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ECON 209 > Midterm Deck > Flashcards

Midterm Deck Flashcards

1
Q

What are the two approaches to measuring GDP?

A

Expenditure and Income Approach

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2
Q

What are the four main sectors of the economy?

A

Consumption
Gross Investment
Government Spending
International Sector

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3
Q

What is included in consumption?

A

Durable Goods
Non-durable goods
Services

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4
Q

What is included in gross investment?

A
  • Final purchase of equipment, machinery and such
  • All construction
  • Changes in inventory (included in GDP of year they are produced)
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5
Q

What is included in government spending?

A
  • Federal, provincial, and municipal.

- Final goods, investments, direct purchase of resources and labour

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6
Q

What is included in international sector?

A
  • Exports
  • Imports
  • Net Exports = Ex-Im
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7
Q

What does GDP not measure?

A 
-The distribution of income. 
 The importance of leisure. 
 Meaningful friendships. 
 Negative externalities. (economic bads) 
 The effectiveness of social programs. 
 Hidden economy.  
 Intelligence or wisdom. 
 State of the environment
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8
Q

What does GDP not include?

A

 Used goods
 Intermediate goods
 Purely financial transactions

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9
Q

Nominal vs Real GDP?

A
  • Nom: Actual amount times actual price

- Real: Actual amount times base year price

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10
Q

What are fluctuations of real GDP?

A

1) Peak
2) Recessionary phase
3) Trough
4) Expansionary or Recovery phase

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11
Q

What are some of the causes of inflation?

A
  • Demand Pull
  • Cost Push
  • Government printing too much money
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12
Q

What are some of the limitations of the consumer price index?

A

1) Assumes that households (consumers) do not change their consumption behaviour when prices change. This is known as the substitution bias.
2) The typical basket may not represent many consumers.
3) Many new products (iPhone, iPad, blackberry’s etc.) are either not included or under-weighted in the index.
4) Quality improvements are not taken into consideration

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13
Q

What is Core CPI?

A

Includes all 650 items of regular CPI but excludes:

  • food
  • indirect taxes (GST & PST)
  • Energy
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14
Q

How do you calculate real GDP from Nominal?

A

Real GDP = (Nom/CPI)*100

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15
Q

Who is considered unemployed?

A

People seeking for work but who are not working

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16
Q

Who is part of the labour force?

A

Employed and officially unemployed

17
Q

What is Gresham’s Law

A

Bad money drives out the good

18
Q

What is bracket creep?

A

movement into a higher tax bracket as taxable income increases.

19
Q

What is included in M1?

A

Money easily converted into cash:

  • currency
  • chequing accounts
  • current accounts
20
Q

What are the differences b/w real GDP (Y) and potential real GDP (Y*)?

A

Inflationary gap = Y > Y*

Recessionary gap = Y < Y*

21
Q

Positive vs normative statement?

A

Positive statement is one that can be checked empirically

Normative is an opinion, what “should” happen

22
Q

What is the role of the Bank of Canada?

A
  1. Protect the external value of the Canadian
    dollar.
  2. Keep inflation between 1 and 3 percent with
    a 2 percent target.
  3. Promote economic growth and employment.
23
Q

What is bank rate kept within?

A

50 basis points (0.5%)

24
Q

What is the upper limit of the band?

A

Rate in which chartered banks and other primary

dealers borrow one-day funds from the Bank of Canada.

25
Q

What is the lower limit of the band?

A

the interest rate paid by the Bank of Canada

(B of C) on deposits with the B of C

26
Q

WHat is a normal good?

A

good or service that experiences an increase in quantity demanded as the real income of an individual or economy rises.

27
Q

Elastic demand

A

% change in demand/% change in price
>1 means elastic
=1 means unit elastic
<1 means inelastic

28
Q

WHat is an inferior good?

A

Good whose demand varies negatively with household income

29
Q

What are complements?

A

WHen two goods have a negative relationship:

This means a good’s demand is increased when the price of another good is decreased. Conversely, the demand for a good is decreased when the price of another good is increased.

30
Q

What are substitutes?

A

two goods that could be used for the same purpose. If the price of one good increases, then demand for the substitute is likely to rise

31
Q

What is the definition of inflation?

A

Rise in general price level.

32
Q

Money supply M2 is defined as?

A

currency in circulation
chequing accounts
current accounts
money market mutual funds.

33
Q

Thomas Gresham was the treasurer for?

A

Queen Elizabeth 1st

ECON 209 (1 decks)

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