Exam 3

Question 1

The comprehensive measure of the market value of all currently produced final goods and services within a country in a given period of time by domestic and foreign-supplied resources.

Answer 1

Gross Domestic Product (GDP)

Question 2

Measuring overall economic activity by adding the expenditure on the output produced in the economy.

Answer 2

Expenditure or Output Approach

Question 3

The sum of consumption, investment, government, and net export spending on the total amount of real output produced in an economy in a given period of time.
Equals the income generated from producing and selling that output.

Answer 3

Aggregate Expenditure

Question 4

Measuring overall economic activity by adding the earnings or income generated by selling the output produced in the economy.

Answer 4

Earnings or Income Approach

Question 5

E = Y

Answer 5

Aggregate Expenditures = Income Earned

Question 6

Goods and services sold to their end-users.

Answer 6

Final Goods and Services

Question 7

Goods and services that are used in the production of other gods and services.

Answer 7

Intermediate Goods and Services

Question 8

A process of calculating the value of the final output in an economy by summing the value added in each stage of production.
(i.e., raw materials -> semifinished goods -> final products.)

Answer 8

Value-Added Approach

Question 9

Are transactions of used cars included in the current year’s GDP?

Answer 9

No
Secondhand sale
Double counting

Question 10

Are any financial security transactions, such as the buying and selling of stock and bonds, included in GDP?

Answer 10

No
Changes in claims of ownership.
Cancel each other out (buying vs. selling).

Question 11

An estimated value for non market transactions, such as the rental value of owner-occupied housing, included in GDP.

Answer 11

Imputed Value

Question 12

Payments that represent the transfer of income among individuals in the economy, but do not reflect the production of new goods and services.
Excluded from GDP.

Answer 12

Transfer Payments

Question 13

Public transfer payments

Answer 13

Social Security
Welfare
Veteran’s Payments

Question 14

Private transfer payment

Answer 14

Transfer among family members.

Question 15

Why are public transfer payments recorded in government budgets, but excluded from GDP?

Answer 15

Do not represent payment for newly produced goods and services.

Question 16

Reason GDP can increase.

Answer 16

Prices of goods and services increase, quantities held constant.
Quantities of goods and services increase, prices held constant.
Both prices and quantities increase (typical case).

Question 17

The value of currently produced final goods and services measured in current year prices.

Answer 17

Nominal GDP

Question 18

The value of currently produced goods and services measured in constant prices.

Answer 18

Real GDP

Question 19

What is real GDP?

Answer 19

Nominal GDP adjusted for price level changes or inflation.

Question 20

A measure of price changes in the economy that compares the price of each year’s output of goods and services to the price of that same output in a base year.

Answer 20

GDP Deflator

Question 21

GDP Deflator =

Answer 21

(Nominal GDP/Real GDP) x 100

Question 22

The periodic increases and decreases in overall economic activity reflected in production, employment, profits, and price.

Answer 22

Business Cycle

Question 23

The rising phase of a business cycle, in which the direction of a series of economic indicators turns upward.

Answer 23

Expansion

Question 24

The falling phase of a business cycle, in which the direction of a series of economic indicators turns upward.

Answer 24

Recession

Question 25

The four major sectors of the economy that the expenditure or output approach focuses on spending on currently produced goods and services.

Answer 25

1. Personal consumption expenditures, or consumption (C). 2. Gross private domestic investment, or investment (I). 3. Government consumption, expenditures and gross investment, or government (G) 4. Net export spending (F), equals export spending (X) minus import spending (M).

Question 26

The total amount of spending by consumers on durable goods, non durable goods, and services in a given time period. Largest component of GDP. Typically averaging 2/3 of total GDP.

Answer 26

Personal Consumer Function

Question 27

Three categories of the personal consumption function.

Answer 27

Durable Goods Non Durable Goods Services

Question 28

Commodities that typically last 3 or more years, such as automobiles, furniture, and household appliances.

Answer 28

Durable Goods

Question 29

Commodities that last less than 3 years and may be consumed very quickly, such as food, clothing, and gasoline.

Answer 29

Non Durable Goods

Question 30

Non commodity items, such as utilities, public transportation, private education, medical care, and recreation. Cannot be stored and are consumed at the place and time of purchase.

Answer 30

Services

Question 31

Why did the personal consumption expenditure growth slow down significantly from 1999 to 2009?

Answer 31

Slower growth in disposable personal income. | Increase in personal saving rate.

Question 32

The total amount of spending on non residential structures, equipment, and software; residential structures; and business inventories in a given period of time. Very specific meaning in the National Income and Product Accounts.

Answer 32

Gross Private Domestic Investment Spending

Question 33

Included in gross private domestic investment spending.

Answer 33

1. Business or non residential fixed investment. 2. Residential fixed investment. 3. Changes in business inventories, goods that are produced, but not sold in a given year.

Question 34

Spending on the structures, equipment, and software that provide the industrial capacity to produce goods and services for all sectors of the economy.

Answer 34

Business Fixed Investment

Question 35

Spending on newly constructed housing units, major alterations of and replacements to existing structures, and brokers' commissions.

Answer 35

Residential Fixed Investment

Question 36

Changes in the amount of goods produced, but not sold in a given year.

Answer 36

Changes in Business Inventories

Question 37

The total amount of spending by federal, state, and local governments on consumption outlays for goods and services and for depreciation charges for existing structures and equipment and on investment capital outlays for newly acquired structures and equipment in a given period of time.

Answer 37

Government Consumption Expenditures and Gross Investment

Question 38

Two categories of government consumption expenditures and gross investment.

Answer 38

1. Consumption | 2. Investment

Question 39

Current outlays for goods and services and depreciation charges on existing structures and equipment.

Answer 39

Consumption

Question 40

Capital outlays for newly acquired structures and equipment.

Answer 40

Investment

Question 41

The total amount of spending on exports minus the total amount of spending on imports on a given period of time.

Answer 41

Net Export Spending

Question 42

The total amount of spending on goods and services currently produced in one country and sold abroad to residents of other countries in a given period of time.

Answer 42

Export Spending

Question 43

The total amount of spending on goods and services currently produced in other countries and sold to residents of a given country in a given period of time.

Answer 43

Import Spending

Question 44

Income that is generated from the sale of the goods and services that are produced in the economy and that is paid to the individuals and businesses who supply the inputs or factors of production.

Answer 44

National Income

Question 45

Categories of national income.

Answer 45

1. Compensation of Employees 2. Proprietors' Income 3. Rental Income 4. Corporate Profits 5. Net Interest

Question 46

The wages and salaries and the fringe benefits paid by employers to employees. Largest component of national income.

Answer 46

Compensation of Employees

Question 47

The income of unincorporated businesses, such as medical practices, law firms, small farms, and retail stores.

Answer 47

Proprietors' Income

Question 48

The income households receive from the rental of their property.

Answer 48

Rental Income

Question 49

The excess of revenues over costs fro the incorporated business sector of the economy.

Answer 49

Corporate Profits

Question 50

The interest private businesses pay to households for lending money to the firms minus the interest businesses receive plus interest earned from foreigners.

Answer 50

Net Interest

Question 51

Income received by households that forms the basis for personal consumption expenditures.

Answer 51

Personal Income

Question 52

Personal household income after all taxes have been paid.

Answer 52

Disposable Income

Question 53

The portion of households' income that is not spent on consumption goods and services.

Answer 53

Saving

Question 54

The price of one good in relation to the price of another good. Microeconomic focus

Answer 54

Relative Prices

Question 55

A measure of the overall level of prices in the economy using various indices to measure the prices of all goods and services. Macroeconomic focus

Answer 55

Absolute Price Level

Question 56

A sustained increase in the price level over time.

Answer 56

Inflation

Question 57

A sustained decrease in the price level over time.

Answer 57

Deflation

Question 58

Price level indices

Answer 58

1. GDP Deflator 2. Consumer Price Index 3. Producer Price Index

Question 59

A measure of the combined price consumers pay for a fixed market basket of goods and services in a given period relative to the combined price of an identical basket of goods and services in a base period.

Answer 59

Consumer Price Index (CPI)

Question 60

Those individuals 16 years of age and over who are working in a job or actively seeing employment.

Answer 60

Labor Force

Question 61

Persons 16 years of age and over who did any work as a employee, worked in their own business, profession, or farm, or worked without pay at least 15 hours in a family business or farm.

Answer 61

Employed

Question 62

Persons 16 years of age and over who do not currently have a job, but who are actively seeking employment.

Answer 62

Unemployment

Question 63

Persons 16 years of age and over who are not currently seeking work because they believe that jobs in their area or line of work are unavailable or that they would not qualify for existing job openings.

Answer 63

Discouraged Workers

Question 64

Types of unemployment

Answer 64

Frictional Structural Cyclical

Question 65

Considered to be normal. | Workers are between jobs or looking for new jobs and better paying jobs.

Answer 65

Frictional Unemployment

Question 66

Changes in consumer demand or changes in technology create a mismatch between jobs and location of jobs and the skills of workers. You or the product/service you are involved with have become obsolete or have a lower demand. Improve with investment in human capital.

Answer 66

Structural Unemployment

Question 67

Investment in human capital

Answer 67

Educate workers Improve skills and talent Health Worker mobility

Question 68

Decreased spending causes a decline in aggregate demand, thus a decrease in number of jobs, thus a slow down in business cycle.

Answer 68

Cyclical Unemployment

Question 69

Ways to improve cyclical unemployment.

Answer 69

Monetary and fiscal policies

Question 70

Changes in taxes and spending by the executive and legislative branches of a country's national government that can be used to either stimulate or restrain the economy.

Answer 70

Fiscal Policy

Question 71

Policies adopted by a country's central bank that influences interest rates and credit conditions, which in turn, influences consumer and business spending.

Answer 71

Monetary Policy

Question 72

Monetary vs. Fiscal Policy

Answer 72

``` Monetary = changes in money supply and interest rates by Fed. Fiscal = changes in taxes and government spending by executive and legislative branches. ```

Question 73

Federal Reserve policy to increase the rate of growth of real GDP by increasing the amount of bank reserves in the system and lowering the federal funds and other interest rates.

Answer 73

Expansionary Monetary Policy

Question 74

Federal Reserve policy to decrease the rate of growth of real GDP by decreasing the amount of bank reserves in the system and raising the federal funds and other other interest rates.

Answer 74

Contractionary Monetary Policy

Question 75

GDP =

Answer 75

C + I + G + (X - M)

Question 76

The functional relationship in macroeconomics that assumes that household consumption spending depends primarily on the level of disposable income (net of taxes) in the economy, all other variables held constant.

Answer 76

Consumption Function

Question 77

The additional consumption spending generated by an additional amount of real income. Assumed to take a valued less than 1.

Answer 77

Marginal Propensity to Consume (MPC)

Question 78

MPC =

Answer 78

Change in consumption expenditure / Change in disposable income OR Change in consumption expenditure / Change in (Personal income - Personal Tax)

Question 79

Disposable Income =

Answer 79

Personal income - Personal tax

Question 80

The additional household saving generated by an additional; amount of real income.

Answer 80

Marginal Propensity to Save (MPS)

Question 81

MPS =

Answer 81

1 - MPC

Question 82

The multiple change in income and output that results from a change in autonomous expenditure.

Answer 82

Multiplier

Question 83

Multiplier =

Answer 83

1 / (1-MPC)

Question 84

Macro issues McDonalds faced in 2012.

Answer 84

1. Slow US economy recovery. 2. Uncertain global economy. 3. Young customers hurt by recession. 4. Financial crisis in Europe. 5. Slowing Chinese economy.

Question 85

Micro issues McDonalds faced in 2012.

Answer 85

1. Pricing of menu items. 2. New strategies. 3. Price discount/coupons. 4. Hiring mystery shoppers. 5. Posting calories in menus. 6. Remodeling stores and drive thrus.

Question 86

Demonstrates how much output could be produced with available resources and current technology.

Answer 86

Production Possibility Curve

Question 87

Why the economy needs to grow?

Answer 87

1. Output has to keep increasing if an economy is to stay healthy. 2. Population is increasing 3. Technology is advancing 4. PP curve must keep shifting outward

Question 88

3 major gauges to measure the macro health of US economy.

Answer 88

1. Output (Real GDP) Growth 2. Unemployment 3. Inflation

Question 89

Advantages of monetary policy

Answer 89

Flexible | Free to some extent from political pressure.

Question 90

Disadvantages of monetary policy

Answer 90

Not as effective in stemming recessions as in checking inflation.

Question 91

Evaluate whether the purchase of a new automobile for private, nonbusiness use is considered to be investment (I) in calculating GDP?

Answer 91

No | Considered consumption spending (C).

Question 92

Evaluate whether the purchase of a new house is considered to be investment (I) in calculating GDP.

Answer 92

Yes | An investment and construction purchase.

Question 93

Evaluate whether the purchase of a corporate bond is considered to be investment (I) in calculating GDP.

Answer 93

No | Considered transfer of ownership of existing assets.

Question 94

Explain whether transfer payments, such as Social Security and unemployment compensation, are counted as government spending in calculating GDP.

Answer 94

No | Represent transfer of income, not production of new goods and services.

Question 95

Is it true that the value of US imports is added to exports when calculating US GDP because imports reflect spending by Americans? Explain.

Answer 95

No Imports are subtracted from exports. Imports are not produced in the US.

Question 96

Describe the effect of the currency exchange rate on export and import spending.

Answer 96

Exchange rate increases, imports increase because imports become cheap and exports become expensive. Exchange rate decreases, exports increase because exports become cheap and imports become expensive.

Question 97

What are the 3 tools the Federal Reserve uses to change the money supply and interest rates in the economy? Which of these tools is most important and why?

Answer 97

Open market operations Reserve requirements Discount rate Open market operations is most important. Influences the amount of reserves in banking system. Influences federal fund rate banks charge to each other. Most flexible and used on daily basis.

Question 98

Give examples of oligopolistic behavior among the rivals in the fast-food industry.

Answer 98

Matched price cuts Matched cooking styles Menu innovations