ECON 202 – Chapter 10 & 11 – Flashcards

What is inflation?

Which of the following provides the best evidence that inflation has occurred?

A negative rate of inflation implies that deflation has taken place.

Deflation means that overall price level is decreasing.

While theoretically possible, deflation has never been observed in the United States.

When the GDP deflator is less than 100, we know that deflation must have taken place this year.

Deflation means that the overall price level is increasing at a decreasing rate.

Which of the following most accurately characterizes the method used to calculate inflation?

Why is a hypothetical "basket" of goods used to measure inflation?

Inflation is often measured by evaluating changes in the cost of a fixed basket of goods and services. This method _____ inflation because it does not account for changes in spending patterns that result from relative price changes.

In the context of inflation, which of the following best describes substitution bias?

Joy, who has borrowed $40,000 to pay for her college education.

The U.S. federal government, which had almost $15 trillion in debt in 2011.

Herb, who keeps his savings in an old coffee can.

3rd National, a bank that loaned many people money for home purchases.

Karen, a retired school teacher that relies upon her fixed pension to pay for her expenses.

In an economic context, what is indexing?

In an economic context, what is a COLA?

% ∆ in Price Level=

Index Number

Consumer Price Index (CPI)

Substitution Bias

Quality/New Goods Bias

Producer Price Index

International Price Index

Employment Cost Index

GDP Deflator

Deflation

Hyperinflation

Nominal Value

Real Value

GDP (Y1) in Y2 currency

Real =

Over the last several decades, the U.S. has usually has

When the U.S. 2008 recession began, the trade deficit

In 2006, which countries had a higher level of trade as a fraction of GDP than the U.S.?

Which countries have a larger trade deficit than the U.S.?

If offshore outsourcing of labor increase, it will cause an existing trade deficit to

The government of a country with a trade surplus is

Comoros has a trade surplus

Tuvalu sends Comoros financial capital

Domestic investment increases faster than savings

Increases in the domestic consumption of foreign goods

Domestic consumer saving increases

Increase in domestic taxes collected

Domestic government spending decreases

Domestic private investment increases

Imports increase

Private savings increase

Government borrowing decreases

Assume that Bhutan has exports of $50 billion, imports of $45 billion and GDP of $200 billion. What is its level of trade?

Trade deficits

Interest rates divided into 3 components

Real Interest Rate

Real Interest Rate =

Real Interest Rate measures

If the prices of goods & services inflate faster than wages

Unintended Redistribution of Buying Power (Harmed)

Unintended Redistribution of Buying Power (Benefit)

Blurred Price Signals

Problems of Long-Term Planning

Benefit of Inflation

Indexing

Balance of Trade

Export

Import

Trade Surplus

Trade Deficit

Trade Balance

Current Account Balance

Income Payments (Interest on Investment)

Unilateral Transfers

When money comes in =

When money comes out =

Negative Current Account Balance

Positive Current Account Balance

International flows of goods and services are

Negative Current Account Balance means

Trade Deficit Equation

Financial capital flows

The quantity of financial capital supplied

S

(M-X)

I

(G-T)

National Savings & Identity Equation

Every dollar supplied by the private & foreign sector

If there is a trade surplus (X-M)

If there is a government surplus (T-G)

A recession tends to

Imports fall

An expansion causes

GDP =

Level of Trade =