Unit Two GDP

Question 0

GDP definition

Answer 0

The market value of all FINAL goods produced within a country in a given period of time

Question 1

Goals if macroeconomic policies

Answer 1

Price stability
Economic growth
Full employment

Question 2

What does GDP exclude

Answer 2

Items produced and consumed at home

Illegal sales

Financial transactions that are not for a service provided

Question 3

Components of GDP

Answer 3

consumption
Investment
Government purchases
Net exports

(This is the expenditure approach)

Question 4

Components of GDP (income approach)

Answer 4

Wages and salaries
Rents
Interest
Proprietors income
Profits

Question 5

What is price level

Answer 5

The ratio between the currency unit to the amount of goods and services in an economy

Question 6

What is inflation

Answer 6

Increase in overall prices in economy

Question 7

Why is inflation bad

Answer 7

Decreasing the purchasing power

Question 8

What causes inflation

Answer 8

Government creates too much money relative to production

Question 9

Why are wages sticky

Answer 9

Long term contract
Unions 
Minimum wage
Efficiency wage 
Menu cost
Fear of price war

Question 10

Who is hurt by unanticipated inflation

Answer 10

Consumers
Fixed income earners
Lenders
Savers

Question 11

Who is helped by unanticipated inflation

Answer 11

Debtors 
Pension funds 
Annuity company
Life insurance company 
Fix rate borrower

Question 12

Who is unaffected by unanticipated inflation

Answer 12

Cost if living adjustment COLA
adjustable income earners
Adjustable rate lenders

Question 13

What is the fisher equation

Answer 13

Nominal interest rate = real interest rate + inflation

Question 14

How to accurately view the growth

Answer 14

Change nominal GDP to real GDP

Question 15

How to calculate GDP deflator

Answer 15

Nominal GDP / real GDP times 100

Question 16

Consumer price index

Answer 16

Price of market basket in current year
—-———
Price of market basket in base year

Times 100

Question 17

What is the natural rate of unemployment

Answer 17

The unemployment that doesn’t go away even in the long run

Question 18

How to define an employed

Answer 18

Spending most of her time on paid work last week

Question 19

Unemployed

Answer 19

Looking for job actively

Question 20

Labor force

Answer 20

Both employed and non employed

Question 21

Why is difficult to differentiate unemployed and not in labor force

Answer 21

Discouraged worker

Underemployed worker

Question 22

What is structural unemployment

Answer 22

Mismatch the skill of the worker to the demand of the job

Question 23

How can government decrease the frictional unemployment

Answer 23

Government run employment agencies
Public training programs
Unemployment insurances
(This can increase the period of frictional employment, but it will give workers a better match)

Question 24

Why is there structural unemployment

Answer 24

Binding minimum wage
Unions and collective bargaining
Efficiency wage
(Extra money paid by the company to increase efficiency)

Question 25

Define consumption of fixed capital

Answer 25

Depreciation, using up the limited amount of capital (such as coal or oil)

Question 26

How to calculate net domestic product from gross domestic product

Answer 26

GDP minus the consumption of fixed capital