Week 1 and 2: Measuring Economic Performance (GDP, Unemployment, Inflation and Prices)

Question 1

Gross Domestic Product (GDP)

Answer 1

The market value of the final goods and services produced in a country during a given period

Question 2

Market value

Answer 2

Provides a convenient way to aggregate many different goods and services produced within an economy

Question 3

Final goods and services

Answer 3

End products of a process. The products or services that consumers actually use.

Question 4

Intermediate goods

Answer 4

Goods and services used towards making final goods or services.

Question 5

Capital good

Answer 5

Long-lived good, which is itself produced and used to produce other goods and services. Examples: Machinery and factories. Counted as final goods for simplicity.

Question 6

Inflation rate

Answer 6

Percentage change in the CPI over the specified period

Question 7

Deflating

Answer 7

CPI used to convert quantities measured at current dollar values to real dollar values

Question 8

Indexing

Answer 8

CPI used to convert real quantities into current-dollar terms. Used in wages to keep up with inflation.

Question 9

Quality adjustment bias of CPI

Answer 9

Paying more but also getting something better.

Question 10

Substitution bias of CPI

Answer 10

CPI measures a basket and if one items price rises and consumers switch to a perfect substitute, according to CPI they are worse off.

Question 11

Substitution bias of CPI

Answer 11

CPI measures a basket and if one items price rises and consumers switch to a perfect substitute, according to CPI they are worse off.

Question 12

Shoe-leather costs

Answer 12

Inconvenience caused with the increased visits to banks

Question 13

Noise in the price system

Answer 13

High inflation causes subtle signals transmitted through the price system difficult to detect.

Question 14

Distortions of the tax system/tax creep

Answer 14

People creep up tax brackets in a progressive tax system.

Question 15

Unexpected redistribution of wealth

Answer 15

Borrowers pay less when inflation is high, employees earn less when inflation is high.

Question 16

Interference with long-run planning

Answer 16

High inflation makes long-term planning more difficult.

Question 17

Menu costs

Answer 17

Costs of changing the prices seen on paper, such as menus at restaurants.

Question 18

Real interest rate

Answer 18

Annual percentage increase in real purchasing power of a financial asset.

Question 19

Nominal interest rate

Answer 19

Annual percentage increase in the nominal value of an asset.

Question 20

Employed

Answer 20

Worked full-time or part-time for at least one hour during the past week.

Question 21

Unemployed

Answer 21

Did not work during the preceding week but was available and actively seeking for work.

Question 22

Out of the labor force

Answer 22

Did not work in the past week and was not unemployed.

Question 23

Out of the labor force

Answer 23

Did not work in the past week and was not unemployed.

Question 24

Unemployment rate

Answer 24

Number of unemployed people divided by the labor force.

Question 25

Unemployment spell

Answer 25

Period in which an individual is continuously unemployed.

Question 26

Natural rate of unemployment

Answer 26

Unemployment that exists independently of whether the economy is in expansion or contraction (frictional and structural unemployment).

Question 27

Frictional unemployment

Answer 27

Short-term unemployment associated with the process of workers searching for jobs.

Question 28

Structural unemployment

Answer 28

Long-term and chronic unemployment that exists because the distribution of skills across unemployed workers do not match available jobs in an economy.

Question 29

Cyclical unemployment

Answer 29

Occurs during periods of economic contraction.