Macroeconmics Midterm – Flashcards

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People over age 16 in an economy willing and able to work, is known as the?
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Labor Force
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True/False, Explain. The unemployment rate is calculated by dividing the number of unemployed people by the labor force.
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True except you need to multiply by 100 to make it a rate
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The unemployment rate is the number of people:
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looking for a job divided by the labor force.
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Underemployment includes:
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people who are working part time, or not using all their skills at a full-time job.
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True/False, Explain. Does the unemployment rate include those underemployed?
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No it does not
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Every month the U.S. government releases a set of statistics about conditions in the labor market. Included in these statistics is the unemployment rate. Which agency of the government prepares these statistics?
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Bureau of Labor Statistics in the Labor Department.
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The U.S. government reported in July 2004 that there were 75.6 million people not in the labor force; 147.9 million in the civilian labor force, and 139.7 million employed. Based on these numbers, how many people were counted as unemployed?
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The unemployed are the labor force minus the employed, or 147.9-139.7 = 8.2
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The U.S. government reported in July 2004 that there were 75.6 million people not in the labor force; 147.9 million in the civilian labor force, and 139.7 million employed. Based on these numbers, what was the labor-force participation rate?
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The labor-force participation rate is the labor force divided by the noninstitutionalized population 16 and above, or 147.9 /(75.6+147.9) = 66.2%.
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The U.S. government reported in July 2004 that there were 75.6 million people not in the labor force; 147.9 million in the civilian labor force, and 139.7 million employed. Based on these numbers, what was the unemployment rate?
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The unemployment rate is the unemployed divided by the labor force, or 8.2/147.9 = 5.5%.
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True/False, Explain. Cyclical unemployment is caused by fluctuations in economic activity.
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True by definition
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Cyclical unemployment is defined as unemployment that results from:
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fluctuations in economic activity.
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Unemployment caused by recession is called:
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cyclical unemployment.
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Structural unemployment is caused by:
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people losing a job when their skills become obsolete due to technological innovations.
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What is Structural unemployment?
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Structural unemployment is unemployment caused by economic restructuring making some skills obsolete.
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Technological change can result in:
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structural unemployment
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Workers at a car-manufacturing plant are let go because automated machinery has been installed that requires fewer employees to operate. What type of unemployment describes the workers' situation?
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Structural unemployment.
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Frictional unemployment is a result of:
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people quitting a job just long enough to look for and find another one.
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The unemployment that occurs when people first enter the labor force or are in the process of changing jobs, is called:
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frictional unemployment.
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The lowest sustainable rate of unemployment that policy makers believe is achievable under existing conditions is:
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called the target rate of unemployment.
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Another term for what the text calls the "target rate of unemployment" is
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the natural rate of unemployment.
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True/False, Explain. If the economy were producing at its potential output, then the unemployment rate would be less than the target rate of unemployment.
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False. Potential output is the output that would materialize at the target rate of unemployment. If output is at potential, unemployment would be at the target rate.
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Okun's rule of thumb states that a
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1% change in unemployment will cause income to change in the opposite direction by 2%.
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Real gross domestic product is best defined as:
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the market value of all final goods and services produced in an economy stated in the prices of a given year.
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Per capita real output is best defined as the market value of all final goods and services produced in an economy in:
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the prices of a given (base) year divided by the population.
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If a country's real GDP and population are, respectively, $500 billion and 200 million, then its per capita real output is:
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$2,500. To compute per capita real GDP, divide a country's real GDP ($500 billion) by its population (200 million.)
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Per capita real output would be certain to increase if
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Per capita real output is real GDP divided by population. If the numerator increases and the denominator decreases, the fraction must increase.
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Between 1990 and 2001, both Finland and France had average annual population growth rates of 0.4 percent. The growth rate of real GDP in the two countries in the same time period, however, was 3 percent in Finland and 1.8 percent in France. From this we can conclude that:
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France's per capita GDP grew less rapidly than Finland's per capita GDP. Per capita GDP equals the ratio of a country's real GDP to its population. If both countries' populations are growing at the same rate, then the country with the faster growth rate in real GDP will see its per capita GDP increase more rapidly.
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The trend (secular) growth rate is the:
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average rate of growth in real output over many years.
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U.S. economic growth in output since about 1890 has averaged:
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2.5 to 3.5 percent.
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The region of the world that has achieved the lowest secular trend per capita growth rate since 1820 is:
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Africa.
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The region of the world or country that has achieved the highest secular trend per capita growth rate since 1950 is:
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Japan.
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Fluctuations around the long-term growth rate are called:
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business cycles.
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The business cycle is:
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the term used to describe fluctuations in output around its long-term trend.
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Business cycles are generally considered in:
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the short-run framework.
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Issues of growth are generally considered in:
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the long-run framework.
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The short-run business cycle framework focuses primarily on factors:
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affecting demand.
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The long-run growth framework focuses primarily on factors:
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affecting supply.
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Policies that affect aggregate expenditures are primarily relevant to:
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the short-run business cycle framework.
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Policies that affect work, capital accumulation, and technological change are primarily relevant to:
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to the long-run growth framework.
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Which of the following statements best characterizes the Classical view of business cycles?
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Fluctuations in business activity are to be expected and should be accepted just as changes in he seasons are accepted.
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Which of the following statements best characterizes the Keynesian view of business cycles?
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Expansions and contractions of the business cycle are symptoms of underlying problems and should be dealt with.
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How do you measure a business cycle?
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A business cycle is measured peak to peak or trough to trough.
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Where is an expansion? (Graph)
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An expansion occurs when output rises.
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Where is a recession? (Graph)
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A recession is a prolonged decline in output.
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Where is peak? (Graph)
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A peak is the highpoint in the business cycle.
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What is true regarding inflation?
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Inflation is a continual rise in the general price level.
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A price index in its base year:
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is always equal to 100.
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A price index in years beyond the base year:
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can be less than, greater than, or equal to 100.
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The price index that includes the widest number of goods and services is the:
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The GDP deflator- The GDP deflator is used to measure inflation for aggregate output, the widest measure of goods in the list.
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The price index that measures the average rate of change in the prices received by domestic producers of goods and services is called the:
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PPI.
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The likely reason that the CPI receives more attention in the media than the GDP deflator is because:
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it is more relevant to consumers. The CPI receives more attention than the GDP deflator because it measures changes in just consumer prices. The GDP deflator measures changes in the prices of all final goods and services.
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True/False, Explain. Inflation redistributes income from people who do not raise their prices to people who do raise their prices.
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True. An example is the lender who lends money but then experiences unexpected inflation. The rate of return on the loan is lower than desired and the borrower can repay the loan with dollars that are worth less than before.
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If the CPI in year 2 equals 110 and the CPI in year 3 equals 121, it can be concluded that consumer prices:
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The change in consumer prices between year 2 and year 3 equals the percentage change in the CPI during this period, or [(121-110)/110]*100 = 10%.
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In 1969, the United States CPI was 37 (1982 = 100) and in 2003 it was 184. By what percent did prices increase in the United States between 1969 and 2003?
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The rise in prices is calculated as the change in the price index divided by the price index in the previous year multiplied by 100 or [(184-37)/37]*100 = 397%.
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Nominal output is best defined as a measure of the:
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value of output at prices in the current year.
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Economists call the measure of GDP, after the effects of inflation have been removed:
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Real GDP is GDP without the effects of inflation.
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Real output is:
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GDP after the effects of inflation have been removed. Real output reflects quantities produced in an economy, and therefore removes the effect of inflation on nominal output.
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True/False, Explain. If the price level doubles and real output doesn't change, then nominal output also doubles.
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True. Nominal output is defined with respect to current prices and thus moves proportionately when the price level changes.
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If nominal output is $4.4 trillion and the GDP deflator is 110, then real output is:
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$4 Trillion Real output equals the ratio of nominal output and the GDP deflator.
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One reason expectations of inflation are important from a macroeconomic point of view is that people:
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seem to notice increases in the cost-of-living more when those increases were anticipated.
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Inflation is undesirable because:
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Inflation distorts the information value of prices by making it more difficult to identify relative price changes. Inflation redistributes income from those who cannot raise their prices to those who do and can raise their prices.
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Inflation is a problem for all of the following reasons except:
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Inflation does not make a society poorer because higher prices imply that while people pay more when they buy goods and services, they also earn more when they sell these goods and services.
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A situation in which the price level increases at an extremely high rate is called:
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hyperinflation.
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What is national income accounting and why is it useful?
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National income accounting is a set of rules and definitions for measuring economic activity in the aggregate economy. It is useful because it enables us to measure and analyze how much the nation is producing and consuming. It also provides us with the terminology needed to analyze the macro economy. Without these national accounting variables, we would have no way to measure, analyze and discuss the aggregate economy.
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National income accounting:
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provides a way of measuring total or aggregate production. National income accounting was developed in order to help economists measure national production and consumption.
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The National Income Accounts help economists and policymakers to:
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follow the long-run course of the economy to determine whether it has grown or stagnated.
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The agency responsible for compiling the National Income Product Accounts for the U.S. economy is the:
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Bureau of Economic Analysis
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Define "GDP".
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GDP or gross domestic product is the total market value of all final goods and services produced in an economy in a one-year period. It is a flow concept that includes the production of all residents whether they are citizens or not.
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True/False, Explain. How can DGP be calculated without "double counting"?
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True. This reflects the national income accounting identity: production equals income. The two ways to avoid double counting in calculating GDP are: 1) count only the value of final output (output sold directly to consumers) and, 2) use the value added approach.
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GDP is a:
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flow concept and refers to the market value of final output.
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True/False, Explain. To compute GDP, you must add up the value of all the goods and services produced in a country in a year.
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Adding up the value of all goods and services produced would double count intermediate goods. Only the value of final goods and services should be summed when computing GDP.
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GNP is the:
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aggregate final output of the citizens and businesses of an economy in a one year period.
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The difference between gross domestic product (GDP) and gross national product (GNP) is that GDP:
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measures the economic activity that occurs within a country while GNP measures the economic activity of all the people and businesses of a country.
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Which of the following equations is the correct equation for GDP?
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GDP = C + I + G + X - M. The sum of consumption (C), investment (I), government purchase(G), and net exports (X-M) equals total expenditure or GDP.
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Net domestic product (NDP) equals:
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consumption + investment + government purchases + net exports - depreciation.
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Net domestic product (NDP):
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is a better measure of output than gross domestic product because it controls for depreciation.
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While net domestic product (NDP) is theoretically a better measure of economic activity than gross domestic product (GDP), GDP is used more frequently because:
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depreciation, which is included in NDP but not GDP, is difficult to measure.
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Suppose Smith pays $100 to Jones.
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We need more information to determine whether GDP has changed.
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Suppose the value of your home increases from $100,000 to $125,000. If you continue to live in your home, the increase in its value:
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adds nothing to GDP.
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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:
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GDP in 2010 is $500 billion.
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The circular flow of income implies that:
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firm expenditures equal household income.
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The income approach to measuring GDP:
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uses factors payments made by businesses to households to estimate GDP.
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What are the four expenditure components of GDP and what is included in each of these components?
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The four expenditure components of GDP are (a) Consumption (C), payments by households for goods and services. (b) Investment (I); business spending on equipment, structures, and inventories and household spending on new owner-occupied housing. (c) Government purchases (G), government payments for goods and services and investment in equipment and structures. And (d) Net exports; exports minus imports. Personal
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GDP is $7 trillion. If consumption is $3.5 trillion, investment is $1.4 trillion, and government purchases are $2.1 trillion, then:
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exports are equal to imports. GDP = Consumption + Investment + Government purchases + Exports - Imports. Rewritten, Net exports = GDP - Consumption - Investment - Government purchases.
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Comparisons of per capita gross domestic product (GDP) between countries:
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do not necessarily provide a good measure of relative living standards.
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The size of underground economies differs across countries. In Greece it has been estimated to be as big as 30% of GDP, in Spain 25%, in Italy 20%, and in the United States, about 7%. Given this information, official GDP measures understate true economic activity the most in:
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Since Greece has the reportedly largest relative underground economy, official statistics underestimate Greek production the most.
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Define real and nominal GDP and explain why the growth of real GDP is more important to society than the growth in nominal GDP?
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Nominal GDP is total output produced in an economy at existing prices. Real GDP is nominal GDP adjusted for changing prices. The growth in real GDP is more important because it reflects growth in actual production. Nominal GDP could rise with an inflation without real output having risen at all.
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In 1997, Hungary's population was 10 million and its GDP was $45 billion so its per capita output was:
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$4,500. Per capita output is obtained by dividing GDP by the population.
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Which of the following transactions would be included in GDP?
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Peter buys a newly constructed house.
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Mr. Scoobertini owns a store specializing in soccer jerseys. In 2008, he purchased $150,000 worth of jerseys from manufacturers, employed one worker for $40,000, purchased $20,000 worth of supplies from an office supply store, and sold jerseys for $280,000. Based on this information, what was the value added at Alejandro's store in 2008?
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$70,000
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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 $1200 to kids attending the prom. The total contribution to GDP of this series of transactions is:
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$1200
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In the second quarter (3-month period) of 2001, U.S. nominal GDP increased but U.S. real GDP declined. Explain:
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Prices must increase by more than the decrease in output, so that nominal GDP is still increasing.
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If nominal GDP rises:
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real GDP may either rise or fall.
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