Macro Exam #2

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 Author: nikkid080 ID: 309846 Filename: Macro Exam #2 Updated: 2015-10-19 19:05:27 Tags: Marcoeconomics Folders: Description: Ch 5,6,7 Show Answers:

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1. The market value of all final goods and services produced in a nation during a period of time, usually a year.
Gross domestic product (GDP)
2. What does GDP count?
• GDP Counts only new domestic production.
• GDP includes only current transactions.
3. What is not counted by GDP?
GDP includes only current transactions. It does not include secondhand transactions such as the sale of a used car or home. It also does not include nonproductive financial transactions, such as purely private or public financial transactions, such as giving private gifts, buying and selling stocks and bonds and making transfer payments.
4. A government payment to individuals not in exchange for goods or services currently produced.
*Unemployment
* SSI
* Welfare
Transfer payment
5. The Circular Flow Model
6. A rate of change in a quantity during a given time period, such as dollars per year. For example, income and consumption are flows that occur per week, per month, or per year.
Flow
7. A quantity measured at one point in time. For example, an inventory of goods or the amount of money in a checking account.
Stock
8. The national income accounting method that measures GDP by adding all the spending for final goods during a period of time.
Expenditure approach
9. Formula for GDP using the Expenditure approach
GDP = C + I +G + (X - M)

• C =Consumption
• I = Investment
• G =Government Spending
• X = Exports
• M = Imports
10. The national income accounting method that measures GDP by adding all incomes, including compensation of employees, rents, net interest, and profits.
Income Approach
11. Formula for GDP using the Income Approach
GDP=C + R + P + N + I + D

• C = Compensation of employees
• R = Rent
• P = Profits
• N = Net Interest
• I = Indirect taxes
• D = Depreciation
12. GDP Shortcomings?
Nonmarket Transactions - unpaid activitites such as homemaker production, child rearing and do-it-yourself home repairs.

Distribution, kind and quality of products

Neglect of leisure time

The underground economy

13. The total income earned by resource owners, including wages, rents, interest, and profits.
national income (NI)

NI is calculated as gross domestic product minus depreciation of the capital worn out in producing output.

NI = GDP - Depreciation
14. The total income received by households that is available for consumption, saving, and payment of personal taxes.
Personal Income (PI)
15. The amount of income that households actually have to spend or save after payment of personal taxes.
Disposable personal income (DI)
16. The value of all final goods based on the prices existing during the time period of production.
Nominal GDP
17. The value of all final goods produced during a given time period based on the prices existing in a selected base year.
Real GDP
18. A measure that compares changes in the prices of all final goods during a given year to the prices of those goods in a base year.
GDP chain price index

Real GDP = Nominal GDP ÷ GDP chain price index × 100
19. Alternating periods of economic growth and contraction, which can be measured by changes in real GDP.
20. The phase of the business cycle in which real GDP reaches its maximum after rising during a recovery.
Peak
21. A downturn in the business cycle during which real GDP declines, and the unemployment rate rises. Also called a contraction.
Recession
22. The phase of the business cycle in which real GDP reaches its minimum after falling during a recession.
Trough
23. An upturn in the business cycle during which real GDP rises.
Expansion/Recovery
24. An expansion in national output measured by the annual percentage increase in a nation's real GDP.
Economic growth
25. Variables that change before real GDP changes.

• *Average workweek
• *Unemployment claims
• *New consumer goods orders
• *Delayed deliveries
• *New orders for plant and equipment
• *New building permits
• *Stock prices
• *Money supply
• *Interest rates
• *Consumer expectations
26. Variables that change at the same time real GDP changes.
Coincident Indicators

• *Nonagricltural payrolls
• *Personal income minus transfer payments
• *Industrial production
27. Variables that change after real GDP changes.
Lagging Indictors

• *Unemployment rate
• *Duration of unemployment
• *Labor cost per unit of output
• *Consumer price index for services
• *Commercial and industrial loans
• *Prime rate
28. The percentage of people in the civilian labor force who are without jobs and are actively seeking jobs.
Unemployment rate
29. The number of people 16 years of age and older who are employed or who are actively seeking a job, excluding armed forces, homemakers, discouraged workers, and other persons not in the labor force.
Civilian labor force
30. Formula to calculate the unemployment rate
Unemployment rate = unemployed ÷ civilian labor force × 100
31. Three types of Unemployment
• Frictional unemployment
• Structural unemployment
• Cyclical unemployment
32. Temporary unemployment caused by the time required of workers to move from one job to another.
*Seasonal workers
Frictional unemployment
33. Unemployment caused by a mismatch of skills of workers out of work and the skills required for existing job opportunities.
Structural Unemployment
34. Unemployment caused by the lack of jobs during a recession.
Cyclical unemployment
35. The situation in which an economy operates at an unemployment rate equal to the sum of the frictional and structural unemployment rates.
Full employment - Also called the national rate of unemployment.
36. The difference between actual real GDP and potential or full-employment real GDP.
GDP gap
37. An increase in the general (average) price level of goods and services in the economy.
Inflation
38. A decrease in the general (average) price level of goods and services in the economy.
Deflation
39. A reduction in the rate of inflation.
Disinflation
40. A year chosen as a reference point for comparison with some earlier or later year.
Base year
41. An index that measures changes in the average prices of consumer goods and services.
Consumer price index (CPI)
42. Formula to calculate Consumer price index
CPI = cost of market basket of products at current-year prices ÷ cost of same market basket of products at base-year (1982) prices × 100
43. Formula to calculate Annual rate of inflation
Annual rate of inflation = CPI in given year − CPI in previous year ÷ CPI in previous year × 100
44. The actual number of dollars received over a period of time.
Nominal income
45. the actual number of dollars received adjusted for changes in the CPI
Real income
46. How to convert nominal income to real income
Real income = nominal income ÷ CPI (as decimal, or CPI/100)
47. A rise in the general price level resulting from an excess of total spending
Demand-pull inflation
48. An increase in the general price level resulting from an increase in the cost of production.
Cost-push inflation
49. An extremely rapid rise in the general price level.
Hyperinflation

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