Economic Measurese & Indicatiors

Question 1

GDP can be calculated in 2 ways

Answer 1

Expenditure approach &

Income approach

Question 2

GDP is measured by

Answer 2

household

• Businesses
• Federal, state and local governments
• The foreign sectors

Question 3

The discount rate set by the Federal Reserve is the

Answer 3

Rate that the central bank charges for loans to commercial banks

Question 4

Frictional unemployment refers to unemployment resulting from

Answer 4

The time needed to match qualified job seekers with available jobs.

Question 5

Cyclical unemployment results from:

Answer 5

A recession in the economy.

Question 6

Expenditure Approach (GICE)

Answer 6

-Government expenditures

Capital investment

Consumption

Net exports

Question 7

Valid tools that the Federal Reserve bank uses to control the supply of money

Answer 7

Raising or lowering the discount rate.

Changing the reserve ratio.

Selling government securities.

Question 8

What are the 3 ways to lower money supply?

Answer 8

Lower the required reserve ratio, decrease the discount rate, buy bonds in the open market.

Question 9

Structural Inflation

Answer 9

hen individuals do not have the qualifications or skills necessary to fill available jobs

Question 10

The inflation rate measures:

Answer 10

The rate at which the overall price level increases.

Question 11

stagflation

Answer 11

A combination of rising unemployment and a rising price level

Question 12

Deflation is best defined as

Answer 12

A continuous decline in the overall price level.

Question 13

Inflation can be caused by

Answer 13

Inflation can be caused by

Question 14

What is one of the ways that Federal Reserve Policy would increase money supply?

Answer 14

By reducing the discount rate

Question 15

CPI measures

Answer 15

Rate of Inflation

Question 16

CPI’s primary purpose is to

Answer 16

Compare relative price changes over time.

Question 17

Structural.

Answer 17

unemployment typically resulting from technological advances

Question 18

What is the formula for Nominal Interest Rate

Answer 18

Real Interest Rate+ Inflation

Question 19

Inflation Rate (FORMULA)

Answer 19

CPI(CY)-CPI(PY)/ PY X 100= Percentage

Question 20

GDP Income Approach IPIRATED

Answer 20

Income of Proprietors
Profits of Corporations
Interest (Net)
Rental Income
Adjustments for net foreign income and miscellanious items
-Taxes
-Employee compensation (wages)
-Depreciation

Question 21

Demand-Pull Inflation

Answer 21

a) Increases in govt. spending
b) Decreases in taxes
c) Increases in Wealth
d) Increases in the money supply

Question 22

Cost-Push Inflation

Answer 22

a) An increase in oil prices

b) An increase in the nominal wages

Question 23

Relationship between Nominal Interest Rates & Inflation

Answer 23

They tend to move together

Question 24

GNP Gross national product

Answer 24

Includes goods and services from oversees, Produced by a US company

Question 25

Increases in Money Supply

Answer 25

When the FED purchases government securities, it increases the money supply

Question 26

Decreases in Money Supply

Answer 26

When the FEd sells government securities, it decreases the money supply

Question 27

Discount Rate

Answer 27

The discount rate is the interest rate that the Fed charges memeber banks for short-term loans
Raising discount rate dicourages borrowing
Lowering discount rates encourages borrowing

Question 28

Required Reserve Ratio definition

Answer 28

The fraction of the total deposits banks must hold in reserve .
Raising the reserve decreases the money supply
Lowering the reserve increases the money supply

Question 29

Demand for money is inversely related to interest rates

Answer 29

As interest rates rise demand of money goes down.

& opposite

Question 30

Demand for a product tends to be price inelastic if:

Answer 30

Few good substitutes are available for the product

Question 31

Demand for a product tends to be price elastic if:

Answer 31

There are many substitutes for that product

Question 32

Price elasticity of demand

Answer 32

(Q2-Q1/Q1) / (P2-P1/P1)
2= New Price or New Quatity
1= Old Price & Old Quantity