Midterm

Question 1

requirements for gdp inclusion

Answer 1

final rather than intermediate, must be produced within time period, must be produced within nation’s borders

Question 2

gdp components

Answer 2

consumption - consumer spending on final products
investment - firm spending on final products
government - government spending
net exports - (sell - buy)

Question 3

gdp doesn’t measure….

Answer 3

quality of life - distribution of goods/services
non market activities - services w/ potential market value performed w/o charge
underground economy - unreported market activities to avoid taxation and legal system

Question 4

types of gdp

Answer 4

nominal - states gdp in current value of goods/services
real - states gdp corrected for changes in prices from year to year and is more accurate

Question 5

gdp?

Answer 5

value of all final goods and services produced within a nation in a given time period

Question 6

gnp?

Answer 6

gdp + income earned abroad - foreign income inside borders

Question 7

when is gnp > gdp

Answer 7

when foreign production is larger

Question 8

real gdp per capita?

Answer 8

real gdp / total population

Question 9

higher real gdp per capita = ?

Answer 9

better educated / healthier population of a country

Question 10

real gdp per capita measures what? and what does it not measure?

Answer 10

measures standard of living but NOT quality of life

Question 11

factors that determine economic growth

Answer 11

1. natural resources
2. human resources - labour force measured through labour input = labour force * work week
3. capital resources - better capital = increased output - increase in capital to labour ratio = capital deepening
4. tech and innovation

Question 12

how is a nation’s productivity measured?

Answer 12

using multi factor productivity = real output / combined inputs, estimation of economy productivity

Question 13

what contributes to productivity?

Answer 13

1. quality of labour - educated/healthy workforce = more productive
2. tech and innovation - better tech = more output from same amount of input
3. energy costs - more expensive = use of tools decreases and productivity decreases
4. financial markets - easier the funds flow in an economy = more productive economy

Question 14

productivity and economic growth relationship

Answer 14

direct

Question 15

what happens when there is economic growth

Answer 15

prices decrease

Question 16

business cycle?

Answer 16

a series of expanding/contracting periods of economic activity, measured by increases/decreases in real gdp

Question 17

expansion?

Answer 17

economic growth - jobs are easy to find - low unemployment - more resources needed to keep up w/ demand - resource become scarce —> prices rise

Question 18

at peak?

Answer 18

lowest unemployment - prices rise - businesses are less profitable

Question 19

using NGDP instead of RGDP for business cycle curve = ?

Answer 19

more volatile/stark change in curve

Question 20

factors that cause change in business cycle?

Answer 20

1. business decisions: demand slump = reduced production, new tech = increase AS = reduce costs
2. changes in interest rates = rising interest rates = falling AS and AD = contraction
3. consumer expectations
4. external issues