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Econ 2105 Exam 1
| Question | Answer |
|---|---|
| A measure of GDP in which the quantities produced are valued at current-year prices. Nominal GDP measures the current dollar value of production. | Nominal Gross Domestic Product (GDP) |
| Goods that are used to build or make another product that will be subsequently sold. | Intermediate Goods |
| Goods and services that are sold to the end user and are not used to produce another product for subsequent sale. | Final Goods and Services |
| All expenditures made by households on goods and services, like clothing, food, electronics, and recreation, during a given time period. | Consumption (C) |
| The dollar value of all new capital purchased (as investment) and the expansion of inventories in an economy during a given time period. | Gross Investment (I) |
| All final goods purchased by federal, state, and local governments—such as tanks, police cars, fire engines, and office supplies—during a given time period, as well as all final services purchased from labor resources—such as airport security personnel, p | Government Purchases (G) |
| Goods, services, or resources produced abroad and sold domestically. | Imports(M) |
| Goods, services, or resources produced domestically and sold abroad. | Exports (X) |
| The difference between exports (goods made domestically and purchased by foreign consumers) and imports (goods made in other countries and purchased domestically). Net exports equals exports minus imports (NX = X − M). | Net Exports (NX) |
| goods that firms buy and include in a product later sold to consumers—are not included in GDP because their prices are included in the final price of the product. | Intermediate Goods |
| Goods that have an average useful life of three years or more. | Consumer Durables |
| Goods that have an average useful life of less than three years | Consumer Nondurables |
| Outputs, often intangible, of the direct activities of another person. | Services |
| A payment made by the government that does not require an exchange of economic activity in return. Transfer payments often take the form of payments to households. | Transfer Payment |
| The formation of new productive capital or the expansion of inventories within an economy. Investment occurs either when firms buy goods and services that will enhance productivity and increase output or when they increase their inventories of the goods t | Investment |
| Purchases by firms of new capital goods, such as offices, factories, tools, and machinery | Business Fixed Investment |
| Purchases of new homes; also includes home improvements. | Residential Investment |
| Changes in inventories from one year to the next. Inventory investment is positive if firms produce more than they sell; it is negative if they sell more than they produce. | Inventory Investment |
| occurs when households or firms take some of their income or profit and put it in a savings account, in the stock market, or in some other asset, hoping to make a return on their money and spend it in the future. | Saving |
| occurs when a firm or individual purchases new capital, like machinery (for a firm) or a new home (for a household). | Investment |
| Newly produced goods and services that households buy are considered | Consumption |
| A new house is classified as | Residential Investment |
| An approach to calculating nominal GDP that sums four categories of expenditures on final goods and services in a country in a given time period, typically one year. The four categories of expenditure are consumption (C), gross investment (I), government | Expenditures Approach |
| The difference between gross investment and depreciation; represents the net change in the capital stock during a year. | Net Investment(I net) |
| A measure of the constant dollar value of all final goods and services produced in a country during a fixed period of time; sometimes called inflation-adjusted GDP. When an economy is in equilibrium, real GDP equals income, Y. | Real Gross Domestic Product |
| Real GDP per person; calculated as real GDP divided by the size of the population. | Real GDP per Capita |
| A general increase in prices of goods and services. | Inflation |
| A price index based on all the goods and services that are counted as part of gross domestic product. Sometimes called GDP deflator. | GDP Price Index |
| Goods and services that are produced by a household and are not exchanged in a market. | Home Production |
| Economic activity in which goods and services are exchanged for payment but are not counted as part of GDP. Markets that are part of the underground economy that exchange illegal goods and services or engage in illegal transactions are called black market | Underground Economy |
| The short-term fluctuations experienced in the economy due to changes in levels of economic activity. | Business Cycle |
| A phase of the business cycle characterized by increasing real GDP, income, and employment. | Expansion |
| A point in the business cycle where real GDP reaches a maximum. The peak marks the end of an expansion. | Peak |
| A decline in real output for at least two consecutive quarters. | Recession |
| A long-lasting and severe recession. | Depression |
| The lowest point of economic activity in the business cycle, where real GDP reaches a minimum. The trough marks the end of a recession. | Trough |
| Individuals 16 years of age and older who are not institutionalized (e.g., in correctional facilities or mental hospitals) and who either are employed or are unemployed but actively seeking employment. | Labor Force |
| The number of people in the economy who hold a full- or part-time position. | Employed |
| The number of people in the economy who have not had a job for at least a week but have actively searched for employment in the past 4 weeks. | Umemployed |
| Unemployment resulting from workers searching and waiting for jobs. | Frictional Unemployment |
| Unemployment occurring when the skills that some workers have to offer don’t match the skills needed by the firms in the economy. | Structural Unemployment |
| Unemployment resulting from fluctuations in the business cycle. | Cyclical Unemployment |
| A type of frictional unemployment resulting from workers searching and waiting for jobs due to seasonal fluctuations in demand for certain types of workers. | Seasonal Unemployment |
| Someone who wants to work but is not actively searching for a job. | Discouraged Worker |
| The number of people in the economy who hold a full- or part-time position. | Employed |
| The number of people in the economy who have not had a job for at least a week but have actively searched for employment in the past four weeks. | Unemployed |
| The percentage of workers in the labor force who are unemployed; a good indicator of the overall health of the economy. | Unemployment Rate |
| The employment an economy experiences when it is operating at the natural rate of unemployment. | Full Employment |
| The rate of unemployment equal to the sum of the frictional and structural unemployment rates. A fully employed economy operates at this rate. | Natural Rate of Unemployment |
| An economic indicator used to measure over time the average price of a market basket of goods and services purchased by the typical consumer. | Consumer Price Index (CPI) |
| The percentage change in the overall price of goods and services in the economy from one time period to another. | Inflation Rate |
| A situation in which the inflation rate is positive and greater than 50% per month. | Hyperinflation |
| A situation in which the inflation rate is positive but declining over time. | Disinflation |
| A situation in which the inflation rate is negative. | Deflation |
| A price index that measures the average change over time in the selling prices received by producers of goods and services. | Producer Price Index |
| The actual number of dollars received in exchange for the different resources available in the economy. | Nominal Income |
| The amount of goods and services that can be purchased with nominal income; the inflation-adjusted measure of income. | Real Income |
| The level of overall well-being enjoyed by an individual, group, or society. The standard of living is determined by anything that affects an individual’s well-being, such as material and nonmaterial wealth, socioeconomic status, access to health care, an | Standard of Living |
| An increase in real gross domestic product or real gross domestic product per capita. | Economic Growth |
| A graph that shows the possible combinations of two different goods or services that can be produced with fixed resources and technology. The PPF shows the production combinations that are both attainable and efficient | Production Possibilites Frontier (PPF) |
| A principle in economics that holds that because some resources are better suited to producing one good or service than another, as the production of a good or service increases, the opportunity cost of each additional unit rises. | Law of Increasing Opportunity Costs |
| The tools, machinery, infrastructure, and knowledge used to produce goods and services. Capital is sometimes divided into physical and human capital. Physical capital refers to tangible items that are created to increase productivity; human capital refers | Capital |
| Durable (long-lasting) goods that are used to produce other goods and services. | Capital Goods |
| Goods (or services) that are obtained by a household to directly satisfy the needs or wants of the members of the household. | Consumption Goods (or Services) |
| The rate of change of a variable over a specified period of time; usually expressed as a percentage change. | Growth Rate |
| A rule of thumb used to estimate, given a constant rate of growth, how long it will take for a value to double in size, where the time to double is calculated as 72 divided by the growth rate. Generally the time to double and the growth rate are expressed | Rule of 72 |
| Which of the following activities is excluded from GDP, causing GDP to understate a nation's production? | goods and services produced in the underground economy |
| The purchase of a computer by a person for household use would be counted in what category of GDP? | The purchase is always counted as consumption. |
| Which of the following answer choices best describes a consumption expenditure category in the national income accounting? | automobiles for personal use, but not newly constructed houses |
| The total volume of business sales in our economy is several times larger than GDP because | GDP excludes intermediate transactions |
| Which of the following is not an example of a final good or service (from the perspective of the national income accounts)? | seedlings and saplings purchased for resale by Wendy's Garden Center |
| Which of the following is a factor determining the natural rate of unemployment? | demographics |
| Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result, the | official unemployment rate will remain unchanged |
| A peak in the business cycle | is a temporary maximum point |
| Kara voluntarily quit her job as an insurance agent to return to school full time to earn an MBA degree. With degree in hand, she is now searching for a position in management. Kara presently is | frictionally unemployed |
| Cyclical unemployment results from | a deficiency of spending on goods and services |
| In order to calculate the market basket used for the CPI, what information is needed? | market prices and the goods and services purchased by the typical household |
| In calculating the Consumer Price Index (CPI) for Year t, which equation is used? | Value of a Market Basket in Year t / Value of Same Market Basket in Base Year × 100 |
| Recently a teachers' union argued that the standard of living of teachers working for the school district was falling. The negotiating team for the school board replied that this was not true because the teachers had received significant increases in nomi | Yes, because real income may fall if price increases are proportionately greater than the increases in nominal income. |
| Which of the following is a measure of economic growth that is most useful for comparing changes in standards of living? | Increases in real GDP per capita |
| Given the annual rate of economic growth, the "rule of 72" allows one to | calculate the number of years required for real GDP to double |
| Increasing the capital available to the workforce, holding other factors constant, tends to ______ total output while ______ labor productivity. | increasing;increasing |
| Which of the following scenarios is an example of an investment in physical capital? | A firm purchases new equipment for a manufacturing process |
| Which of the following will cause a decrease in the standard of living for an individual? | a decrease in socioeconomic status |
| the factories and machinery used to produce other goods and services. | Physical capital |
| Alpha is a developed economy with a growth rate of 2%. Omega is a developing economy with a growth rate of 8%. Assuming these growth rates remain constant, we would predict ___. | Omega's per capita real GDP will eventually catch up to Alpha's |
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