Chapters 5 - 7

Question 1

What is the price index formula?

Answer 1

P.I = 100 * (price in period t/ price in base year)

Question 2

Define Price Level

Answer 2

is the average of current prices across the entire spectrum of goods and services produced in the economy

Question 3

Define Consumer Price Index

Answer 3

price index of commodities commonly bought by consumers

Question 4

Define Inflation Rate and what is the formula?

Answer 4

% change in a price index

PIt - PIT-1/PIT-1 x 100

Question 5

What is the Implicit Price Index/ GDP Deflator Formula?

Answer 5

Nominal Expenditure/Real Expenditure x 100

Question 6

Define Nominal GDP

Answer 6

value of economy’s production of current prices

Question 7

Define Real GDP

Answer 7

value of economy’s production at base period (constant prices)

Question 8

Define Economic Growth and what is the formula?

Answer 8

% change in real GDP from one period to another

Growth t = (Real GDP t - Real GDP t-1/ Real GDP t-1) x 100

Question 9

Define Catch-Up Effect

Answer 9

countries that start off poor ten to grow more rapidly than countries that start off rich

Question 10

Define Productivity

Answer 10

Amount of goods and services produced per unit of time

i.e Ex. Canada = Real GDP/ Worker Year 2003$

Question 11

What are the 4 determinants of Productivity?

Answer 11

Physical capital, Human capital, Natural resources, and technology

Question 12

What is the formula for real interest rate?

Answer 12

Real Interest = Nominal Interest Rate - Inflation Rate

Question 13

Define Nominal Rate

Answer 13

interest rate as usually reported/ without a correction for the effect of inflation

Question 14

Define Real Rate

Answer 14

interest rate corrected for effects of inflation