Final

Question 1

Expansion

Answer 1

• The period of a business cycle during which total production and total employment are increasing
• Low unemployment rate, high inflation rate

Question 2

Recession

Answer 2

• The period of a business cycle during which total production and total employment are decreasing
• High unemployment, low inflation rate

Question 3

Inflation Rate

Answer 3

-The percentage increase in the average level of prices from one year to the next

Question 4

Gross Domestic Production (GDP)

Answer 4

-The market value of all final goods and services produced in a country during a period of time (often 1 year)

Question 5

Components of GDP

Answer 5

Y=C(consumption)+ I(investment)+ G (government)+NX (Net Exports=Imports-Exports)

Question 6

Why is GDP a good/bad measure of well being?

Answer 6

• The value of leisure is not included in GDP
• GDP is not adjusted for pollution or other negative effects of production
• GDP is not adjusted for changes in crime and other social problems
• GDP may not provide good information about the distribution of output

Question 7

Real GDP

Answer 7

The value of final goods and services evaluated at base-year prices.

Question 8

Nominal GDP

Answer 8

The value of final goods and services evaluated at current-year prices.

Question 9

Real Variables

Answer 9

Not affected by price level fluctuations

Question 10

GDP Deflator

Answer 10

Nominal GDP/Real GDP (100)

Question 11

Gross National Product

Answer 11

• Includes foreign production by U.S firms but excludes US production by foreign firms
• Measure of national output

Question 12

National Income

Answer 12

GDP- Depreciation

Question 13

Personal Income

Answer 13

-Includes the payments received by households from the government in the form of transfer payments or interest on government bonds

Question 14

Disposable Personal Income

Answer 14

Personal Income-Tax

Question 15

Unemployment Rate

Answer 15

• The percentage of the labor force that is unemployed

- (Number of unemployed/Labor Force) 100

Question 16

Labor Force Participation Rate

Answer 16

• The percentage of the working-age population in the labor force
• (Labor Force/ Working Age Population)100

Question 17

Employment-Population Ratio

Answer 17

• The percent of the working-age population that is employed.
• (Employment/Working Age Population)100

Question 18

Frictional Unemployment

Answer 18

• Short term unemployment that comes from the process of matching workers with jobs
• Example: Kiera voluntarily quit her job to return to school are earn another degree. Now she is busy searching for another job.

Question 19

Structural Employment

Answer 19

• Comes from a persistent mismatch between the job skills or attributes of workers and the requirements of jobs.
• Example: Bank of America laid off thousands of employees. Those laid off were not able to find jobs at another bank due to the decline of the financial industry.

Question 20

Cyclical Unemployment

Answer 20

• Unemployment caused by a business cycle recession

- Example: During the Great Recession, Kiera lost her job due to the bad economy

Question 21

Who is included in the labor force?

Answer 21

Unemployed and employed. Discouraged workers are not included.

Question 22

What factors determine the unemployment rate?

Answer 22

• Government policies
• Labor Unions
• Efficiency Ages

Question 23

What affects the accuracy of the consumer price index (CPI)

Answer 23

• Substitution
• Increase in quality bias
• New product bias
• Outlet bias

Question 24

How is inflation rate calculated?

Answer 24

(CPI1t-CPIt-1)/CPIt-1

Question 25

Real Variable calculator

Answer 25

(Nominal variable/ CPI) 100

Question 26

Real Interest Rate

Answer 26

Nominal Interest Rate- Inflation Rate