Chapter 19

Question 1

Objectives of Macroeconomics

Answer 1

• High output level.
• Low unemployment level.
• Stable prices.

Question 2

Instruments of Macroeconomics

Answer 2

• Monetary Policy.

- Fiscal Policy.

Question 3

Monetary Policy

Answer 3

Interest rates.

Question 4

Fiscal Policy

Answer 4

Taxation and government expenditures.

Question 5

Gross Domestic Product (GDP)

Answer 5

Total number of final goods and services produced in a country during a year. Used to measure output.

Question 6

Nominal GDP

Answer 6

Accounts for current market prices.

current price x current quantity

Question 7

Real GDP

Answer 7

Calculated in constant prices.

Question 8

Real GDP Growth Rate

Answer 8

100 x (new - old) / old

Question 9

GDP per Capita

Answer 9

GDP / population

Question 10

Potential GDP

Answer 10

Maximum level of output that can be produced if the country used full employment.

Question 11

Recession

Answer 11

A period of significant decline in total output and employment, lasts more than a few months.

Question 12

Depression

Answer 12

A sever downturn in output and employment.

Question 13

Business Cycles

Answer 13

Occur when there is an output gap between actual and potential output.

Question 14

Labor Force

Answer 14

Includes all employed and unemployed individuals who are looking for a job.

Question 15

Unemployment Rate

Answer 15

Percentage of labor force that is unemployed.

Question 16

What changes might a fall in output cause?

Answer 16

Demand for labor falls, thus unemployment rate rises.

Question 17

Inflation Rate

Answer 17

Percentage change in overall prices over a year.

= 100 x (New - Old) / Old

Question 18

Consumer Price Index (CPI)

Answer 18

Measure of the average price of group of goods and services consumed by a typical family.

Question 19

Headline Inflation

Answer 19

Rate of change in CPI.

Question 20

Core Inflation

Answer 20

Rate of change of prices of consumer basket, excluding food and energy.

Question 21

Deflation

Answer 21

When prices decline.

Question 22

Hyperinflation

Answer 22

When prices rise by 1000% or 1000000% a year.

Question 23

Government Expenditures

Answer 23

• Government Purchases: construction and salaries.

- Government Transfer Payments: to elderly.

Question 24

Current Account Balance / Net Exports

Answer 24

Difference between exports and imports.

Question 25

Aggregate Supply

Answer 25

Total number of goods and services that the nation’s businesses are willing to produce.

Question 26

Aggregate Demand

Answer 26

Total amount an economy is willing to spend.