exam #2

Question 1

Gross Domestic Product

Answer 1

the market value of all FINAL goods and services produced within a country over a time period

Question 2

“the market value”

Answer 2

how much people pay for a good

Question 3

“of all”

Answer 3

everything produced and sold legally

Question 4

“final”

Answer 4

will not be sold again (end user)

Question 5

intermediate good

Answer 5

good used in the production of final good

Question 6

T or F
the sale of used goods does not count as part of GDP

Answer 6

TRUE

Question 7

“within a country”

Answer 7

goods imported does not count as GDP (ex: USA only)

Question 8

which of the following counts as GDP?A. Lions paid for playing a game in London
B. spend hours teaching your son to read
C. Hire my grandma to baby-sit my kids
D. sell flowers to a flower market

Answer 8

C

Question 9

what is the equation for GDP?

Answer 9

GDP = C + I + G + NX
c: consumption/purchases
I: gross investment - goods are accumulated but not consumed
g: government purchases
nx: exports (ex - Im)

Question 10

gross investment

Answer 10

goods that are accumulated but not consumed during that time

Question 11

inventory

Answer 11

goods that were produced but not sold

Question 12

what is nominal GDP

Answer 12

does not account for price change
given in current prices, without adjustment for inflation.

Question 13

how does real GDP effect prices?

Answer 13

holds prices constant

Question 14

what is the equation for per capita GDP?

Answer 14

GDP / population

Question 15

two ways economic growth can happen

Answer 15

population and productivity increase

Question 16

productivity occurs when there is improvement in:

Answer 16

physical, human, natural resources, technological knowledge

Question 17

what is the growth rate equation

Answer 17

GDP2 - GDP1 / GDP1

Question 18

what is the equation for productivity

Answer 18

output / time worked

Question 19

the labor forces does not include people who:

Answer 19

• under 16
• in prison
• out of work for less than a week
• sought out jobs for 4 weeks

Question 20

frictional unemployment

Answer 20

people searching/waiting for jobs

Question 21

structural unemployment

Answer 21

skills workers offer do not match the skills needed by firms in the economy

Question 22

cyclical unemployment

Answer 22

unemployment from flutucations in the business cycle

Question 23

Lara was fired from her job but has a job interview next week.
A. discouraged worker
B. frictionally unemployed
C. structurally unemployed
D. cyclically unemployed worker

Answer 23

B

Question 24

what is the equation for unemployment rate

Answer 24

unemployed / labor force x100
expressed as a %

Question 25

inflation

Answer 25

increase in prices to calculate inflation, use CPI first

Question 26

what is Consumer price index (CPI)

Answer 26

an indicator that measures the average prices of goods + services purchased

Question 27

calculating CPI | hint: not an equation

Answer 27

- identify goods and services - collect prices of the goods over time - calculate market value

Question 28

CPI equation

Answer 28

prices of basket as a Tt time / prices of basket in base time x 100

Question 29

calculating inflation using CPI

Answer 29

II t = CPI1 - CPI t -1 / CPI t -1 t- current year t -1 = previous year

Question 30

aggregate expenditures equation

Answer 30

C + I + G + NX = GDP

Question 31

what does "short run" mean?

Answer 31

prices are fixed/take time to adjust

Question 32

what is disposable income

Answer 32

income - taxes

Question 33

what does marginal mean

Answer 33

the use of the next dollar

Question 34

what is propensity?

Answer 34

inclination or tendency to do something

Question 35

Marginal propensity to consume (MPC)

Answer 35

fraction of each additional dollar of income that is spent on consumption MPC = change in C / change in Y y - income c - consumption

Question 36

Marginal propensity to save (MPS)

Answer 36

fraction of each additional dollar of income that is saved MPS = change in savings / change in income s - savings y - income

Question 37

equilibrium

Answer 37

- net savings and net borrowing to be zero - consumption = equilibrium

Question 38

expenditures multiplier

Answer 38

how much output will increase for any initial change in income

Question 39

tax multiplier

Answer 39

how much output will eventually change for an initial change in taxes

Question 40

what is tax multiplier related to?

Answer 40

directly related to marginal propensity bc as income decreases some consumption and savings will be lost

Question 41

MulitplierT

Answer 41

-MPC / 1 - MPC

Question 42

market demand

Answer 42

the quantity of one good that consumers want to buy at various prices

Question 43

quantity of a product =

Answer 43

real GDP

Question 44

price of a product =

Answer 44

price level (CPI)

Question 45

determinants of aggregate supply

Answer 45

productivity, resource prices, social institution's

Question 46

what is long run aggregate supply (LRAS)

Answer 46

potential of the economy at full employment

Question 47

is LRAS vertical or horizontal

Answer 47

vertical

Question 48

what happens during a recession?

Answer 48

unemployment increases and GDP decreases

Question 49

T or F inflation and unemployment are inversely related

Answer 49

TRUE

Question 50

what's money?

Answer 50

medium of exchange

Question 51

unit of action

Answer 51

easily compare the value of two goods

Question 52

store of value

Answer 52

spend money after you earn it (gold being used as money)

Question 53

liquidity

Answer 53

turning asset into cash

Question 54

m1

Answer 54

very easy to spend (cash, checks)

Question 55

m2

Answer 55

takes more time to access

Question 56

the federal reserve

Answer 56

the central bank of the US

Question 57

what does the fed do

Answer 57

- manage money supply - regulate banks

Question 58

reserves

Answer 58

money at a bank has on hand (as opposed to money it has loaned out)

Question 59

assets

Answer 59

what you have

Question 60

liabilities

Answer 60

what you owe

Question 61

money multiplier

Answer 61

the amount of money the bank generates with each dollar

Question 62

money multiplier calculation

Answer 62

1 / reserve ratio

Question 63

equity

Answer 63

assets - liabilities

Question 64

leverage

Answer 64

borrowing money to finance business operations

Question 65

leverage ratio

Answer 65

assets : owners equity A / E