Handout 2

Question 1

Gross Domestic Product (GDP)

Answer 1

The market value of all newly produced final goods and services produced within a country’s borders over a designated period

Question 2

Impute

Answer 2

Calculate and assign

Question 3

Intermediate Goods

Answer 3

The sales of inputs or component parts of produced goods

Question 4

Gross National Product (GNP)

Answer 4

Aggregates production by the ownership of the factors of production

Question 5

Factors of Production

Answer 5

Labor, capital

Question 6

Pi

Answer 6

Inflation

Question 7

The Price Level (P)

Answer 7

The price of a representative good/service

Question 8

Consumer Price Index (CPI)

Answer 8

The most commonly known and used price index

Question 9

Index

Answer 9

A measure that is unit less, but which accurately captures relative values

Question 10

Base Year

Answer 10

A year whose prices become the reference prices

Question 11

Nominal GDP

Answer 11

GDP not adjusted for inflation

Question 12

Real GDP

Answer 12

GDP adjusted for inflation

Question 13

Cost of Living Adjustments (COLAs)

Answer 13

Made to many salaries as well as social security payments to assure they maintain their purchasing power when there is inflation

Question 14

Substitution Bias

Answer 14

Exists because the CPI assumes the same, fixed basket of goods over the years in which it is measured without allowing for substitutions within the basket

Question 15

Quality Bias

Answer 15

Occurs because most of the goods in the CPI basket are of better quality over time

Question 16

GDP Deflator

Answer 16

Comparison between Nominal and Real GDP

Question 17

Debt Instruments

Answer 17

Written promises to deliver specified amounts of money on specified future dates

Question 18

Mature

Answer 18

Occurs on the last date of their promised payments

Question 19

Bonds

Answer 19

One common type of debt-instrument where one sells a bond and promises to pay a fee to the owner of the bond

Question 20

Nominal Interest Rate (i)

Answer 20

Interest rate on bond

Question 21

Promissory Note

Answer 21

Another common form of debt-instrument where the borrower signs a note with a schedule of promised payments by the borrower to the bank

Question 22

Ex Ante Real Interest Rate (r)

Answer 22

The real interest rate that is expected to prevail going forward

Question 23

Ex Post Real Interest Rate (R)

Answer 23

What the real interest rate actually was

Question 24

Labor Force (LF)

Answer 24

Those who want to work, and are either employed (E) or unhappy that they cannot land jobs and are unemployed

Question 25

Underemployment

Answer 25

Settling for workers for jobs beneath their skill levels; One type of enderemployment

Question 26

Discouraged Workers

Answer 26

People who are viewed as unemployed by theory but no by the measure of unemployment

Question 27

Unemployment Benefits

Answer 27

Money provided by the government to those who are not working but claim to be looking for work

Question 28

Participation Rate

Answer 28

The percentage of the potential workers in an economy that belongs to the labor force

Question 29

Working-Age Population

Answer 29

The government measure for the potential workers