Chapter 3

Question 1

A price index that measures changes in average prices of goods and services purchased by a typical consumer

Answer 1

consumer price index

Question 2

Spending by households, including durable goods (washing machine, stereos, and cars), non-durable goods (food, clothing, and gasoline), and services (haircuts, medical care, education)

Answer 2

consumption

Question 3

A continual decrease in the average price level

Answer 3

deflation

Question 4

Economists use the term to refer to continual increases in real GDP or real GDP per capita. The term is often used in the press to mean increases in total spending

Answer 4

economic growth

Question 5

Goods and services produced domestically and sold abroad

Answer 5

exports

Question 6

The market value of all of the final goods and services produced annually within a nation

Answer 6

GDP

Question 7

The sum of federal government, state, and local government purchases of goods and services counted in GDP. It includes public investments

Answer 7

government spending

Question 8

Goods produced abroad and purchased domestically

Answer 8

imports

Question 9

An increase in the overall level of prices of goods and services in the economy. Often expressed as an annual rate of increase

Answer 9

inflation

Question 10

When used in reference to GDP or the entire economy, it is any spending intended to increase future output. For example, new factories/machines, inventory

Answer 10

investment

Question 11

The number of individuals who have jobs plus the number who are actively looking for work

Answer 11

labor force

Question 12

Exports of goods and services minus imports of goods and services

Answer 12

net exports

Question 13

The real value of all final goods and services produced in an economy in a year. Measured in dollars adjusted for changes in the overall price level

Answer 13

real GDP

Question 14

Real GDP per person; real GDP divided by population

Answer 14

Real GDP per capita

Question 15

An individual is counted as unemployed if he or she does not have a job and is actively looking for work

Answer 15

Unemployed

Question 16

The percentage of the labor force that is unemployed

Answer 16

unemployment rate

Question 17

formula for GDP

Answer 17

GDP = C + I + G + (EX – IM)

Question 18

When comparing changes over time, ___ GDP is a more accurate measure of changes in production as it removes the effects of changes in prices.

Answer 18

real

Question 19

___ is a continual rise in the overall price level and is most often measured by changes in the ___

Answer 19

inflation; consumer price index

Question 20

Economists measure growth in our economy by looking at ___ , that is, the actual production of goods and services valued at a base year’s prices rather than current prices

Answer 20

real GDP

Question 21

GDP calculated using current year prices is often called _____ GDP

Answer 21

nominal

Question 22

GDP calculated using base year prices is called ____ GDP

Answer 22

real

Question 23

If the net exports balance is positive, we are ___ more than we are ___

Answer 23

exporting; importing

Question 24

Are social security payments and unemployment assistance included in GDP?

Answer 24

No, payments do not represent any new production of goods and services

Question 25

How do you calculate the unemployment rate?

Answer 25

Number of individuals unemployed (people who do not currently have a job AND are currently looking for a job)

/

labor force ( those employed + those looking for a job)

Question 26

If the labor force increases, but the number of people unemployed stays the same, what happens to the unemployment rate?

Answer 26

decreases

Question 27

During times of low employment, some people get discouraged, stop looking for work, and go back to school. How does going back to school affect the labor force?

Answer 27

It decreases the number in the labor force

Question 28

The typical measure used to calculate inflation is CPI. CPI uses what to calculate price levels?

Answer 28

A typical basket of goods purchased by consumers

Question 29

Goods that are not for final use, that are used to make something else

Answer 29

intermediate goods, not counted separately in the GDP

Question 30

if there is inflation, the nominal GDP is ___ than the real GDP

Answer 30

greater

Question 31

if there is deflation, the nominal GDP is ___ than the real GDP

Answer 31

less

Question 32

When there is deflation, the nominal GDP is ___ estimated (over or under)

Answer 32

under

Question 33

When there is inflation, the nominal GDP is ___ estimated (over or under)

Answer 33

over

Question 34

Inflation is calculated using ___

Answer 34

CPI (consumer price index), basket of goods

Question 35

Is GDP affected by unemployment and inflation?

Answer 35

Yes, unemployment would be a dot below the curve on the graph because not all resources are being used. Inflation would move the curve inwards toward the center because people are buying less

Question 36

specializing in something that you are relatively more efficient in producing

Answer 36

comparative advantage

Question 37

Comparative advantage means you are relatively more efficient, which ___ opportunity cost

Answer 37

lowers

Question 38

If the person is better at both things they have ____ advantage

Answer 38

absolute

Question 39

If the opportunity cost is less for someone to do a task (even if they aren’t more efficient at it) they have ___ advantage

Answer 39

comparative

Question 40

Can both people have a comparative advantage?

Answer 40

No

Question 41

Can one person have comparative advantage in both tasks?

Answer 41

No

Question 42

Can you have absolute advantage in both tasks?

Answer 42

Yes

Question 43

Can you have absolute disadvantage in both tasks?

Answer 43

Yes

Question 44

When comparing changes over time, ___ GDP is a more accurate measure of changes in production as it removes the effects of changes in prices

Answer 44

real