Unit 3

Question 1

What is Disposable Income (10)?

Answer 1

The total amount of household income available to spend on consumption and save

Question 2

What is Aggregate Spending (10)?

Answer 2

Total spending on domestically produced g+s in the economy (expenditure approach for calculating GDP)

Question 3

What is the Value-Added Approach (10)?

Answer 3

Survey Firms and add up their contributions to the value of g+s

Question 4

What is the Income Approach?

Answer 4

Add up the total factor income earned by households from firms in the economy (i.e. rent, wages, interest, and profit)

Question 5

What is real GDP vs. nominal GDP adjusted for?
or real wages vs. nominal wages?

Answer 5

changes in prices (i.e. inflation or deflation)

Question 6

What is Aggregate Output (11)?

Answer 6

The total amount of output produced and supplied in the economy in a given period

Question 7

How do you calculate the Labor Force Participation Rate?

Answer 7

(Labor Force/Population) x 100

Question 8

How do you calculate the Unemployment Rate?

Answer 8

(Unemployed/Labor Force) x 100

Question 9

How do you calculate the Labor Force?

Answer 9

Unemployed+employed

Question 10

What is Frictional Unemployment?

Answer 10

Unemployment due to the time workers spend in the job search

Question 11

What is Structural Unemployment?

Answer 11

• workers lack the skills required for the available jobs
• there are more people in a labor market than there are jobs available at the current wage rate

Question 12

How do you calculate the Natural Rate of Unemployment?

Answer 12

Frictional Un. + Structural Un.

Question 13

How do you calculate Actual Unemployment?

Answer 13

Natural Un. + Cyclical Un.

Question 14

What is Collective Bargaining?

Answer 14

Negotiation of wages and other conditions of employment by an organized body of employees.

Question 15

What affects Natural Employment?

Answer 15

• Unions
• Changes in Gov. Policy
• Labor Force Characteristics
• Job training (reducing)
• Employment subsidies (reducing)

Question 16

How do you calculate Net Exports?

Answer 16

Exports-Imports

Question 17

What are Shoe-leather costs?

Answer 17

Increased costs of transactions caused by inflation (people putting wear and tear into their shoes by running around trying to avoid holding money).
- sacrifices you make in time and effort to minimize the effect of inflation on your finances.

Question 18

What are Menu Costs?

Answer 18

Costs that come from having to change the prices listed on a menu, pamphlet, etc. that is caused by inflation.

Question 19

What are Unit-of-Account Costs?

Answer 19

Extra costs come from the way inflation makes money a less reliable unit of measurement.

Question 20

The consumer price index reflects the:

Answer 20

average price of goods and services purchased by consumers.

Question 21

The inflation or deflation rate is:
(and how do you calculate it?)

Answer 21

the change in a price index divided by the initial value (base year) of the index.
- inflation rate = price index in year 2 - price index in year 1/price index in year 1 x 100

Question 22

When inflation rises quickly:

Answer 22

lenders will be hurt and those on fixed incomes will benefit.
- lenders will be hurt because the money they get paid back is “worth less” than the money they loaned out.

Question 23

What is a market basket?

Answer 23

A hypothetical set of consumer purchases of goods & services (ex. oranges, lemons, & limes)

Question 24

How do you calculate the price index?

Answer 24

Price index in a given year = (cost of the market basket in a given year)/(cost of the market basket in a base year) x 100

Question 25

What is disinflation?

Answer 25

Reduction in the rate of inflation.