Macroeconomics 1

  1. Define Nominal GDP
    GDP based on prices prevailing at the time of production
  2. How do we account for prices changes?
    Price Indexes and Base year
  3. A Price index is a _____?
    a number that shows the average price of products;
  4. True or False
    The base year =100
  5. The United States government uses the ______________ as a measure of inflation based on the cost of a fixed basket of goods and services.
    Consumer Price Index (CPI)
  6. How do we determine Price Index?
    Price Index = 100 X (Price incurrent year / Price in base year)
  7. What some of the faults of the CPI?
    • Does not take into consideration changes in quality and therefore it may overstate inflation.
    • CPI over states inflation because it does not follow the substitution from more expensive goods to cheaper goods
  8. What do experts state about CPI?
    Estimated that the CPI has overestimated inflation by about 1% per year.
  9. The GDP Price Index measures
    A price index for ALL goods and services.
  10. Define GDP Price Index
    A comprehensive inflation measure of all goods and services included in gross domestic product.
  11. GDP (Gross Domestic Product): measures the _____________ of all final goods/services produced __________ during a given time period
    • market value
    • domestically
  12. Calculating GDP by adding up spending on all final G&S produced during a given period of time
    Expenditure Approach to GDP
  13. Calculating GDP by adding up all earnings from resources used to produce output in a given period of time
    Income approach to GDP
  14. Goods and Services sold to final, or end, users
    Final Goods and Services
  15. Give an example of intermediate goods and services
    Grocer buys a can for $ 0.60 and sells it for $ 1.00.
  16. Intermediate goods and services are ____________________?
    Purchased by firms for further reprocessing the resale.
  17. Consumption is defined as?
    household purchases of final G&S except for new residences which count as investment
  18. Investments can be defined as?
    The purchases of new plants, new equipment, new buildings and new residences, plus net additions to inventories.
  19. Government can be defined?
    spending on behalf of the government.
  20. GDP = C + I + G + NX
    is an equation to get?
    Aggregate Expenditure
  21. What is aggregate expenditure?
    Total spending on final goods/services in an economy during a given period.
  22. Net Exports can be defined as:
    The value of a country's export minus imports
  23. Aggregate Income can be defined as?
    All earnings of resources in an economy during a given period time period.
  24. The income house holds have available to spend or save after paying taxes and receiving transfer payments.
    Disposable Income
  25. Taxes minus tranfer payments = _______?
    Net Taxes (NT)
  26. True or False

    Disposable Income + Net Taxes= Aggregate Income=GDP
  27. _______=C + I + G+ (X-M) =________
    • Aggregate Expenditure
    • GDP
  28. Some production is not included in GDP such as home production. This is an example of ?
    Limitations of National Income Accounting
  29. Drugs, black markets, undocumented workers are examples of
    Underground economies.
  30. True of False
    Leisure is not bought or sold in the market
  31. True or False
    GDP does take into consideration depreciation of physical capital
  32. Net investment is?
    Gross Investment minus depreciation
  33. GDP minus Depreciation Gross Investment the value of investment during a year is?
    Net domestic product
  34. The value of the capital stock used up to produce GDP or that becomes obsolete during the year.
  35. Define Unemployment
    we begin with U.S. civilian non-institutional adult population.
  36. Who are not included in unemployment?
    • Government or Military
    • Prisoners and mental hospitals
  37. Define Labor force
    Those 16 years of age and older who are either working or looking for work
  38. Unemployment rate can be defined as?
    the number unemployed as a percentage of the labor force.
  39. What is the BLS and their function?
    Bureau of labor statistics. They count people as unemployed if they have no job but want one and have looked for a job in the past 4 weeks.
  40. Those who drop out of the labor force in frustration because they couldn't find work.
    Discouraged Worker
  41. The average unemployment rate from 1948 - 2009 was _____________?
  42. The Unemployment rate during the great depression was?
  43. unemployment that occurs because of job seekers and employers need time to find each other is?
    Frictional employment
  44. unemployment caused by seasonal changes in the demand for certain types of labor
    seasonal unemployment
  45. Structural unemployment consist of ________?
    • the skills demanded by employers do not match those of the unemployed
    • the unemployed do not live where the jobs are
  46. unemployment that fluctuates with the business cycle, increasing and decreasing during expansion
    Cyclical Unemployment
  47. Define Full Employment
    employment level when there is no cyclical unemployment
  48. True of False
    Official Unemployment figures include anyone who is NOT employed

    False. Official Unemployment does NOT count discouraged workers as unemployed under states unemployment
  49. Define Under employment
    workers are overqualified for their jobs or working fewer hours than one would prefer.
  50. Define Inflation
    a sustained increase in the economies average price level.
  51. What occurred Hyper inflation in Brazil?
    (1988-1994) prices rose over 3.6 million times higher than
  52. What causes hyper-inflation?
    Excessive printing of money (qualitative easing)
  53. Define Deflation
    a sustained decrease in the price level
  54. Name the two sources of inflation. Explain.
    • Demand- Pull inflation.
    • Cost push inflation is usually generated by an increase in resources. (Stagflation in the 1970's).
  55. Define Disinflation
    reduction in the rate of inflation
  56. Define Interest
    the dollar amount paid by borrowers to lenders
  57. Interest rate is defined as?
    Interest per period as a % of the amount loaned.
  58. Nominal Interest rate
    the interest rate expressed in dollars of current value as % of the amount loaned
  59. Real Interest rate
    the interest rate expressed in dollars of constant purchasing power as a percentage of the amount loaned.
  60. How do we obtain Real Interest Rate?
    Real interest rate=nominal interest rate - rate of inflation
Card Set
Macroeconomics 1
Econ 12