Term 1 Lecture 1: introduction to macroeconomics

Question 1

What are the 3 definitions for GDP (3)

Answer 1

-GDP is the value of final goods and services in an economy in a time period
-GDP is the value added of goods and services (production value - intermediate goods used in production) in an economy in a time period
-GDP is the sum of incomes in an economy in a time period

Question 2

What are some problems with measuring GDP (4)

Answer 2

-New free services increasing value but making things cheaper
-Quality of G/S changing (hedonic pricing = treating goods as providing characteristics, measuring those to solely look at price changes)
-Illegal production, and differences in laws
-Home production excluded

Question 3

What are some impacts of unemployment (3)

Answer 3

-Negative welfare
-Inefficient allocation of human resources
-Labour shortages/surpluses

Question 4

How unemployment a countercyclical variable (1)

Answer 4

-Unemployment decreases when GDP increases

Question 5

What is inflation vs deflation (2)

Answer 5

-Inflation is a sustained rise in the general price level over time
-Deflation is a sustained fall in the general price level

Question 6

What is the GDP deflator (2)

Answer 6

-The GDP deflator in year t is the ratio of nominal GDP to real GDP
-The GDP deflator doesn’t measure inflation (inflation = consumers), but how prices as a whole are rising

Question 7

How is inflation measured (3)

Answer 7

-The CPI is a measure of the cost of living
-The CPI is based on surveys which account for what proportion of households’ income goes to what, and they then measure those prices
-Inflation rates are computed using either the CPI or GDP deflator, mostly similar but some differences

Question 8

What is some different notation for macroeconomic variables (real GDP, nominal GDP, inflation, GDP deflator) (4)

Answer 8

-Yt = real GDP
-$Yt = nominal GDP
-πt = rate of inflation
-Pt = GDP deflator