The Real Sector

Question 1

National Income and Product account measures

Answer 1

GDP

Question 2

GNDI as f(GDP)

Answer 2

GDP + PIB + SIB

Question 3

GNDI as f(GNI)

Answer 3

GNI + SIB

Question 4

GNDI as f(C,I, etc.)

Answer 4

C + I + X + M + PIB + SIB

Question 5

Current account Balance

Answer 5

Savings - Investment

Question 6

CPI sensitivity to import prices vs the GDP Deflator

Answer 6

Higher

Question 7

GDP Deflator

Answer 7

Nominal YYYY / Real YYYY

Question 8

Potential Output

Answer 8

Output when all factors of production are at their natural rate = “non-accelerating inflation” output

Question 9

Output Gap

Answer 9

Actual - Potential

Question 10

Why does a positive output gap result in inflation?

Answer 10

Excess demand forces firms to increase prices to maximise profit

Question 11

Consumption Theories (2)

Answer 11

Life Cycle and Permanent Income

Question 12

Life Cycle consumption theory

Answer 12

Income is “humped” over a lifetime, peaking at middle age

Question 13

Permanent Income theory

Answer 13

Income is smoother by borrowing or use of savings when short

Question 14

Consumption is a function of (6)

Answer 14

Income, Income Expectations, Real rates, Wealth, Uncertainty, Credit

Question 15

GDP

Answer 15

Final value of all goods and services provided by an economy

Question 16

Cobb-Douglas Production Function

Answer 16

Y = A K(alpha) L(1-alpha)

Question 17

Real rate effects on income (2)

Answer 17

Income effect - people feel richer. Substitution effect - people save more.

Question 18

Investment is a function of (5)

Answer 18

Demand, Demand Expectations, Costs of factors of production, Availability and cost of credit, Competitiveness (RER)

Question 19

The Phillips curve relates (1) to (4)

Answer 19

inflation to lagged inflation, the output gap, the RER gap and supply shock

Question 20

RER gap

Answer 20

Observed RER - Forecast/Trend RER