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a measure of a countrys production is its

gross domestic product

GDP is measured by

adding the market value of total final production

GDP equals the value of all

final goods and services produced

If you make dinner for yourself

none of what you bought to prepare for dinner is included in GDP

Honda has an assembly plant for civics in Ohio. The production of US made Civics is

added to US GDP only if the civic is sold in the US in the year it is produced

Which of the following is a final good or service

the new economics textbook you are using

Investment is defined as the purchase of

the purchase of new capital goods and additions to inventories

Gross Domestic Product Equals


In order to measure gross domestic product we can follow

two approaches: the expenditure approach and the income approach

When calculating GDP, purchases of used goods are

not included

Real GDP measures the value of goods and services produced in a given year valued using

base year prices

Real GDP is all final goods and services produced in a year within a country valued at

market prices prevailing in the current year

Nominal GDP measures the value of goods and services produced in agiven year valued using

prices of the same year

If we use GDP to measure our standard of living, then our procedure is

inaccurate because our standard of living does not depend only on goods and services

a reason real GDP does not accurately measure the change in our standard of living is because real GDP

Includes only changes in quantity and not changes in price

Household production, such as baking bread at home, is not included in GDP because

does not involve a market transaction

Leisure time is ignored when calculating GDP because

does not involve a measurable market transaction

The CPI stands for

Consumer Price Index

The consumer price index measures the average prices paid by

urban consumers for a fixed market basket of goods and services

The CPI is calculated by the Bureau of Labor Statistics on a frequency of every


To measure the CPI, the BLS economic assistants check the prices of

80,000 goods and services every month

The reference base period that the BLS uses to measure CPI is


The Items included in the CPI are

goods and services consumed by the typical urban household

The CPI market basket is determined by

consumer survey

The largest component in the CPI market basket is


Economists agree that the CPI

is a possibly biased measure of the cost of living

The CPI is biased because it

does not always take into account the changes in product quality

The presence of new goods that are of higher quality than the old goods leads the BLS to

Try to seperate price differences from improvements in quality

The fact that consumers substitute one good for another when prices change is

...not taken into account y the fixed market basket used in calculating cpi

The GDP deflator measures

the price level

Real GDP is 1,500 billion and nominal GDP is 1,650. The GDP deflator equals


the difference between nominal and real is

nominal is measured in current dollars and real is measured in dollars of a given year

Nominal and real wage rates

could change in opposite directions

If there is inflation and we compare the changes in nominal variable over time versus its real counterpart, such as the nominal wage rate vs the real wage rate, we find that the

nominal wage rate increases faster because of inflation

A change in the real wage rate measures the change in the

quantity of goods and services that an hours work can buy

if the real wage rate increases over time, this means that the

The CPI must have decreased over time

to convert the nominal interest rate to the real interest rate, we

subtract the inflation rate from the nominal interest rate

The real interest rate is negative if the inflation rate

exceeds the nominal interest rate

The Bureau of Labor Statistics complies information about employment by

performing a monthly survey of 60,000 households

the working age population includes

employed and unemployed people over the age of 16

if a 19 year old college student can not find a full tie job and has to take a part time job, he or she will be catergorized in the current population survey as


in order to be considered employed, in the week before the current population survey a person must

worked at least one hour as a paid employee

the size of the labor force is

equal to the working age population

the unemployment rate is equal to 100 times

(number of unemployed people/ labor force)

Suppose the population is 220 million and the labor force is 150 million, teh number of people employed is 130 mil and the working age population is 175 mil, what is the unemployment rate?

13.3 percent

The labor force participation rate is the

labor force divided by the working age population, then multiplied by 100

a discouraged worker is

a worker who does not have a job and has not made any efforts to find a job within the previous four weeks

discouraged workers are calculated in the

working age population only

the total number of hours worked by the labor force is measured by

aggregate hours

the average US unemployment rate during the past 40 years has been about

5.9 percent

In which of the following periods did the unemployment rate reach its highest level


during a recession, the unemployment rate

usually increases but not necessarily to 10 or 25 percent

during an expansion, the unemployment rate generally


the highest unemployment rate ever in US history

10 percent in 1982

recent unemployment rates in

THe UK are much greater than US unemployment rates

in part, the increase in the labor force participation rate in the US over the last 40 years can be attributed to

technological change in the home increasing the time available for paid employment

Since 1967 the labor force participation rate in the US

has generally increased

The data show that during a recession

both aggregate hours of work and average hours per person decreases

job losers are people who

are laid off

people who are laid off from work are called

job losers

the biggest source of unemployment is

job losers

people who leave their jobs are called

job leavers if the left voulntarily

Entrants include people who

recently left school to look for a job

withdrawls are people who

ecide to stop looking for a job

frictional unemployment is the result of

the normal process of jobs being created and destroyed

structural unemployment includes people who become unemployed from

technological changes

amy was laid off from her construction job but amy is laid off every winter because of the snow. this is classified as

seasonal unemployment

cyclical unemployment is

created by recession

Full employment is the level of unemployment that occurs

when cyclical unemployment is zero

If the unemployment rate is less than the natural unemployment rate, then

real gdp is above potential gdp

Potential GDP is defined as

the level of real GDP at full employment

When the economy is at full employment

real GDP is equal to potential GDP

as the quantity of labor employed increases, the production functions exhibits a

positive relationship, with each additional unit of labor producing more additional real GDP

the idea of diminishing returns means that real GDP __________ as the quantity of labor increases

increases at a slower rate

The demand for labor curve is

downward sloping , showing that the quantity of labor demanded increases when the real wage falls

The supply of labor is defined as the relationship between the real wage rate and the

quantity of labor supplied by firms

economic growth is defined as

a sustained expansion of production possibilities

economic growth is defined as equal to the increase in

real gdp

in growth theory the standard of living is measured using the growth rate of

real GDP per person

real gdp grows when

labor productivity increases

labor productivity equals

real gdp per hour of labor

an important condition required for economic growth is

economic freedom

one of the possible roles governments can play in sponsoring growth is to

provide tax incentives to encourage saving

if consumption was 70 percent of GDP and both investment and government expenditure were 18 percent each, then we see that

we must subtract depreciation from investment so tat the components of GDP do not exceed 100 percent

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