Chapter 2 - The Data of Macroeconomics

Question 1

CPI Formula

Answer 1

CPI = (Cost of basket in current period/Cost of basket in base period) * 100

Question 2

GDP Deflator Formula

Answer 2

GDP Deflator = (Nominal GDP/Real GDP) * 100

Question 3

Labour Force Formula

Answer 3

Labour Force = Employed + Unemployed

Question 4

Unemployment Rate Formula

Answer 4

Unemployment Rate = (Unemployed/Labour Force) * 100%

Question 5

Labour Force Participation Rate Formula

Answer 5

Labour Force Participation Rate = (Labour Force/Working-Age Population) * 100%

Question 6

What are the 3 approaches to computing GDP?

Answer 6

-Expenditure
-Income
-Value Added

Question 7

Expenditure Approach to Calculating GDP

Answer 7

Total expenditure on domestically produced final goods and services. Y = C + I + G + NX

Question 8

Income Approach to Calculating GDP

Answer 8

Total income earned by domestically located factors of production.

Question 9

Value Added approach to Calculating GDP

Answer 9

Value Added = Value of Output - Value of Intermediate Goods

Question 10

Stock

Answer 10

Quantity measured at a point in time

Question 11

Flow

Answer 11

Quantity measured per unit of time

Question 12

Gross Domestic Product (GDP)

Answer 12

Total income earned by domestically located factors of production, regardless of nationality.

Question 13

Gross National Product (GNP)

Answer 13

Total income earned by the nation’s factors of production, regardless of where located.

Question 14

Inflation Rate Formula

Answer 14

Inflation Rate = ((CPI [Year 2] - CPI [Year 1])/(CPI [Year 1])) * 100%

Question 15

Circular Flow Model

Answer 15

Firms provide income in exchange for labour from households.

Households give businesses money (expenditure) in exchange for goods produced by businesses.

Question 16

Why do the different methods of computing GDP give the same result?

Answer 16

Every dollar a buyer spends becomes income to the seller

Question 17

True or False: Sale of used goods are included in GDP

Answer 17

False, only new goods are included in GDP

Question 18

Durable Goods (give an example)

Answer 18

Goods that last a long time

Eg. cars, home appliances

Question 19

Nondurable Goods (give an example)

Answer 19

Goods that last a short period of time

Eg. food, clothing

Question 20

Services (give an example)

Answer 20

Intangible items purchased by consumers

Eg. Dry cleaning, haircut

Question 21

Consumption (C)

Answer 21

The value of all goods and services bought by households

Question 22

Why does CPI overstate inflation?

Answer 22

-Substitution Bias
-Introduction of new goods
-Unmeasured changes in quality

Question 23

Substitution Bias

Answer 23

A reason why CPI overstates inflation.
CPI uses fixed weights (quantities).
Thus, it cannot illustrate consumers’ ability to substitute towards goods whose relative prices have fallen.

Question 24

Introduction of new goods

Answer 24

A reason why CPI overstates inflation.
New goods make consumers better off
Thus, the real value of the dollar increases. But, CPI remains the same.

Question 25

Unmeasured changes in quality

Answer 25

Quality improvements increase the value of the dollar, but are not measured by CPI.

Question 26

Survey of Employment, Payrolls, and Hours (SEPH)

Answer 26

Survey conducted among businesses that provides information about earnings and hours worked by industry at the national and provincial level.

Question 27

Which survey is superior, the Labour Force Survey (LFS) or the Survey of Employment, Payrolls, and Hours (SEPH)?

Answer 27

Neither.

Both measures have their flaws, but if used together, we can get a reasonably accurate view of employment in Canada

Question 28

Labour Force Survey (LFS)

Answer 28

Survey among households that provides data on:
-# of people in the labour force
-Unemployment Rate
-Labour Force Participation Rate

Question 29

Chain-weighted Real GDP

Answer 29

Real GDP with base year updated continuously over time. Can be used to compare the output of goods and services between any 2 dates

Question 30

When inflation increases, what happens to unemployment? Why?

Answer 30

Unemployment decreases when inflation increases since workers are willing to supply more labour due to increased wages from inflation.