midterm 1

Question 1

the total dollar value of goods produced in a country

Answer 1

national income

Question 2

most common measure of national income

Answer 2

GDP (gross domestic product)

Question 3

whats the national income calculated using the current price of goods

Answer 3

nominal national income (current dollar)

Question 4

national income calculated using the price of goods in the base period

Answer 4

real national income (constant dollar)

Question 5

explain the output gaps

Answer 5

the difference between potential output (Y*) and actual output (Y)

Question 6

whats the inflationary gap?

Answer 6

when the actual output is greater than the potential output

Question 7

whats the recessionary gap?

Answer 7

when the actual output is less than potential output

Question 8

what cycle is the fluctuation of economic activity over time?

Answer 8

the business cycle

Question 9

what are the 4 phases of the business cycle

Answer 9

expansion/recovery
peak
contraction/recession
trough

Question 10

whats the difference between real and nominal GDP

Answer 10

nominal represents the money value of output, the real represents the quantity of physical output.

Question 11

what does GDP not measure or include?

Answer 11

illegal activities
underground economy
non-marketing activities

Question 12

what are the different 3 types of unemployment

Answer 12

frictional
structural
cyclical

Question 13

what’s the definition of inflation

Answer 13

an overall increase in the price of things

Question 14

what’s the inflation that is expec ted and can be planned for?

Answer 14

anticipated inflation

Question 15

what’s the inflation that is higher or lower than expected?

Answer 15

unanticipated inflation

Question 16

what’s the definition of an interest rate?

Answer 16

the price paid to borrow money for a specific period

Question 17

what are the 2 type or rates that are important in interest rates

Answer 17

prime interest rate
bank rate

Question 18

what’s the definition of an exchange rate

Answer 18

it reflects the value of one currency in terms of another.

Question 19

what involves imports and exports

Answer 19

trade flows

Question 20

what’s the difference between an intermediate good and a final good

Answer 20

intermediate goods are outputs of firms that become inputs for other firms
final goods are outputs of firms that do not become inputs for other firms

Question 21

what does consumption expenditure include

Answer 21

expenditures on goods and services by households and businesses

Question 22

what does investment expenditure include

Answer 22

investment in inventories and residential housing

Question 23

what consists the factor incomes

Answer 23

the wages and salaries, interest and business profits

Question 24

what’s the meaning of desired expenditure

Answer 24

it refers to what people desire to spend out of the resources they actually have

Question 25

what’s the difference between autonomous expenditure and induced expenditure

Answer 25

autonomous expenditure that are not affected by income and will take place even if income is zero
induced expenditure that rises and falls with income

Question 26

what’s a disposable income

Answer 26

an household income remaining after paying income taxes

Question 27

equilibrium occurs when…

Answer 27

desired aggregate expenditure (AE) equals national income (Y)

Question 28

if national income is below equilibrium…

Answer 28

can lead to an inflationary gap

Question 29

if national income is above equilibrium…

Answer 29

can lead a recessionary gap

Question 30

what happens when there is a change in the AE function

Answer 30

it happens when either consumption or investments shifts up or down

Question 31

what represents the impact that a change in autonomous expenditure will have on overall GDP

Answer 31

the multiplier

Question 32

what are the 3 different types of budget balance

Answer 32

budget surplus
budget deficit
balanced budget

Question 33

the budget balance is the difference between…

Answer 33

total government revenue and total government expenditure

Question 34

what are the 3 factors affecting foreign rate

Answer 34

changes in foreign income
changes in international relative prices
exchange rate

Question 35

whats the meaning of an aggregate demand

Answer 35

it’s the total demand for goods and services within a particular market

Question 35

what’s the term to describe a change in autonomous expenditure that causes a shift in the AD curve

Answer 35

an aggregate demand shock

Question 35

whats the meaning of an aggregate supply

Answer 35

it’s the total supply of goods ans services available to a particular market from producers