Econ 201 Test 2 Flashcards
- What are the phases of a business cycle? What happens to the real GDP in each phase of a business cycle?
: A business cycle has four phases: (a) the recovery, (b) the peak, (c) the recession, and (d) the trough. The following happens to the real GDP in each phase of a business cycle:
a) The real GDP keeps rising in the recovery phase of a business cycle.
b) The real GDP keeps falling in the recession phase of a business cycle.
c) The real GDP is at its highest level at the peak of a business cycle.
d) The real GDP is at its lowest level at the trough of a business cycle
What causes the demand-pull
A rise in demand causes the Demand-pull inflation
What causes the cost-push inflation
A rise in per-unit cost of production causes the Cost-push inflation
When does a recessionary expenditure gap occur?
If GDPe is the equilibrium GDP and GDPf is the full-employment GDP then… a recessionary expenditure gap occurs when GDPe<GDPf
When does an inflationary expenditure gap occur
If GDPe is the equilibrium GDP and GDPf is the full-employment GDP then… an Inflationary expenditure gap occurs when GDPe>GDPf
What are the reasons for the downward slope of the aggregate demand curve
A: The real balance effect
B: The interest-rate effect
C: The foreign purchase effect
Frictionally unemployed
If you are entering the labor market or are between jobs,
Structurally unemployed
If you are unable to find a job due to lack of marketable skills or due to your inability to relocate
Cyclically unemployed
If you lost your job or are unable to find a job due to the downturn (recession) in the economy
Based on the diagram, you should be able to tell whether the diagram exhibits a deman-pull inflation or a cost pull inflation
Demand-pull inflation is a rightward shift in the demand curve
Cost Pull inflation is a leftward shift in the supply curve
What does GDP gap measure
Measures the cost of unemployment
Who is helped or unaffected by inflation
Debtors, Borrowers, Flexible-income people
Who is hurt by inflation
Creditors, Lenders, Fixed income people
What are two ways to close an inflationary expenditure gap?
Lower government spending and raise taxes
What are two ways to close a recessionary-expenditure gap
Raise government spending and lower taxes
What are factors that change consumption or consumer spending
a. consumer wealth
b. consumer expectation of future incomes and prices
c. credit availability
d. taxes on household incomes
e. disposable income
Factors that change investment spending
a. interest rates
b. expected rate of return (profit)
c. Capacity utilization rate
d. business taxes
c. State of technology
Factors that change net export spending
a. prosperity abroad
b. exchange rates
c. taxes relations
Suppose the GDP in any particular year was $15,000 and the price index in the same year was 125. COMPUTE THE REAL GDP for that year
Real GDP = ((GDP x 100)/Price index)
15000x100/125
1500000/125= $12000
Suppose the value for the market basket in 2019 was 30,000 and that in the base year (1982) was 20,000. COMPUTE THE CPI for 2019
CPI for 2019 = ((Value of market basket in 2017/ Value in base year) x 100)
30000/20000 x 100
3,000,000/ 20,000 = 150
Compute the Misery Index
Number employed= 24,000,000
Unemployed= 1,000,000
Inflation Rate: 3%
Labor force = number of employed + number of unemployed
=24 mil+ 1 mil = 25mil
Unemployment rate= ((Nuber unemployed x 100)/labor force) = 1mil x 100 / 25 mil = 100 mil/ 25 mil = 4%
Misery index = unemployment rate + inflation rate = 4% + 3% = 7
Suppose the consumer price index in 2018 was 190, and in 2019 it was 210. Compute the annual inflation rate in 2019
Annual inflation rate (2019) = ((CPI2019 - CPI2018 / CPI2018) x100
210-190/190 x 100 = 20/190 x 100 = .105 x 100 = 10.5%
Items Quantity Price in Base Year Price in 2019
Noodles 100 $1.50 $3
Tomato Sauce 50 $3 $5
Compute the value of the market basket in the base year (1982-84)
Base year: (100x1.50) +(50x3) = 150+150 = 300
Compute the value of the market basket in 2019
2019:
(100x3) + (50x5) = 300 + 250 = 550
Consumer Price Index (CPI(
value of market basket in 2017 / value of market baset in base year (x 100)
550/300 x 100 = 55000/300 = 183.33
