BEC 5 (2)

Question 1

What is real GDP? Formula?

Answer 1

The value of all final goods and services in constant prices

Real GDP = nominal GDP/GDP deflator * 100

gDp deflator is the price index

Question 2

Definition of GDP

Answer 2

The total market value of all goods and services produced within the borders of a nation in a particular period regardless of who owns the resources

Question 3

Definition of nominal GDP

Answer 3

Measures all goods and services in current prices

Question 4

Definition of real GDP

Answer 4

Measures the value of al goods and services in constant prices

Question 5

What is real gdp by capital? What is this term used for?

Answer 5

Real gdp / population

Compare standard living across countries and time

Question 6

What are the business cycle? What are the main characters of each phase?

Answer 6

Expansionary - rising economy that goes above its long term growth trend - GDP up employment up

Peak - high point of economy - end of E phase and beginning of contractionary phase - highest profits///face capacity /input shortage leading higher cost and price levels

Contractionary - falling

Trough -low point leading reduce of workforce and cost cutting

Recovery - economy come Back up to its LT growth trend

Question 7

Depict business cycle

What is LT growth tend

Answer 7

The historical average growth rate

Question 8

What does economic fluctuations vary in?

Answer 8

Duration, severity, deviation from LT average growth rate

Question 9

Recession vs depression

Answer 9

Recession is below LT average growth rate when real GDP less than potential GDP and is defined as two consecutive quarters of falling national output

Depression is very severe recession- long period of stagnation and high unemployment rate - firms go out of business during depression

Question 10

What is stagflation and lead to?

Answer 10

It is a result of a declining output and rising prices due to a decrease in aggregate supply

Question 11

The phase of business cycle

Answer 11

Peak, contraction (indicative of recession), a trough, recovery

Question 12

Which might be considered the most expansionary set of fiscal policies?

Increase government purchases and decrease in taxes

Increase government purchases and increAse in money supply

Decrease in taxes and increase in money supply

Answer 12

The first one

Because money supply is money policy

Question 13

What does it mean when the company will be at the natural rate of unemployment

Answer 13

There is frictional, structural, seasonal unemployment. Cyclical rate is at zero percent which implies that the economy is operating at its highest potential level

Question 14

One trillion equals to how many billions

Answer 14

1000 billion = 1 trillion

9 zeros vs 12 zeros

Question 15

Recovery versus expansionary

Answer 15

Recovery follows right after a trough and is when economic activity begins to increase

Expansionary is rising economic activity and growth

Question 16

Causes to rightward shift of AD

Answer 16

Increase in wealth, confidence, government spending,
Decrease in real IR, taxes, discount rate and required reserve rate
Depreciation in currency, federal reserve purchase government securities

Question 17

Causes of rightward of AS

Answer 17

Decrease input prices,

Supplies are plentiful

Question 18

What’s the impact on economy’s AD and AS of increased in product prices?

Answer 18

No impact as product prices only cause movement, not a shift, (slide up or down) along the demons curve

Changes in Quantity demand and quantity supply are due to changes in product prices