Measuring Economic Activity

Question 1

What is growth theory?

Answer 1

It analyses the long-term component, the trend (Potential GDP)

Question 2

What is business cycle theory?

Answer 2

It analyses the short-term component, the business cycle

Question 3

What is output gap?

Answer 3

The difference between potential (blue line) and actual GDP

Question 4

Unemployment Rate

Answer 4

The percentage of the workforce who would like to have a job but can’t find one.

Question 5

Frictional Unemployment

Answer 5

People moving between jobs, careers, locations

Question 6

Structural Unemployment

Answer 6

Long-term unemployment. Mismatch between employees skills and the needed skills the employers demand

Question 7

Cyclical Unemployment

Answer 7

Unemployment as a cause of recession cycles or similar

Question 8

Economic Policy

Answer 8

Designed to hopefully improve the economic performance.

Question 9

Stabilization Policy

Answer 9

Government interventions that are used to smooth out short-run fluctuations (reduce output gap)
Fiscal & Monetary policies

Question 10

Fiscal Policy

Answer 10

Taxation and government spending

Question 11

Monetary Policy

Answer 11

money supply and interest rates, central bank

Question 12

Structural Policy

Answer 12

• Promote long-term growth by changing the core structure of the economy

Question 13

Commodity Market

Answer 13

• Price Level (CPI)

- Production (GDP)

Question 14

Labour Market

Answer 14

• Wages

- Employment/Unemployment

Question 15

Capital Market (and money market)

Answer 15

• Saving, Investment, Interest Rate

- Wealth

Question 16

Foreign Exchange Market

Answer 16

• Exchange Rate

- Net Exports

Question 17

Econometrics

Answer 17

Collection of statistical methods to analyse economic data and economic relationship.
Key issue: Correlation vs Causation

Question 18

Three Central Indicators of Economic Activity

Answer 18

• GDP
• Inflation
• Unemployment

Question 19

Market Value

Answer 19

The price of the good or service that the consumer pays

Question 20

Three ways to measure GDP

Answer 20

• Production Method (Market value & value added)
• Expenditure Method (aggregation technique, sum of expenditures on domestically produced final goods and services)
• Income Method (sum of all income)

Question 21

GDP Identity

Answer 21

GDP = Y = C + I + G + M -IM

Question 22

Nominal GDP

Answer 22

Measures quantities produced each year valued at current prices

Question 23

Real GDP

Answer 23

Measures quantities produced each year valued at base year prices
(Nominal GDP / GDP Deflator) x 100

Question 24

Real Growth Rate

Answer 24

(Real GDP1 - Real GDP 2) / Real GDP2

Question 25

The GDP Deflator

Answer 25

Average price level of all goods and services that is part of GDP relative to a base year.
(Nominal GDP / Real GDP) x 100