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Econ Study guide

STUDY
PLAY
If an economy's GDP falls then it must be the case that the economy's Income does what and expenditure does what?
Income and expenditure both fall
What are retained earnings?
Income that corporations have earned by have not paid out to their owners
How does GDP differ from GNP
GNP=GDP + income earned by citizens abroad - income that foreign citizens earned in the U.S
A new-car dealer in Oklahoma bought a new car from the manufacturer for $18,000 and sold it to Tyler for $22,000. Later that year, Tyler sold the car to Camille for $17,000. By how much did these transactions contribute to U.S GDP for the year?
$22,000
Until recently, George lived in a home that was newly constructed in 2005. In 2005 he paid $200,000 for the brand new house. He sold the house in 2006 for $225,000.
How did the 2006 sale affect the GDP for 2005 or 2006?
The 2006 sale affected neither 2005 GDP nor 2006 GDP
In 2007, Corny Company grows and sells $2 million worth of corn to Tasty Cereal Company, which makes corn flakes. Tasty Cereal Company produces $6 million worth of corn flakes in 2007, with sales to households during the year of $4.5 million. The unsold $1.5 million worth of corn flakes remains in Tasty Cereal Company's inventory at the end of 2007. The transactions just described contribute how much to GDP for 2007?
$6 Million
True of False
GDP does not reflect
The value of leisure, the value of goods and services produced at home, the quality of the environment and the value of unpaid services.
True
When the overall level of prices in the economy is increasing, economists say that the economy is experiencing what?
Inflation
If the quality of a good improves while its price remains the same then the value of a dollar rises and the cost of living does what?
The cost of living decreases
If the quality of a good deteriorates while its price remains the same, then the value of a dollar falls and what happens to cost of living
Cost of living increases
What does the GDP deflator reflect?
What does CPI reflect?
-GDP deflator reflects the prices of all final goods and services currently produced domestically
-CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer
The CPI differs from the GDP deflator in that
a. the CPI is a price index, while the GDP deflator is an inflation index.
b. substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator.
c. increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator.
d. increases in the prices of domestically produced goods that are sold to the U.S. government show up in the CPI but not in the GDP deflator.
e. increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the GDP deflator but not in the CPI.
c. increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator.
Indexation refers to what?
Using a law or contract to automatically correct a dollar amount for the effects of inflation
What does the nominal interest rate tell you?
How fast the number of dollars in your bank account rises over time
If the nominal interest rate is 6% and the rate of inflation is 2%, then the real interest rate is what?
4%
If the nominal interest rate is 1.5% and the rate of inflation is -.5% what is the real interest rate?
2%
You are told that Country A experienced growth of real GDP per person of 5 percent per year throughout the 1900s. In view of other countries' experience, you would have to characterize Country A's growth as
Exceptionally high
You bake cookies. One day you double the time you spend, double the number of chocolate chips, flour, eggs, and all your other inputs, and bake twice as many cookies. Your cookie production function has what?
Constant returns to scale
The deviation of unemployment from its natural rate is called what?
Cyclical unemployment
At the equlibrium wage, how many workers are unemployed?
0