ECONOMIC CONCEPTS

Question 1

How do you calculate annual inflation rate?

Answer 1

Inflation rate= (CPI_this period- CPI_last period)/ CPI_last period.

Question 2

By extension, how do you deflate the nominal costs to adjusted amounts?

Answer 2

By dividing the base year price index (CPI last period) by the current year price index (CPI this period) and then multiply by current year price/cost.

Question 3

How do you perform deflate calculation in CPI?

Answer 3

current cost$100,500x( base year price index 121.3/ current year price index 168.5)=$72,348

Question 4

After adjusting for inflation, how do you calculate percentage change in expenditures?

Answer 4

current cost$100,500x(base year price index 121.3/current year price index168.5)= current year indices or current deflated cost$72,348; then take current deflated cost$72,348 less period or base year$72,800= difference ($452), therefore % change is the change of decrease($452)/base last period$72800=.0062 or 0.6%

Question 5

What happen to potential and actual national income during a recessionary period?

Answer 5

Potential national income is more than actual national income. This is also cause a decrease in demand of aggregated goods and services.

Question 6

What are the indicators of the recessionary period?

Answer 6

Some indicators of recessionary period are potential income more than actual income; increase unemployment rate

Question 7

What is productive-possibility curve ?

Answer 7

A productive-possibility curve measures the maximum amount of various goods and services an economy can produce at a given time with available technology and efficient use of all available resources.

Question 8

Gross domestic product (GDP) is a measure of?

Answer 8

The market value of all final goods and services produced for exchange in the domestic economy during a year.

Question 9

How is Nominal GDP measure?

Answer 9

Nominal GDP is measured at current prices

Question 10

How is Real GDP measure?

Answer 10

Real GDP measures output (GDP) at constant prices, that is, adjusted for changes in the level of prices since a base year.

Question 11

How is potential GDP measure?

Answer 11

potential GDP is a measure of the market value of maximum production of final goods and service that is possible in the economy without putting upward pressure on the level of prices in the economy.

Question 12

What are injections in a macroeconomic free flow model?

Answer 12

Injections are sources of amount added to the domestic production that do not result from domestic expenditure consumption which consist of government spending; government subsidiaries; investment spending; amount receive from export. However, it exclude amount paid for import.

Question 13

What is leakage in a macroeconomic free market flow model?

Answer 13

Leakage occurs when income is used for other purpose other than domestic consumptions. It includes payment of taxes to government and saving income and payment for imports.

Question 14

When could there be official full employment?

Answer 14

When there is structural, frictional, and seasonal unemployment. Only cyclical unemployment is consider in the calculation of official measure of full employment.

Question 15

At what age is an individual is considered to be part of the workforce?

Answer 15

At age 16 and older

Question 16

An increase in business investment will do what?

Answer 16

An increase in business investment such inventory, durable equipment and construction will cause an increase in aggregate demand.

Question 17

An increase in spending on imported goods would most likely have what effect on domestic goods?

Answer 17

An increase in spending on imported goods would shift the demand curve to the left( reduction in aggregate demand) as demand for domestic goods is replaced by imports.

Question 18

What will a increase in tax rate and revenue do to the demand curve?

Answer 18

It will decrease the aggregate demand curve( shift left and in ward). When consumers pay more tax they will have less disposable income and less to spend on goods and services. Thus, their consumption will decrease and so will aggregate demand.

Question 19

In macro economic, is shares or stocks a business investment?

Answer 19

No, shares or stock investment is not consider to be a business investment.

Question 20

What is the multiplier effect formula?

Answer 20

Change in spending x [ 1/(1-MPC)] OR change in spending x (1/MPS)

Question 21

How do you calculation marginal propensity to consume (MPC) ?

Answer 21

change in spending/ change in disposable income (larger spending-smaller spending/larger disposable income-smaller disposable income). Always put whatever you are trying to find in the numerator

Question 22

How do you calculate average propensity to consume for one period ?

Answer 22

That period spending/that disposable income

Question 23

If war in country decrease the working population, what effect will it has on aggregate supply curve?

Answer 23

It will shift the aggregate supply curve inward to the left. Since labor is an economic resource, a decrease in labor would shift the aggregate supply curve inward (i.e., reduce aggregate supply).

Question 24

What will follow unexpected reduction in the aggregate supply assuming a conventional supply curve?

Answer 24

A reduction in aggregate supply will shift the supply curve to the left, resulting in a lower quantity of output at a higher price.

Question 25

An increase minimum wage will have what effect on aggregate supply curve?

Answer 25

An increase in the minimum wage rate would be an increase in the cost of economic resources (labor), which would shift the aggregate supply curve inward–a reduction in supply.

Question 26

The aggregate demand and aggregate supply curves intersect at a price and quantity that are?

Answer 26

Either at, above, or below potential GDP. The point at which the aggregate demand and aggregate supply curves intersect is equilibrium–the real output (and price level) for an economy. The real output may be at, above, or below potential GDP (output).

Question 27

A rise in a country’s exports would most likely cause which one of the following shifts?

Answer 27

A rise in the exports of a country most likely would shift the aggregate demand curve outward, i.e., there would be an increase in aggregate demand.

Question 28

What effect will increase output have on aggregate equilibrium quantity and price (and demand is unchanged) if a classical supply curve is assumed?

Answer 28

A higher level of output reflects a shift in the supply curve to the right. Even with a vertical classical supply curve, this would result in an increase in output and a decrease in price.

Question 29

An increase in the value of the Chinese currency (the RMB) relative to the U.S. dollar would most likely cause which of the following?

Answer 29

Increased aggregate demand in the U.S.

An increase in the value of the Chinese RMB relative to the U.S. dollar would most likely increase aggregate demand in the U.S. An increase in the value of the Chinese RMB relative to the U.S. dollar would make Chinese goods more expensive in the U.S. and U.S. goods less expensive in China. As a consequence, fewer goods would be bought from China by U.S. consumers and more goods would be bought from the U.S. by Chinese consumers. Furthermore, U.S. consumers might also buy (substitute) more U.S. goods for the now more expensive Chinese goods.

Question 30

What is business cycle in the U.S. is measured in terms of changes in?

Answer 30

Real GDP.

The cyclical behavior of the U.S. economy (i.e., the business cycle) is reflected in the cumulative fluctuations in aggregate output as measured by the real gross domestic product (GDP).

Question 31

When does a peak occur in business cycle?

Answer 31

A peak occurs at the end of an expansionary period and the beginning of a period of recession (recessionary period).

Question 32

When does a trough occur in business cycle?

Answer 32

A trough occurs at the end of a recessionary period, not at the start of a recessionary period.

Question 33

Variations between business cycles are most likely attributable to which of the following factors?

Answer 33

Duration and intensity.

Business cycles are the cumulative fluctuations (up and down) in aggregate real GDP of a country and generally last for two or more years. While these increases and decreases in real GDP tend to recur over time, there is no consistent pattern of length (duration) or magnitude (intensity) of the cycles.

Question 34

How do you calculate GDP Deflator?

Answer 34

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

Question 35

How do you calculate Real GDP?

Answer 35

Nominal GDP/GDP Deflator

Question 36

What is demand-induced /demand-pull inflation?

Answer 36

When demand exceeds the productive capacity of the economy, consumers (individuals, businesses, and governments) “bid up” the prices for goods and services, resulting in inflation (higher prices for goods and services).
Thus, the inflation is demand-induced (also called demand-pull) in that excess demand pulls up prices.