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Macroeconomics > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

We measure gross domestic product by multiplying the quantities of goods and services by their respective prices because it allows us to?

A

aggregate the values of products in a common unit of measurement

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2
Q

One formal drawback to using market values to aggregate many goods and services into one number is

A

not all economically valuable goods and services are sold in markets.

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3
Q

Consumption goods, capital goods and services purchased by their ultimate users are called ______ goods.

A

Final Goods

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4
Q

A nation’s gross domestic product (GDP) is

A

the total market value of all final goods and services produced in a country in a given period.

Intermediate goods are not included!!

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5
Q

The selling prices of goods and service in the open market is called the __________ value?

A

Market

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6
Q

Goods and services that are used up in the production of final goods are called ________ Goods?

A

Intermediate

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7
Q

______ goods are included in the calculation of GDP, while ______ goods are not included.

A

Final and Intermediate

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8
Q

An __________ good is a long-lived good that is used in the production of other goods and services.

A

Capital good

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9
Q

A good used in the production of other goods is called a(n) _________ good. A good that is consumed by its ultimate user is called a(n) __________ good

A

Intermediate and Final

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10
Q

Spending by households on goods and services such as food, clothing and entertainment is known as ___________ expenditure

A

Consumption

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11
Q

What are the three categories of consumption expenditure?

A

Nondurable, durable, services

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12
Q

Residential ________ includes construction of new homes and new apartments.

A

Investment

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13
Q

For the purposes of calculating GDP, the construction of new homes and apartment buildings is treated as

A

an investment by the business sector.

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14
Q

Which of following are components of government purchases in GDP?

A

Expenditures for goods and services that government consumes in providing public services

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15
Q

Transfer payments are not included in GDP because they do not generate

A

output

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16
Q

The payments made to the owners of physical capital and intangible capital is known as _____.

A

capitol income

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17
Q

True or false: GDP can be viewed as the sum of labor income and capital income.

A

True

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18
Q

GDP calculated using current-year prices is called

A

Nominal GDP

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19
Q

Real GDP is a measure of GDP that

A

adjusts for inflation

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20
Q

Wages, salaries and the income of the self-employed are known as

A

labor income

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21
Q

Capital income includes the payments made to the owners of _____.

A

Both physical and intangible

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22
Q

Real GPD is a measure of GDP in which the quantities produced are valued at _____.

A

the prices in a base year rather than at current-year prices

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23
Q

Real GDP is an imperfect measure of economic well-being because

A

it measures only goods and services that are priced and sold in markets.

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24
Q

Nominal GDP measures the value of all goods and services AT?

A

Current year prices

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25
Q

______ GDP measures the physical volume of production.

A

Real

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26
Q

In countries where non-market activities are widespread, the official measure of GDP tends to be

A

undersated

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27
Q

Transactions that are never reported to government officials and data collectors occur in

A

underground economy

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28
Q

The exploitation of finite of ________ _________ tends to be overlooked in GDP

A

natural resources

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29
Q

Which of the following most accurately describes how to calculate the unemployment rate?

A

of unemployed / Labor force * 100

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30
Q

What number is the base year always assigned?

A

1

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31
Q

_____ is a measure of the cost of a standard basket of goods and services relative to the cost of the same basket of goods and services in a base year.

A

Consumer price index (CPI)

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32
Q

The cost of living in a particular period is measured by the _____.

A

Consumer price index (CPI)

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33
Q

A measure of the average price of a given class of goods and services relative to the price of the same goods and services in a base year is known as

A

Consumer price index (CPI) This is just another way of thinking girl, it’s just a rephrased question

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34
Q

When the Bureau of Labor Statistics calculates the CPI, they

A

consider a fixed basket of goods and services, and allow the PRICE of the ITEMS IN THE BASKET to vary over time.

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35
Q

In the United States, between 2007 and 2008, the CPI rose from 2.07 to 2.15, thus we know that this was a period of _____.

A

Inflation

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36
Q

If the base year is 2007, and the CPI in 2013 is 1.11, then the cost of living was ____ percent higher in 2013 than 2007.

A

11%

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37
Q

Inflation exists when there is an increase over time in the average ______.

A

Prices or price level

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38
Q

A price index is a measure of the average price of a given class of goods or services relative to the price of

A

The base year of the same basket of goods

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39
Q

Deflation occurs when:

A

the prices of most goods and services are falling and the inflation rate is negative

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40
Q

If the CPI was 208.5 in 2009, up from 200.5 in 2008, then what was the annual rate of inflation between those years?

A

3.99%

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41
Q

Dividing a nominal quantity by a price index to express the quantity in real terms is called _____.

A

Deflating a normative quantity

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42
Q

The real wage

A

Is calculated by dividing the nominal wage by the CPI and is the wage paid to workers in terms of purchasing power.

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43
Q

If the CPI was 2.15 in 2009 and 2.18 in 2010, then the annual rate of inflation between those years is:

A

1.4%

44
Q

What reduces the purchasing power of money?

A

Inflation

45
Q

The practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index is known as _____.

A

Indexing

46
Q

In order to prevent the purchasing power of Social Security benefits from eroding over time, Social Security benefits are

A

Indexed to inflation

47
Q

Suppose bananas cost 54 cents per kilo in 1990 and cost 98 cents per kilo in 2012. If the CPI (with 1982-1984 as the base year) was 1.31 in 1990 and 2.30 in 2012, how did the real price of bananas change from 1990 to 2012?

A

Reason: Yes! The real price of a kilo of bananas (expressed in 1982-1984 dollars) was 54/1.31≈41 cents in 1990 and 98/2.3≈43 cents. Thus the price of bananas increased by a small mount over this time period.

48
Q

Indicate one way inflation can create “noise” in the price system

A

It can obscure information transmitted by prices.

49
Q

Inflation that increases nominal incomes, but not real incomes, moving people into higher tax brackets is called ______.

A

bracket creep

50
Q

Shoe-leather costs often refer to ______.

A

a true cost of inflation and economizing cash holdings

51
Q

Which of the following describes bracket creep?

A

inflation that increases nominal incomes, but not real incomes, moving people into higher tax brackets

52
Q

Borrowers benefit from unanticipated inflation because they pay back loans with dollars that have ______ purchasing power than the dollars that were originally borrowed.

A

less

53
Q

Which of the following are considered true costs of inflation?

A

interference with long-term planning

unexpected redistribution of wealth

noise

shoe-leather costs

54
Q

how to find real interest rate?

A

Real interest rate = Nominal interest - Rate of inflation

55
Q

How to calculate real price?

A

Real price = Price/CPI

56
Q

What is Economic growth?

A

The process of steady increases in the quantity and quality of the goods and services the economy can produce

57
Q

What is Standard of Living?

A

The degree to which people have access to goods and services that make their lives easier, healthier, safer and more enjoyable. Higher output per person, higher standard of living

58
Q

What causes output growth?

A
  1. Population growth
  2. Labor force participation growth
  3. Productivity growth
59
Q

How do you solve for labor productivity?

A

Total output/Employment

60
Q

How do you solve for output per person?

A

Total output/population

61
Q

What are the three types of macroeconomic policies?

A
  1. Monetary - Determines the nation’s money supply
  2. Fiscal - Determines the budget including the amount and composition of government expenditures and revenues
  3. Structural - Underlying structure or institutions of the nation’s economy.
62
Q

What’s a positive analysis?

A

Addresses the economic consequences of a particular event or policy

63
Q

What is a normative analysis?

A

Addresses the question of whether or not a policy SHOULD be used

64
Q

What is aggregation?

A

The adding up of individual economic variables to obtain economy wide totals

65
Q

What is GDP?

A

(Gross domestic product) is the market value of the final goods and services produced in a country during a given period

66
Q

How do you calculate nominal GDP?

A

You add up the prices of the basket to get the total market value. In other words the nominal GDP.

67
Q

What are final goods and services?

A

Are the end products of a process and are consumed by the end users.

68
Q

What are capital goods?

A

Are long lived goods that are used in the production of other goods and services.

69
Q

What capital goods are counted in GDP?

A

Newly produced capital goods are counted in that year. MONEY IS NOT A CAPITAL GOOD

70
Q

What is value added?

A

The market value of its product or service minus the cost of inputs purchased from other firms.

71
Q

How to calculate value added?

A

Revenue - Cost of intermediate goods = Value added

72
Q

How do you measure GDP?

A

Y = C + I + G + NX

73
Q

What do the following stand for?
C
I
NX
in the equation Y = C+I+G+NX?

A

C - Consumption: spending by households on goods and services such as food clothing and entertainment

I - Investment: Spending by firms on final goods and services, primarily capital goods and housing

G - Government: Purchases by federal, state, and local governments of final goods and services

NX - Net Export which is export - import

74
Q

What is total production?

A

It’s the total expenditure or total income. GDP.

75
Q

How do you calculate real GDP?

A

Use the base year prices with the current year volume. This is so that it measures the actual volume of production.

76
Q

What are the five things that GDP doesn’t account for?

A

Leisure time

Nonmarket activities (Homemaking and underground)

Doesn’t measure environmental quality or resource depletion

Doesn’t measure quality of life (crime, space, traffic congestion, civic organizations

Doesn’t account poverty and economic inequality

77
Q

Three positive things about GDP that does positively affect economic well-being?

A

Higher availability of goods and services

Better health and longer life expectancy

Better education (Higher literacy and school enrollment rates)

78
Q

Who are considered in the employed?

A

Adults who work full time or part time during the past week, or is on vacation/sick leave from a regular job.

79
Q

Who is considered in the adult population?

A

People aged 16 and over

80
Q

Who is unemployed?

A

Adults who did not work during the preceding week but was looking for a job in the past 4 weeks

81
Q

How to calculate labor force?

A

Employed + unemployed

82
Q

How to calculate unemployment rate?

A

Unemployed/labor force

83
Q

How do you calculate the participation rate?

A

Labor force/adult population

84
Q

What are the three costs of unemployment?

A

Economic costs : loss of output/income, decrease in taxes, higher transfer payment

Psychological: Loss of self-esteem, stress, depression, extreme behaviors

Social: crime, drug abuse, increase of resources spent on these problems

85
Q

What is CPI?

A

Measures the average price of a given quality of of goods and services relative to the price of the same goods and services in the base year

86
Q

What does CPI measure?

A

It’s a price index that measures the cost of a standard basket of goods and services in a given year relative to the cost of the same basket in the base year.

87
Q

The fisher effect is the tendency for _______ interest rates to be ________ when inflation is high

A

Nominal and high

88
Q

Three equivalent ways to measure GDP are total ______, total, _______ total, ________

A

Production, income, expenditure

89
Q

The standard of living in an economy is best measured by?

A

Output per person

90
Q

How do you calculate CPI?

A

Cost of basket in current year/Cost of basket in base year

91
Q

How do you calculate the rate of inflation?

A

Current year CPI - Previous year CPI then / Previous year CPI

92
Q

What is deflation?

A

A situation in which the prices of most goods and services are falling over time so that inflation is negative

93
Q

What is the difference between nominal quantity and real quantity?

A

Nominal is current dollar value, real is measured in physical terms or quantity in real terms

94
Q

Indexing is what?

A

practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index

95
Q

How to index a wage?

A
  1. Real wage = previous wage x (1+ wage increase) THIS IS TO INDEX THE NOMINAL WAGE
  2. Indexed nominal wage = real wage x CPI
96
Q

What are the two ways that could lead to overstating inflation?

A

Substitution bias (picking cheaper goods) and quality adjustment bias (introduction of new goods)

97
Q

What is relative price?

A

A specific good in a comparison of its price to the prices of other goods and services

98
Q

What are the six costs of inflation?

A

Noise

Distorsions of the tax system

Shoe leather costs

Redistribution of wealth

Interferes with long term planning (High and voltile)

Hyperinflation

99
Q

What is Noise?

A

Noise in price system, makes it hard to find true increases in the relative price of a good. Reducing the efficiency of the price system

100
Q

How does inflation cause distortions in the tax system?

A

Income taxes are indexed to CPI but some aren’t

101
Q

Shoe leather cost?

A

Extra trips to the bank and the costs that go with it. You make extra trips to reduce cash holdings

102
Q

Redistribution of wealth?

A

Expected inflation doesn’t redistribute wealth. Higher than expected inflation benefits the employers and hurts the workers. It benefits the borrowers and hurts the lenders

103
Q

High and viotile inflation?

A

Makes it impossible to plan and predict

104
Q

What is hyper inflation?

A

Is a situation in which inflation rate is extremely high. It’s distributive to a country’s economy.

105
Q

What is the fisher effect?

A

Tendency for nominal interest rates to be high when inflation is high and low when inflation is low

106
Q

How to calculate expected inflation?

A

r = i - inflation

R is real interest rate, i is nominal interest rate

Macroeconomics (6 decks)

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