macro exam 2

If real GDP in a year was $3,668 billion and the price index was 112, then nominal GDP in that year was approximately
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If real GDP in a year was $3,668 billion and the price index was 112, then nominal GDP in that year was approximately
$4,108 billion. ($36.68 x 112)
GDP is the market value of
All final goods and services produced in an economy in a given year
GDP measured using current prices is called:
Nominal GDP
In an economy experiencing a persistently falling price level
changes in nominal GDP understate changes in real GDP.
Arthur sells $100 worth of cotton to Bob. Bob turns the cotton into cloth, which he sells to Camille for $300. Camille uses the cloth to make prom dresses that she sells to Donita for $700. Donita sells the dresses for $1,200 to kids attending the prom. The total contribution to GDP of this series of transactions is
$1,200
Which of the following is included in the expenditures approach to GDP?
spending on meals by consumers in restaurants
GDP is:
government purchases (G) + consumption (C) + gross investment (Ig) + exports - imports (X)
The largest component of national income is
compensation of employees
GDP excludes:
the market value of unpaid work in the home.
GDP tends to understate economic welfare because it does not take into account increases in leisure
true
Suppose the total monetary value of all final goods and services produced in a particular country in 2010 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that:GDP in 2010 is $500 billionWhich of the following represents an income flow in the circular flow of domestic output and national income?corporate profitsAll expenditures on new construction are included as investment in calculating GDPtrueGordon is a person who sells narcotics "on the street." This type of illegal activity:is excluded from GDP figuresReal GDP measurescurrent output at base year prices.A nation's gross domestic product (GDP)is the dollar value of all final output produced within the borders of the nation during a specific period of timeThe natural rate of unemployment is the:full-employment unemployment rateIn what circumstances would lenders most benefit?When there is an unanticipated decrease in inflationIf the Consumer Price Index for a certain year is 120, this means that the average price of consumer items in that year was20% higher than the average price in the base period 1982-84If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is3 percentCore inflation refers to the inflation picture after stripping away the:Food and energy pricesIf the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:deflation of 3.33 percent. [(120-116)/120 x100]CPI rises from 125 to 140, what is the rate of inflation?12%, [(140-125)/140 x100]With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6%. But if the rate of inflation was anticipated to be 4%, the bank would most likely charge the firm an annual interest rate of:10%At the economy's natural rate of unemployment:the economy achieves its potential output.If the total population is 175 million, the labor force is 100 million, and 89 million workers are employed, then the unemployment rate is 11 percent.trueWhich statement about inflation is correct?The redistributive effects of inflation are arbitrary with respect to people and groups in societySuppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will:rise by 15%, real income = nominal % - CPI %. (end $ - start $ / start $ x100)For a given amount of nominal income, the real income will:Fall if the price level risesYou are given the following information about the economy: the nominal interest rate = 8 percent; the real rate of interest = 6 percent. The inflation premium is:2%Suppose that a person's nominal income rises by 5 percent and the price level rises from 125 to 130. The person's real income will:rise by 1%, (5%- price level %)Cost-push inflation may be caused by:a negative supply shockCost-of-living adjustment clauses (COLAs):tie wage increases to changes in the price levelIn 2010, Tatum's nominal income rose by 4.6 percent and the price level rose by 1.6 percent. We can conclude that Tatum's real income:rose by 3% (nominal-price level)Average propensity to consume (APC)Fraction of total income that is consumed (consumption / income).Average propensity to save (APS)the fraction of total income that is saved (saving/income)APC + APS=1 (100%)Marginal propensity to consume (MPC)Proportion of a change in income consumed (change in consumption/change in income)Marginal propensity to save (MPS)Proportion of a change in income saved (change in saving/change in income)MPC + MPS =1 (100%)the multiplier effectA change in spending changes real GDP more than the initial change in spending (change in real GDP/initial change in spending)Change in GDP equationmultiplier x initial change in spendingMultiplier and MPC directly relatedLarge MPC results in larger increases in spendingMultiplier and MPS inversely relatedLarge MPS results in smaller increases in spendingmultiplier =1/(1-MPC) or 1/MPSthe consumption schedulereflects the direct consumption-disposable income relationshipsaving schedule =disposable income (DI) - consumption (C)nonincome determinants of consumption and savingwealth, borrowing, expectations, real interest ratesGDP is amonetary measureGDP exclusions1. Purely financial transactions (public transfer payments, private transfer payments, and stock market transactions) 2. Secondhand salesintermediate goodsproducts that are purchased for resale or further processing or manufacturingfinal goodsproducts that are purchased by their end usersgross private domestic investment (GPDI) include:- all final purchases of machinery, equipment, and tools by business enterprises -all construction -changes in inventories -money spent on research and development -creation of art, music, writing, film...the economy's stock of private capital expands, stays constant, and declines when-expands when net investment is positive -stays constant when net investment is 0 -declines when net investment is negativethe income approach to GDP sumsWages, rental income, interest income, profitNet Domestic Product (NDP)market value of GDP minus consumption of fixed capital (depreciation)personal income (PI)income received by householdsDisposable Income (DI)all income received by households minus personal taxesNational Income (NI)all income earned through the use of American-owned resources, whether they are located at home or abroadnominal GDPOutput valued at current pricesreal GDPOutput valued at base-year pricesrecession phase of business cycle causesCyclical Unemploymentgeneral types of unemployment-frictional (search or wait unemployment) -structural (fewer jobs than workers) -cyclical (begins in recession phase, insufficient demand for goods and services)society loses real GDP whencyclical unemployment occursinflationa rising general level of prices and is measured as a percentage change in a price (CPI)demand-pull inflationwhen total spending exceeds the economy's ability to provide goods and services at the existing price level (total spending pulls the price level upward)cost-push inflationwhen factors such as rapid increase in the prices of imported raw materials drive up per-unit production cost at each level of output (higher costs push the price level upward)core inflationthe underlying inflation rate after volatile food and energy prices have been removedcost-push inflation reducesreal output and employmenthyperinflationcaused by highly imprudent expansions of the money supply, may cause severe declines in real outputconsumption spending and saving rise whendisposable income increasesinvestment demand curveshows the total monetary amounts that will be invested by an economy at various possible real interest rates