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Econ Ch 7
SG
| Question | Answer |
|---|---|
| What is the Gross Domestic Product, and how is it measured? | GDP is the total market value of all final goods/services produced in a country in one year, and it’s measured by the sum of consumption, business investment, government consumption, and net exports |
| Why use market prices? | The market price is a result of the interaction of consumer demand with producer costs. A good is assumed to be best valued at market price |
| Can we count all goods or only final goods? Why? | Final goods to eliminate counting any intermediate goods |
| What are intermediate goods? | Goods not sold to the final customer, but sold to another firm that will use it to make another good |
| Explain the constituent parts of the formula: GDP = C+I+G+NX | C is for consumption, I is business investment, g is for gov consumption, and nx is for net exports |
| How much did total GDP add up to in 2015? | $17,947.0 billion |
| How much for the constituent parts in 2015? | Consumption is 12.272, business investment is 3.021, gov consumption is 3.183, and net exports is 0,529 dollars |
| Which part of the economy was the largest in 2015? | Consumption |
| Explain the problem that intermediate goods bring to the calculation? How do we solve this problem? | Intermediate goods can throw off GDP by accidentally double counting things, we solve this problem by only counting final goods. |
| Explain why the sale of used goods should not be counted | Used goods were already counted in a prior period after they were produced. |
| Explain why non-market production is not counted | Non market production is hard to verify and keep track for |
| Does excluding non market production cause a bigger problem for proper measurement in advanced industrial nations or in less developed countries? | Less developed because it drags their GDP downward. |
| What problem does the underground economy bring to proper measurement of GDP? | Underground economy isn’t reported to authorities, so it can’t be counted in GDP, and leads to an improper measurement |
| If the intermediate goods are not handled correctly, do they overstate or understate the true GDP? | Overstate thru double counting |
| If used goods are not handled correctly, do they overstate or understate the true GDP? | Overstate thru recounting goods that were alr counted |
| If non market production is not handled correctly, do they overstate or understate the true GDP? | Could be either bc its hard to keep track of and ppl could over or under estimate |
| If the underground economy is not handled correctly, do they overstate or understate the true GDP? | Understates bc its transactions not being counted |
| What problems does inflation bring to the proper measurement of GDP? | Inflation raises the price of goods and services which affects the worth of people’s income in which it doesn’t meet the inflation rate |
| Explain the difference between nominal economic data and real economic data | Nominal economic data is measured in money terms from the year in which the transaction takes plate. Real economic data is the nominal data adjusted to account for inflation (measures real ability to purchase goods/services). |
| How is it possible for someone to double their paycheck over time yet have a lower real income? | Inflation can lessen the amount of money one sees one’s paycheck as. One can make a set amount and be able to pay for x goods, but if inflation incr the price of the good, one’s income seems lesser because they may not be able to pay for x goods anymore. |
| What is a Price Index? | Mathematical representation of the price level for goods and services sold in a certain year (base year is 100?. |
| Which price index is the most commonly used in the U.S.? | Consumer price index is most common used in US |
| How do you use the Price Index numbers to remove inflation from nominal data and convert them to real data? | Take the nominal data and multiply them by the price index of the original year over the price index of the current year and you’ll get the real data |
| Assume the nominal GDP of Country A was $500B in 2005 and rose to $900B by 2015. During the same time the CPI incr from 100 to 150. What was the country’s real GDP in 2015? Incr or decrease in real GDP from 2005? By how much? Which is more accurate? | 600 billion // incr // 150 billion // nominal was larger by 400 billion // real is more accurate |
| If you were comparing the living standards of two countries, which piece of data would tell you the most: the GDP or the GDP per Capita? Why? | GDP per Capita because it focuses on the individual rather than the whole |
| How is GDP per Capita measured? | It’s the total GDP divided by the population |
| which country in the world has the largest GDP? | China |
| Where does China rank on the GDP per Capita measure? | 106th |
| Where does the U.S. rank in both GDP and GDP per Capita? | 2nd; 15th |
| Japan | 4th; 31st |
| Mexico | 12th; 90th |
| Ghana | 81st; 173rd |
| What is the difference between Economic Growth and Economic Development? | EG: Stable incr in value of GDP/time, quantitative ED: Improvement of quality of life & living standards/time, qualitative |
| How is EG measured? | GDP Growth rate |
| How is ED measured? | measured by increase in life expectancy, decrease in infant mortality, literacy rates, etc |
| How are EG and ED related? | Economic development considers economic growth. They both want to see improvement |
| Why do economists focus on GDP and its growth rate rather than on measures of economic development? | Economic growth is better counted and more reliable than trying to measure economic development singularly |
| What is the Business Cycle? | Shows how GDP behaves over time |
| Why is the business cycle often called the Boom-Bust cycle? | Refers to the expansion and recession parts of the cycle |
| Identify and explain what a trough and a peak are. | Lowest level of GDP; Highest level of GDP |
| What is a recession or contraction? | The end of an expansion, appears after peak, GDP falls (rise in unemployment, decrease in profits, etc) |
| What is an expansion or “boom”? | Growth phase, increase in GDP (low unemployment, rising sales) |
| Can the economy grow at a rate faster than the long-term trend for short periods of time? Long term? | Yes, yes |
| What is the long-term trend? | the average growth of the economy over many business cycle |
| What has the trajectory of the Long-term trend been in the U.S.? | Mostly increasing except for 2009 (great recession) and covid In which is decreased |
| does the business cycle oscillate predictably? | No |
| How much variation is there in the post-WWII expansions and contractions? | Way more expansions than contractions |
| on average, which last longer, the recessions or expansions? What impact does this have on the long-run trend? | Expansions, long tern shows increase |
| How does a depression differ from a recession? | A depression is way more severe than a recession |
| Describe the long-run change in GDP for the U.S. from 1865 to 2010.: What is the general trend? Any dips? | Upward; Small dip in around 1930 |
| When did the Great Depression happen? Has it been repeated? | 1929-1939 ; no |
| Do all countries grow at the same rate? | No |
| What are the causes of growth? | Increased capital, technology, labor force, etc |
| Explain the difference between Extensive Growth and Intensive Growth | Exsten. Growth: adding more labor/capital to production generates growth Insten. growth: adding better quality labor capital to production generated growth through productivity, needs an incr in standard of living or GDP per capita |
| which type of growth will consistently lead to rising incomes? | Intensive |
| is it possible to have a growing real GDP and still have a falling level of real income for the population? Explain. | Yes because extensive growth doesn’t involve income for population but can still increase |
| How are technology and capital related to growth? | It can improve productivity within workers which improves growth |
| What factors can make it difficult for poor countries to grow? | Viscous-cycle-of-poverty, capital flight/stable legal/political systems, and brain drain |
| discuss the vicious-cycle-of-poverty hypothesis | Poor countries will stay poor due to their lack of available resources needed to invest in capital. Without that investment, they can’t have capital growth |
| Capital flight and stable legal and political systems | Tendency for ppl with $ in poor countries to invest their finan. cap. abroad instead of at home. While they take less of a risk, their country does not benefit and suffer's econ. They invest in stable legal/political sys. which worsens their own. |
| Bain drain | Tendency for smart indiv to become educated and then move to a wealthy country instead of putting their talents to their country in which their country suffers by losing a successful labor worker |
| Describe outcomes for Singapore, Germany, and Argentina | Singapore excels, Germany is incr but under Singapore, Argentina on bottom |
| Describe outcomes for China, India, and Zimbabwe | China excels, India grows, Zimbabwe at low growth |
| Descrive outcomes for Puerto Rico, Panama, Venezuela, and Cuba | Puerto Rico excels, Panama grows, Venezuela is back and forth decline, Cuba at low growth |
| what are some of the factors can explain the differences bewteen EG | Government failure, expropriation, and crony capitalists |
| how does Government Failure contribute to low growth rates? | If the government does not put in the effort and money to contribute to try and increase worker productivity, they are feeding low growth rates |
| what is the Rule-of-law, and how does the failure to provide it damage a country’s growth? | When property rights/contracts are ack. and followed and given fair/transparently w/o favoritism. Failure to do so will result in lest investment of honest entre. because they are scared of losing money through the gov officials and corrupt law making. |
| What is an expropriation and how does it impact growth? | When the government seizes assets for no reason. Expropriation negatively impacts growth by resulting in foreign investors not investing due to being scared of losing money. Creditors fear that they won’t collect debt when debtors don’t pay. |
| what are Crony Capitalists? | Business people who manipulate the corrupt political system to give them an advantage by receiving preferential treatment from the gov through rigged gov contracts, subsidizes gov loans, or gov provided bail outs when the firm suffers losses |
| How do Crony Capitalists contribute to the problem of lack of growth? | By harming the honeys entrepreneurs and overtaking the country with gov officials and business elites who act only for themselves. Their selfish actions lower the productivity of the society and lower the economic growth. |
Created by:
MikalahQuillen
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