Midterm 1 Flashcards
Calculating the value of an economy is harder than just adding up the value of every single thing that is produced because:
that would lead to overcounting, as the value of intermediate products would be counted twice.
The field of macroeconomics studies ______ and microeconomics studies ______.
economic aggregates; individual markets
GDP:
per capita gives us a sense of the average economic well-being in a country.
Gross domestic product (GDP) is:
the sum of the market values of all final goods and services produced within a country in a given period of time.
Canadian car dealers sell both used cars and new cars each year. However, only the sales of the new cars count toward GDP. The sale of used cars does not count because:
the used cars had been previously counted in the GDP of the year in which they were built.
There is a saying, “You can’t compare apples and oranges.” When economists calculate GDP, they:
are able to ‘compare apples and oranges’ by converting production to its dollar value.
When Canadians buy a good produced in the U.S., Americans earn income from Canadian expenditures. The value of this American output and Canadian expenditure is counted under the GDP of:
the U.S. because it is produced in the U.S.
Economists sometimes describe the economy as having a circular flow. In the most basic form of the circular flow model, companies hire workers and pay them wages. Workers then use these wages to buy goods and services from companies. The circular flow model explains the equivalence of the expenditure and income methods of valuing an economy because:
the revenues of all firms are turned into wages (income method), and all wages are spent on the firms’ products (expenditure method).
Determine whether each of the following counts as consumption, investment, government purchases, net exports, or none of these, under the expenditure approach to calculating GDP.
The construction of a court house:
Government Purchases
Determine whether each of the following counts as consumption, investment, government purchases, net exports, or none of these, under the expenditure approach to calculating GDP.
A taxicab ride
Consumption
Determine whether each of the following counts as consumption, investment, government purchases, net exports, or none of these, under the expenditure approach to calculating GDP.
The purchase of a taxicab by a taxicab company
Investment
Determine whether each of the following counts as consumption, investment, government purchases, net exports, or none of these, under the expenditure approach to calculating GDP.
A student buying a textbook:
Consumption
Determine whether each of the following counts as consumption, investment, government purchases, net exports, or none of these, under the expenditure approach to calculating GDP.
The trading of municipal bonds (a type of financial investment offered by city governments).
N/A
Determine whether each of the following counts as consumption, investment, government purchases, net exports, or none of these, under the expenditure approach to calculating GDP.
A company’s purchase of foreign minerals:
Net exports
In a press conference, the president of a small country displays a chart showing that GDP has risen by 10 percent every year for five years. He argues that this growth shows the brilliance of his economic policy. However, his chart uses nominal GDP numbers.
This chart might be wrong because it:
relies on nominal GDP which might have increased because of price increases and not output increases
In a press conference, the president of a small country displays a chart showing that GDP has risen by 10 percent every year for five years. He argues that this growth shows the brilliance of his economic policy. However, his chart uses nominal GDP numbers.
If you are a reporter at the press conference and want to get a more accurate picture of the country’s economic growth, you should ask for the:
growth rate of real GDP which excludes price changes
Suppose the GDP deflator grew by 10 percent from last year to this year. That is, the inflation rate this year is 10 percent.
This means that overall:
prices in the economy have risen by 10 percent
Suppose the GDP deflator grew by 10 percent from last year to this year. That is, the inflation rate this year is 10 percent.
This inflation rate implies that the growth rate in real GDP is 10 percent:
less than the growth rate in nominal GDP
Given the following information about each economy, either calculate the missing variable or determine if it can be calculated:
a. Suppose C = $20.1 billion, I = $3.5 billion, G = $5.2 billion, and NX = −$1 billion.
Total Income is
$27.8 billion
Suppose C = $20.1 billion, I = $3.5 billion, G = $5.2 billion, and NX = −$1 billion.
Total Income is…
$27.8 billion
Suppose total income is $1 trillion, G = $0.3 trillion, and C = $0.5 trillion.
I is…
Indeterminate
Suppose total expenditure is $675 billion, C = $433 billion, I = $105 billion, and G = $75 billion.
NX is…
$62 billion
The circular flow model illustrates the crucially important idea of macroeconomics, which is that:
every expenditure of someone in the economy is exactly equal to the income of another.
Which approach to calculating GDP best highlights the relative importance of different factors of production?
The income approach
Which approach to calculating GDP is especially useful in clarifying the resale of existing goods?
The value-added approach
Canadian GDP increased from $1.5 trillion in 2005 to $1.97 trillion in 2009. This means that:
people in Canada produced more goods and services in 2009 than in 2005 and the prices of all goods and services were lower in 2005 than in 2009.
Real GDP:
is calculated based on goods and services valued at constant prices.
In the base year:
nominal and real GDP are equal by definition.
The base year refers to the year whose:
prices are used to calculate real GDP for all years.
If Canadian real GDP grew from $12 trillion one year to $12.7 trillion the next, the annual growth rate would be:
5.8 percent.
If Italy’s real GDP fell from $2.2 trillion one year to $1.9 trillion the next, the annual growth rate would be:
-13.6 percent.
If a country experiences a negative growth rate in real GDP, it means:
there are less goods to allocate in the economy than before.
A period of significant decline in economic activity, marked by falling GDP, rising unemployment, and an increased number of bankruptcies, is called:
a recession.
A depression is:
a severe and extended period of recession.
A major category of economic activity that is not counted as part of GDP is:
Non-market externalities such as environmental degradation.
When we say the cost of living has gone down, we mean that, looking broadly over a range of goods and services:
a dollar buys more today than it used to buy.
A dollar’s value can:
change across different locations and over time.
A market basket:
includes specific goods and services in fixed quantities that roughly correspond to a typical consumer’s spending.
Human capital contributes to growth because it helps workers in the economy:
produce more with the same amount of physical capital.
When the market basket is tracked over time:
the goods within the basket remain the same, so only changing prices are captured.
Which of the following goods is least likely to be in a market basket? Helicopter Gasoline Barbie dolls Breakfast cereal
Helicopter
The market basket approach:
measures changes in the cost of your shopping basket, assuming that you buy the same items in the same quantities.
Core inflation is measured because:
food and energy costs fluctuate frequently and can distort actual changes in the cost of living.
The GDP deflator differs from the CPI in its measurement of inflation in that:
it measures the price changes of all goods, not just those in a typical consumer’s basket.
The idea of purchasing power parity:
rarely holds.
The Big Mac index:
is a simple measure that indicates differing costs of living in different countries.
The Big Mac index compares:
the cost of a Big Mac all over the world.
In 1976, the cost of a movie was $4. In 2012, it’s $9. If the CPI for 1976 is 56, and 228 for 2012, then we could say the cost of a 1976 movie in 2012 would be:
$16.29, so the cost of movies has not increased as much as general inflation.
Is Rick Alexander counted as employed, unemployed, or not in the labour force by the Statistics Canada?
Alexander is self-employed in his old job as a carpenter.
Employed
Is Rick Alexander counted as employed, unemployed, or not in the labour force by the Statistics Canada?
Alexander moves from Alberta to Ontario and begins looking for work.
Unemployed
Is Rick Alexander counted as employed, unemployed, or not in the labour force by the Statistics Canada?
Alexander feels discouraged looking for work and stops applying for jobs.
Not in labor force
