Economics - Changes in Economic and Business Cycles: Economic Measures/Indicators

Question 1

Formula: GDP (Expenditure Approach)

Answer 1

C + I + G + (X - M)

C - personal Consumption
I - business Investment
Net Investment = Gross investment - Capital Consumption Allowance
G - Government expenditures
X - Exports
M - Imports

Question 2

Strategy for Federal reserve to pursue under expansionary policy

Answer 2

Purchase federal securities, which expands money supplies, and lower discount rates which decrease interest rates paid by banks and lowers interest rates along to borrowers.

Question 3

Trough

Answer 3

bottom, low point, depression; high unemployment and lower consumer demand and surplus productive capacity

Question 4

Recovery

Answer 4

Expansion; upturn from trough, increasing employment, income and consumer spending, production, sales, and profits.

Question 5

Peak

Answer 5

top, high point, boom; full utilization of existing productive capacity; may be accompanied by shortages of labor and other inputs/raw materials; capacity can be increased only by increased investment to expand production facilities (a long-run phenomenon)

Question 6

Recession

Answer 6

contraction; downturn from a peak; formally defined as a decrease in real GNP for two consecutive calendar quarters (i.e., 6 months); decreasing demand results in decreasing employment and production, decreasing incomes and decreasing profits, and low levels of investment

Question 7

Turning point

Answer 7

point at which a recovery or recession begins; change in slope from positive to negative (or from negative to positive)

Question 8

Structural Employment

Answer 8

Unemployment due to workers not having the skills demanded by employers, and worker s who cannot easily move to the location where jobs are available.

Question 9

Formula: Net Domestic Product (NDP)

Answer 9

Gross Domestic Product - Capital Consumption Allowance

Question 10

Formula: National Income (NI)

Answer 10

NDP - Net Foreign Factor Income - Indirect Business Taxes

Question 11

Formula: Personal Income (PI)

Answer 11

NI - Social Security contributions - corporate income tax - undistributed corporate profits + transfer payments

Question 12

Formula: Disposable Income (DI)

Answer 12

PI - personal taxes

Question 13

Formula: National Income (NI - Income Approach)

Answer 13

Compensation of employees + rental income + interest income + proprietor’s income + corporate profits

Question 14

Formula: GDP (Income Approach)

Answer 14

NI + indirect business taxes + capital consumption allowance + net foreign factor income

Question 15

How does the Federal Reserve reduce inflationary reserve?

Answer 15

Increasing margin requirements (reserve requirements) will reduce the supply of money.

Question 16

Formula: Reserve Ratio

Answer 16

Reserves / Total Demand Deposits

Question 17

Formula: Real GDP

Answer 17

(Nominal GDP / Price Index) x 100