Macroeconomics - Unit 1

Question 1

GDP Equation Expenditures Approach

Answer 1

GDP = C + I + G + ( X-M )

Question 2

What is GDP?

Answer 2

The dollar value of all FINAL goods and services produced WITHIN a country in one year

Question 3

What DOESN’T count towards GDP?

Answer 3

Intermediate Goods - Things used to produce the final good
Used Goods - Things that were produced in previous years
Financial Transactions - Nothing new is produced - so buying stocks and bonds from someone
Government transfer payments

Question 4

What are the 3 ways to measure GDP?

Answer 4

Expenditures Approach
Income Approach
Value added Approach

Question 5

What DOES count towards GDP?

Answer 5

Consumer spending, business investment, government spending, exports minus imports

Question 6

What are the limitations towards GDP

Answer 6

P - Population
I - Inequality
E - Environment
S - Shadow Economy

Question 7

Unemployment rate equation

Answer 7

in labor force

number of unemployed
————————————— x 100
number in labor force

Question 8

Do discouraged workers count as unemployed?

Answer 8

NO! if you stop looking for a job or stop wanting a job you’re not considered unemployed because you’re not part of the labor force

Question 9

What is Labor Force?

Answer 9

The people who are actively looking for a job or who have a job, over 16, not in jail and not in military

Question 10

What are the three types of unemployment and what two always exist?

Answer 10

1. Frictional Unemployment
2. Structural Unemployment
3. Cyclical Unemployment

Question 11

What is the NRU (Natural Rate of Unemployment)

Answer 11

The amount of unemployment even when the economy is doing great. Achieved when there is only frictional and structural, no cyclical.

Question 12

What is Frictional Unemployment?

Answer 12

Temporary unemployment, between jobs

Question 13

What is Structural Unemployment?

Answer 13

Long term unemployment because workers don’t have the right skills

Question 14

What is Cyclical Unemployment?

Answer 14

The result of an economic downturn or recession. Workers are let go because of less demand

Question 15

What is Inflation Rate?

Answer 15

The percent change in prices from year to year

Question 16

What are Price Indices?

Answer 16

Index numbers assigned to each year showing how price has changed relative to a specific base year

Question 17

What is CPI (Consumer Price Index)?

Answer 17

• Most common measurement of inflation
• The base year is given an index of 100
• Each year is given an index # as well

Question 18

What does P stand for in PIES?

Answer 18

Population, other countries have different populations

Question 19

What does I stand for in PIES?

Answer 19

Inequality, even if two countries have an identical GDP per capita, you cannot assume all households in the countries have the same standard of living

Question 20

What does E stand for in PIES?

Answer 20

Environment, GDP has no way of calculating the benefits of clean air/clean water

Question 21

What does S stand for in PIES?

Answer 21

Shadow Economy, the informal sector where people work and earn money but under the radar

Question 22

CPI Equation

Answer 22

Price of Market Basket / Price of Market Basket in base year x 100

Question 23

Percent Change in Prices Equation

Answer 23

Year 2 - Year 1
—————————- x 100
Year 1

Question 25

What is the Expenditures Approach?

Answer 25

Looks at all of the purchases made on goods and services produced within the United States in a given year, focuses on purchases

Question 26

What is the Income Approach?

Answer 26

The income earned from all purchases, every single person spending is somebody elses income.

Question 27

What is the Value Added Approach?

Answer 27

Adding value to a product being sold and eventually being sold again as a final product

Question 28

What is Nominal GDP?

Answer 28

The GDP in todays dollars not adjusted for inflation

Question 29

What is Real GDP?

Answer 29

The GDP adjusted for inflation, analyze money from a base year

Question 31

GDP Equation Income Approach

Answer 31

Labor + Rental + Interest + Profit

Question 32

Real GDP Equation

Answer 32

Nominal / GDP deflator