Macroeconomics Exam 2

Question 1

GDP

Answer 1

sum of final goods produced during some period

Question 2

other names for GDP

Answer 2

aggregate output, income, Y

Question 3

C + I + G + NX =

Answer 3

Y (GDP)

Question 4

C in GDP equation

Answer 4

new consumption

Question 5

I in GDP equation

Answer 5

private physical investment

Question 6

G in GDP equation

Answer 6

government purchases

Question 7

NX in GDP equation

Answer 7

net exports

Question 8

the ability of an individual, a firm, or a country to produce a good or service at the lowest opportunity cost

Answer 8

comparative advantage

Question 9

the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources

Answer 9

absolute advantage

Question 10

the ratio at which a country can trade its exports for imports from other countries

Answer 10

terms of trade

Question 11

reductions in a firm’s costs that result from an increase in the size of an industry

Answer 11

external economies

Question 12

redistribution of surplus and causes deadweight loss(es)

Answer 12

effects of tariffs

Question 13

the percentage of the labor force that’s unemployed

Answer 13

unemployment rate

Question 14

people who are available for work but who are not actively looking for a job because they believe no jobs are available for them *NOT counted as unemployed

Answer 14

discouraged workers

Question 15

short-term unemployment that arises from the process of matching workers with jobs

Answer 15

frictional unemployment

Question 16

arises from a persistent mismatch between the job skills/attributes of workers + the requirements of jobs

Answer 16

structural unemployment

Question 17

type of unemployment caused by a business cycle recession

Answer 17

cyclical unemployment

Question 18

the normal rate of unemployment, consisting of structural and frictional unemployment

Answer 18

natural rate of unemployment

Question 19

a higher-than-market wage that a firm pays to increase workers’ productivity

Answer 19

efficiency wage

Question 20

equal to the percentage change in the price level from one year to the next

Answer 20

inflation rate

Question 21

measure of the average change over time in the prices a typical urban family of 4 pays for the goods/services they purchase

Answer 21

consumer price index

Question 22

an average of prices received by producers of goods/services at all stages of production

Answer 22

producer price index

Question 23

the producer price index is more volatile than

Answer 23

CPI and PCE. It’s thanks to competition & more weight on physical goods

Question 24

the stated interest rate on a loan

Answer 24

nominal interest rate

Question 25

the nominal interest rate minus the inflation rate

Answer 25

real interest rate

Question 26

decline in the price level

Answer 26

deflation

Question 27

When the price level increases (inflation), the real interest rate is ______ than the nominal interest rate

Answer 27

less than < (because you’re subtracting a positive value from the nominal rate)

Question 28

When the price level stays the same, the real interest rate ______

Answer 28

= nominal interest rate

Question 29

When the price level decreases (deflation), the real interest rate is _____ than the nominal interest rate

Answer 29

more than > (because you’re subtracting a negative value from the nominal rate)

Question 30

it can be expressed as real interest rate ≈ nominal interest rate − inflation rate

Answer 30

the fisher equation

Question 31

( 1 + i ) = ( 1 + r ) x ( 1 + π )

Answer 31

the fisher equation written in mathematical terms

Question 32

food & beverages, housing, apparel, transportation, medical care, recreation, education & communication

Answer 32

consumer price index (CPI) components

Question 33

refers to alternating periods of economic expansion and economic recession

Answer 33

the business cycle

Question 34

the process by which rising productivity increases the standard of living in the typical person

Answer 34

long-run economic growth

Question 35

Capital refers to…

Answer 35

manufactured goods that are used to produce other goods and services

Question 36

the level of GDP attained when all firms are producing at capacity

Answer 36

potential GDP

Question 37

refers to a decline in private expenditure as a result of an increase in government purchases

Answer 37

crowding out

Question 38

characteristics of a growth-enabling financial system

Answer 38

1) sound money 2) a central bank/other monetary authority(ies) 3) private baking system 4) securities markets 5) risk sharing and spreading institutions and markets

Question 39

home plate of the growth diamond

Answer 39

government (protects life, liberty, property, peace; EX taxes, tolerable admin. of justice

Question 40

1st base of the growth diamond

Answer 40

financial system (number of banks, securities markets, insurers, etc.)

Question 41

The ____ _______ is all about the incentives to work harder, longer, faster

Answer 41

growth diamond

Question 42

2nd base of the growth diamond

Answer 42

entrepreneurship (new entries, job market churn)

Question 43

3rd base of the growth diamond

Answer 43

management (ability to run large organizations especially joint-stock corporations to achieve economies of scale)