Chapter 2

Question 1

What is the GDP formula?

Answer 1

Y = C + I + G + NX {2-3}

Question 2

What is included in consumption?

Answer 2

Durable and non durable goods

Question 3

What percentage of GDP is consumption in Canada?

Answer 3

57%

Question 3

What is included in investment?

Answer 3

investment associated with the business sector: physical stock, capita, etc

Question 3

What is included in government purchases?

Answer 3

government purchases of goods and services does not include transfer payments

Question 3

What is the private savings equation?

Answer 3

Y = C+S

Question 3

What is the equation for the private sector?

Answer 3

YD = Y + TR - TA

Question 4

What is the equation for disposable income?

Answer 4

Y = C + S

Question 4

What are included in net exports?

Answer 4

any exported goods, subtracting imports

Question 5

What is the budget balance equation?

Answer 5

TA - G - TR

Question 6

Three methods the private sector can you to dispose of savings?

Answer 6

1. Make loans to the government
2. Private sector can lend to foreigners
3. Private sector can lend to firms who use the funds for investment

Question 7

What is the definition of GDP?

Answer 7

value of final goods and services currently produced within a country over a period of time

Question 8

What are the four problems with GDP measurement?

Answer 8

1. Some outputs are not traded in the market
2. If outputs are not reported they are not counted
3. Some things that are measured as part of GDP are bad
4. It is difficult to account for improvements in the quality of goods

Question 9

What is nominal GDP?

Answer 9

measures the value of output in a given period using current dollars

Question 10

What is the average inflation rate in Canada?

Answer 10

2%

Question 11

What are the three key price indexes?

Answer 11

1. GDP deflator
2. Consumer Price Index (CPI)
3. Producer Price Indexes (PPI)

Question 12

What is the GDP deflator?

Answer 12

The ratio of nominal GDP in a given year to the real GDP of that year

Question 13

What does the CPI do?

Answer 13

Measure the cost of buying a fixed basket of goods and services

Question 14

Three ways the CPI differs from the GDP deflator?

Answer 14

1. GDP measures a larger group of goods
2. CPI measure of a given basket of goods over 2+ years, while GDP deflator differs from year to year
3. CPI includes imports, GDP is only Canadian made

Question 15

What is the producer price index (PPI)?

Answer 15

measure prices at which businesses sell their goods and services to other businesses, consumers and government

Question 16

What is the interest rate?

Answer 16

rate of payment on money saved or on a loan in terms of an annual percentage

Question 17

what is the real interest rate?

Answer 17

return on an investment adjusted for expected inflation?

Question 18

What is the nominal interest rate?

Answer 18

Return on an investment in current dollars

Question 19

What is the exchange rate?

Answer 19

the price of one currency in terms of another

Question 20

What is output on the production side?

Answer 20

factor payments to labour and capital

Question 21

What is output on the demand side?

Answer 21

Output is consumed or invested