation?

Answer 17

Sustained decrease in the general prices of goods and services.

Question 18

What is disposable income?

Answer 18

Personal Income less individual income taxes

Question 19

During periods of inflation, individuals holding monetary assets will bet at a:

Answer 19

Disadvantage. holding net monetary assets will cause an individual to lose purchasing power.

Question 20

If a CPA’s client expected a high inflation rate in the future, the CPA would suggest to the client what type of investment?

Answer 20

Non-monetary assets (such as precious metals). Non-monetary asset values increase with inflation.