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
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.
3
Q
Consumption goods, capital goods and services purchased by their ultimate users are called ______ goods.
A
Final Goods
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!!
5
Q
The selling prices of goods and service in the open market is called the __________ value?
A
Market
6
Q
Goods and services that are used up in the production of final goods are called ________ Goods?
A
Intermediate
7
Q
______ goods are included in the calculation of GDP, while ______ goods are not included.
A
Final and Intermediate
8
Q
An __________ good is a long-lived good that is used in the production of other goods and services.
A
Capital good
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
10
Q
Spending by households on goods and services such as food, clothing and entertainment is known as ___________ expenditure
A
Consumption
11
Q
What are the three categories of consumption expenditure?
A
Nondurable, durable, services
12
Q
Residential ________ includes construction of new homes and new apartments.
A
Investment
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.
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
15
Q
Transfer payments are not included in GDP because they do not generate
A
output
16
Q
The payments made to the owners of physical capital and intangible capital is known as _____.
A
capitol income
17
Q
True or false: GDP can be viewed as the sum of labor income and capital income.
A
True
18
Q
GDP calculated using current-year prices is called
A
Nominal GDP
19
Q
Real GDP is a measure of GDP that
A
adjusts for inflation
20
Q
Wages, salaries and the income of the self-employed are known as
A
labor income
21
Q
Capital income includes the payments made to the owners of _____.
A
Both physical and intangible
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
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.
24
Q
Nominal GDP measures the value of all goods and services AT?
A
Current year prices
25
______ GDP measures the physical volume of production.
Real
26
In countries where non-market activities are widespread, the official measure of GDP tends to be
undersated
27
Transactions that are never reported to government officials and data collectors occur in
underground economy
28
The exploitation of finite of ________ _________ tends to be overlooked in GDP
natural resources
29
Which of the following most accurately describes how to calculate the unemployment rate?
of unemployed / Labor force * 100
30
What number is the base year always assigned?
1
31
_____ 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.
Consumer price index (CPI)
32
The cost of living in a particular period is measured by the _____.
Consumer price index (CPI)
33
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
Consumer price index (CPI) This is just another way of thinking girl, it's just a rephrased question
34
When the Bureau of Labor Statistics calculates the CPI, they
consider a fixed basket of goods and services, and allow the PRICE of the ITEMS IN THE BASKET to vary over time.
35
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 _____.
Inflation
36
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.
11%
37
Inflation exists when there is an increase over time in the average ______.
Prices or price level
38
A price index is a measure of the average price of a given class of goods or services relative to the price of
The base year of the same basket of goods
39
Deflation occurs when:
the prices of most goods and services are falling and the inflation rate is negative
40
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?
3.99%
41
Dividing a nominal quantity by a price index to express the quantity in real terms is called _____.
Deflating a normative quantity
42
The real wage
Is calculated by dividing the nominal wage by the CPI and is the wage paid to workers in terms of purchasing power.
43
If the CPI was 2.15 in 2009 and 2.18 in 2010, then the annual rate of inflation between those years is:
1.4%
44
What reduces the purchasing power of money?
Inflation
45
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 _____.
Indexing
46
In order to prevent the purchasing power of Social Security benefits from eroding over time, Social Security benefits are
Indexed to inflation
47
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?
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
Indicate one way inflation can create "noise" in the price system
It can obscure information transmitted by prices.
49
Inflation that increases nominal incomes, but not real incomes, moving people into higher tax brackets is called ______.
bracket creep
50
Shoe-leather costs often refer to ______.
a true cost of inflation and economizing cash holdings
51
Which of the following describes bracket creep?
inflation that increases nominal incomes, but not real incomes, moving people into higher tax brackets
52
Borrowers benefit from unanticipated inflation because they pay back loans with dollars that have ______ purchasing power than the dollars that were originally borrowed.
less
53
Which of the following are considered true costs of inflation?
interference with long-term planning
unexpected redistribution of wealth
noise
shoe-leather costs
54
how to find real interest rate?
Real interest rate = Nominal interest - Rate of inflation
55
How to calculate real price?
Real price = Price/CPI
56
What is Economic growth?
The process of steady increases in the quantity and quality of the goods and services the economy can produce
57
What is Standard of Living?
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
What causes output growth?
1. Population growth
2. Labor force participation growth
3. Productivity growth
59
How do you solve for labor productivity?
Total output/Employment
60
How do you solve for output per person?
Total output/population
61
What are the three types of macroeconomic policies?
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
What's a positive analysis?
Addresses the economic consequences of a particular event or policy
63
What is a normative analysis?
Addresses the question of whether or not a policy SHOULD be used
64
What is aggregation?
The adding up of individual economic variables to obtain economy wide totals
65
What is GDP?
(Gross domestic product) is the market value of the final goods and services produced in a country during a given period
66
How do you calculate nominal GDP?
You add up the prices of the basket to get the total market value. In other words the nominal GDP.
67
What are final goods and services?
Are the end products of a process and are consumed by the end users.
68
What are capital goods?
Are long lived goods that are used in the production of other goods and services.
69
What capital goods are counted in GDP?
Newly produced capital goods are counted in that year. MONEY IS NOT A CAPITAL GOOD
70
What is value added?
The market value of its product or service minus the cost of inputs purchased from other firms.
71
How to calculate value added?
Revenue - Cost of intermediate goods = Value added
72
How do you measure GDP?
Y = C + I + G + NX
73
What do the following stand for?
C
I
NX
in the equation Y = C+I+G+NX?
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
What is total production?
It's the total expenditure or total income. GDP.
75
How do you calculate real GDP?
Use the base year prices with the current year volume. This is so that it measures the actual volume of production.
76
What are the five things that GDP doesn't account for?
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
Three positive things about GDP that does positively affect economic well-being?
Higher availability of goods and services
Better health and longer life expectancy
Better education (Higher literacy and school enrollment rates)
78
Who are considered in the employed?
Adults who work full time or part time during the past week, or is on vacation/sick leave from a regular job.
79
Who is considered in the adult population?
People aged 16 and over
80
Who is unemployed?
Adults who did not work during the preceding week but was looking for a job in the past 4 weeks
81
How to calculate labor force?
Employed + unemployed
82
How to calculate unemployment rate?
Unemployed/labor force
83
How do you calculate the participation rate?
Labor force/adult population
84
What are the three costs of unemployment?
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
What is CPI?
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
What does CPI measure?
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
The fisher effect is the tendency for _______ interest rates to be ________ when inflation is high
Nominal and high
88
Three equivalent ways to measure GDP are total ______, total, _______ total, ________
Production, income, expenditure
89
The standard of living in an economy is best measured by?
Output per person
90
How do you calculate CPI?
Cost of basket in current year/Cost of basket in base year
91
How do you calculate the rate of inflation?
Current year CPI - Previous year CPI then / Previous year CPI
92
What is deflation?
A situation in which the prices of most goods and services are falling over time so that inflation is negative
93
What is the difference between nominal quantity and real quantity?
Nominal is current dollar value, real is measured in physical terms or quantity in real terms
94
Indexing is what?
practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index
95
How to index a wage?
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
What are the two ways that could lead to overstating inflation?
Substitution bias (picking cheaper goods) and quality adjustment bias (introduction of new goods)
97
What is relative price?
A specific good in a comparison of its price to the prices of other goods and services
98
What are the six costs of inflation?
Noise
Distorsions of the tax system
Shoe leather costs
Redistribution of wealth
Interferes with long term planning (High and voltile)
Hyperinflation
99
What is Noise?
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
How does inflation cause distortions in the tax system?
Income taxes are indexed to CPI but some aren't
101
Shoe leather cost?
Extra trips to the bank and the costs that go with it. You make extra trips to reduce cash holdings
102
Redistribution of wealth?
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
High and viotile inflation?
Makes it impossible to plan and predict
104
What is hyper inflation?
Is a situation in which inflation rate is extremely high. It's distributive to a country's economy.
105
What is the fisher effect?
Tendency for nominal interest rates to be high when inflation is high and low when inflation is low
106
How to calculate expected inflation?
r = i - inflation
R is real interest rate, i is nominal interest rate
