Chapter 4 Flashcards
What is the national product?
The value of the total production of goods and services in a country, also known as national income.
Example sentence: The national product increased by 2% last quarter.
What is gross domestic product (GDP)?
A commonly used measure of national income.
Additional information: GDP can be calculated by adding up consumption, investment, government spending, and net exports.
What is potential output?
The level of output produced when factors of production are fully employed.
Example sentence: The economy is operating below its potential output.
What is the output gap?
The difference between actual and potential output.
Example sentence: The government aims to close the output gap through stimulus measures.
What is the unemployment rate?
The percentage of the labour force not employed and actively searching for a job.
Example sentence: The unemployment rate fell to 4% this month.
What are the costs of unemployment?
Economic waste and human suffering.
Additional information: High unemployment rates can lead to social unrest and decreased consumer spending.
How is labour productivity measured?
As real GDP per employed worker or per hour of work.
Example sentence: Labour productivity has been increasing steadily over the past year.
Why is labour productivity important?
It is an important determinant of material living standards.
Additional information: Higher labour productivity can lead to higher wages and overall economic growth.
What is the price level?
It is measured by a price index, which measures the cost of purchasing a set of goods in one year relative to the cost of the same goods in a base year.
Example sentence: The price level rose by 3% last month.
What is the inflation rate?
It measures the rate of change of the price level.
Example sentence: The inflation rate is expected to remain stable this year.
What is the interest rate?
The price paid to borrow money for a stated period, expressed as a percentage amount per dollar borrowed.
Example sentence: The central bank lowered interest rates to stimulate economic growth.
What is the nominal interest rate?
The interest rate expressed in money terms.
Additional information: Nominal interest rates do not account for inflation.
What is the real interest rate?
The interest rate expressed in terms of purchasing power.
Additional information: Real interest rates adjust for inflation to reflect the true cost of borrowing.
What is the exchange rate?
The number of Canadian dollars needed to purchase one unit of foreign currency.
Example sentence: The exchange rate between the US dollar and Canadian dollar is 1.25.
What happens when there is a rise in the exchange rate?
It is a depreciation of the Canadian dollar.
Example sentence: A rise in the exchange rate makes Canadian exports more expensive for foreign buyers.
