Macro Unit 1

Question 1

Aggregate demand

Answer 1

total demand of everyone in a country

Question 2

3 indicators of an economy

Answer 2

• economic growth
• level of employment
• price stablilty

Question 3

4 sectors

Answer 3

all participate in the production of goods (supply and demand)

• households
• businesses
• government
• foreign entities

Question 4

Households

Answer 4

Individuals live together and make collective decisions

Consume goods and services

Question 5

Businesses

Answer 5

Private producers of goods and services
Organize factors of production to produce goods
private sector

Question 6

Government

Answer 6

Political units of a country
Consumes some output/organizes some factors of production to produce some goods
public sector

Question 7

Foreign entities

Answer 7

All economies outside the economy being studied
Comsumes/produces output
international sectpr

Question 8

In an economy, income must equal…

Why?

Answer 8

expidenture

Every dollar one perosn spends on a goods contributes to the income of another

Question 9

GDP

Answer 9

Gross domestic product

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

Question 10

GDP

“Market value”

Answer 10

GDP uses market prices to measure the amount people are willing to pay for different goods, prices reflect the value of the good.

Question 11

GDP

“All”

Answer 11

GDP includes all items produced in the economy and sold in the markets

Question 12

GDP

“Final”

Answer 12

Includes value of final goods only, not intermediate goods. If a card is produced the paper used to make it (the intermediate good) is not included, but the final product (the card) includes both the paper and the good

Question 13

GDP

“Goods and services”

Answer 13

Includes both tangible and nontangible goods

Question 14

GDP

“Produced”

Answer 14

Only includes goods and services currently produced, not transactions of items produced in the past

Question 15

GDP

“Within a country”

Answer 15

Measures value of production within the geographical confines of a country, only domestic goods

Question 16

GDP

“In a given period of time”

Answer 16

Measures value of production within a specific time period

Question 17

GDP=

Answer 17

C + I + G + NX

Question 18

C

Answer 18

Consumption: spending by households on goods and services (does NOT include housing).
Includes durable and nondurable goods

Question 19

I

Answer 19

Investment: spending on capital equipment, inventories, and structures (includes housing)

Question 20

G

Answer 20

Government purchases: spending on goods and services by local, state, and federal governments
Does not include transfer payments such as social security

Question 21

NX

Answer 21

Net exports: spending on domestically prododuced goods by foreigners
exports-imports

Question 22

Inventories

Answer 22

Goods are added to GDP when they enter inventories

Question 23

Real GDP

Answer 23

measured at constant priced ADJUSTED FOR INFLATION

Question 24

Nominsl GDP

Answer 24

measured at current prices NOT ADJUSTED FOR INFLATION

Question 25

GNP

What is it equal to?

Answer 25

Gross national product
Total income earned by a nation’s permanent resident
-includes income of a U.S. citizen abroad
-excludes income of a foreigner in the U.S.
GNP=GDP

Question 26

Inflation

Answer 26

A general increase in prices throughout an economy

Question 27

Deflation

Answer 27

a general decrease in price

Question 28

Inflation rate

Answer 28

% change from year to year

Question 29

What causes inflation?

Answer 29

• Increase in money supply

- A supply and demand of goods and labor

Question 30

Demand pull inflation

Answer 30

caused by consumer demand for goods increasing faster than the economy can produce the goods

Question 31

Cost push inflation

Answer 31

caused by businesses reducing the amount supplied due to increasing costs

Question 32

Real=

Answer 32

Nominal-inflation

Question 33

GDP deflator

Answer 33

Used to calculate rate of inflation

Nominal GDP/Real GDP x 100GDP deflator is 100 in the base year

Question 34

CPI

Answer 34

Consumer price index, shows the costs of goods and services bought by a typical consumer (basket of goods)
Used to calculate inflation rate

Question 35

Calculating inflation with CPI

Answer 35

CPI in year X - CPI in year Y/ CPI in year Y x 100

Question 36

Producer price index

Answer 36

measuring inflation using a basket of goods and services bought by firms

Question 37

Headline inflation

Answer 37

reported on news based on CPI

Question 38

Core inflation

Answer 38

excludes energy and food prices

Question 39

What happens when goods are added to inventories?

Answer 39

They count as produced and are added to GDP

Question 40

Labor force

Answer 40

People who are employed + people looking for jobs

Question 41

Unemployment rate=

Answer 41

Workers/labor force

Question 42

Discouraged worker

Answer 42

Individual who has given up looking for work

Not counted in labor force

Question 43

Natural rate of unemployment

Answer 43

Around 5% unemployment rate is expected

Question 44

Cyclical unemployment

Answer 44

Caused by changes in business cycle. Deviations from natural rate of unemployment

Question 45

Frictional unemployment

Answer 45

Unemployment from workers looking for better jobs

Question 46

Structural unemployment

Answer 46

When QS of job seekers exceeds QD

Usually occurs from structural problems in the economy