Macro Quiz 2

Question 1

What does GDP measure

Answer 1

total income of everyone in the economy and the total expenditure on the economy’s output of goods and service

Question 2

True or False: income must equal expenditure

Answer 2

True

Question 3

How to compute GDP

Answer 3

adding up all the expenditure by households or by adding up all the income

Question 4

Gross Domestic Product

Answer 4

market value of all final goods and services produced within a country in a given period

Question 5

What does GDP exclude?

Answer 5

illegal drugs, vegetables grown at home

Question 6

Intermediate good

Answer 6

excluded from GDP since already included in price of final goods, ex. microchip needed for computer

Question 7

Goods and services

Answer 7

included in GDP

Question 8

Produced

Answer 8

GDP includes goods and services currently produced, but not transactions involving items produced in the past

Question 9

Can GDP account for goods from another country?

Answer 9

GDP measures the value of production with in the geographic confines of a country, items are included in a nation’s GDP if they are produced domestically, regardless of the nationality of the producer

Question 10

What period is GDP accounting for?

Answer 10

Value of production that takes place within a specific interval of time, usually a year or a quarter (three months), measures flow of income, as well as its flow of expenditures

Question 11

Seasonal Adjustment

Answer 11

Government statisticians adjust the quarterly data to take out the seasonal cycle ex. Christmas

Question 12

Gross domestic income

Answer 12

GDP and GDI come up with almost the same number, the difference is called statistical discrepancy

Question 13

GDP equation

Answer 13

Y = C + I + G + NX

Question 14

Investment

Answer 14

purchase of goods (capital goods) that will be used in the future to produce more goods and services

Question 14

Consumption

Answer 14

spending by households on goods and services except for purchases of new housing

Question 15

Government purchases

Answer 15

measure spending on goods and services by federal, state, and local governments

Question 16

Net exports

Answer 16

equal the foreign purchases of domestically produced goods (exports) minus the domestic purchases of foreign goods (imports)

Question 17

Real GDP

Answer 17

uses constant base-year prices to value the economy’s production

Question 18

Nominal GDP

Answer 18

uses current prices to value the economy’s production of goods and services

Question 19

GDP Deflator

Answer 19

GDP deflator = nominal GDP/real GDP x 100, measures the current price level relative to the price level in the base year

Question 20

Inflation

Answer 20

describe situation in which the economy’s overall price level is rising, Inflation rate = (GDP deflator in year 2-GDP deflator in year 1) x 100

Question 21

Graphically, what do shaded vertical bars represent?

Answer 21

recessions

Question 22

CPI

Answer 22

consumer price index, used to monitor changes in the cost of living, measures the overall cost of goods and services bought by a typical consumer

Question 23

Who computes the CPI?

Answer 23

Bureau of Labor Statistics (BLS)

Question 24

CPI equation

Answer 24

CPI = (price of basket of goods/services in current year)/(price of basket in base year) x 100

Question 25

Produce price index

Answer 25

measures the prices of output of domestic producers

Question 26

Problem 1 w/ CPI: Substitution bias

Answer 26

consumers substitute toward goods that become relatively less expensive e

Question 27

Problem 2 w/ CPI: Introduction of new goods

Answer 27

when a new good is introduced, consumers have more variety from which to choose, which in turn reduces the cost of maintaining the same level of economic well-being

Question 28

Problem 3 w/ CPI: unmeasured quality change

Answer 28

quality of good deteriorates from one year to the next while its price remains the same, you are getting a lesser good for the same amount of money, so the value of a dollar falls

Question 29

Difference between GDP deflator and CPI

Answer 29

GDP: reflect price of goods and services produced domestically, currently produced goods and services with the price of those goods and services in the base year
CPI: reflects price of goods and services bought by consumers, fixed basket of goods and services with the price of the basket in base year

Question 29

Equation for turning dollar figures from year T into today’s dollars

Answer 29

amount in today’s dollars = amount in year T dollars x (price level today/price level in year T)

Question 30

Indexed for inflation

Answer 30

price indexes are used to correct for the effects of inflation when comparing dollar figures from different times

Question 31

COLA

Answer 31

cost-of-living allowance

Question 32

Real interest rate equation

Answer 32

corrected for inflation, real interest rate = nominal interest rate - inflation rate

Question 33

CPI Equation

Answer 33

(cost current year/cost base year) x 100

Question 34

Inflation Rate

Answer 34

((CPIcurrent - CPIbase)/CPIbase) x 100

Question 35

Nominal GDP equation

Answer 35

sum (P x Q)

Question 36

GDP Deflator

Answer 36

(nominal GDP / real GDP) x 100

Question 37

Amount in today’s dollars

Answer 37

amount in year T dollars x (price level today/price level in year T)