Chap 3

Question 1

Nominal GDP

Answer 1

Change in GDP based on change in price and in quantity.

Question 2

Real GDP

Answer 2

Change in GDP from change in quantity only.

Question 3

GDP growth results from what 3 things?

Answer 3

1) Population increase
2) Increases in capital stock
3) Improvements in technology

Question 4

What happens in the expansion phase?

Answer 4

Stable inflation, higher demand, more startups than failures, strong stock market, steady or falling unemployment

Question 5

What happens in the peak phase?

Answer 5

Demand outstrips supply, inflation rises, interest rates rise, bond prices fall, business sales decline, accumulation of inventory, stock market declines

Question 6

What happens in the contraction phase?

Answer 6

GDP decreases, layoffs, business failures outnumbers startups, consumers spend less

Question 7

What happens in the trough phase?

Answer 7

Lowest point, interest rates fall, bonds rally, inflation falls, lower interest rates stimulate spending, stock prices rally

Question 8

What happens in the recovery phase?

Answer 8

Increased production, layoffs end, unemployment remains high, firms not ready to make new investment

Question 9

Name some leading indicators

Answer 9

housing starts, manufacturers’ new orders, commodity prices, average hours worked per week, stock prices, money supply

Question 10

Name some coincident indicators

Answer 10

Personal income, GDP, industrial production, retail sales

Question 11

Name some lagging indicators

Answer 11

Unemployment, private sector plant/equipment spending, business loans/interest on them, labour costs, inflation rate

Question 12

What is the difference between current account and capital accounts?

Answer 12

1) what we spend on things (Exchanges of goods/services between Canadians and foreigners)
2) what we use to finance this spending