Economics 3

Question 1

What is Real GDP?

Answer 1

Nominal GDP / GDP Deflator x 100

Question 2

What is Gross National Product (GNP)?

Answer 2

Like GDP; Swaps foreign production. US Firms overseas are included- Foreign firms domestically are not included

Question 3

What is the Consumer Price Index (CPI)? How is it applied?

Answer 3

Price of goods relative to an earlier period of time- which is the benchmark. Year 1 : 1.0

((CPI Current - CPI Last) / CPI Last) * 100

Question 4

How is disposable income calculated?

Answer 4

Personal Income - Personal Taxes

Question 5

How is Return to Scale calculated?

Answer 5

% Increase in output / % Increase in input

Greater than 1 : Increasing returns to scale

Less than 1 : Decreasing returns to scale

Question 6

When is the economy in Recession?

Answer 6

When GDP growth is negative for two consecutive quarters.

Question 7

What is a Depression?

Answer 7

A prolonged- severe recession with high unemployment rates

No requisite period of time for the economy to officially be in a depression

Question 8

What are the stages of the Economic Cycle?

Answer 8

Peak (highest)
Recession (decreasing)
Trough (lowest)
Recover (increasing)
Expansion (higher again)

Question 9

What are leading indicators?

Answer 9

Conditions that occur before a recession or before a recovery

Example: Stock Market or New Housing Starts

Question 10

What are lagging indicators?

Answer 10

Conditions that occur after a recession or after a recovery

Examples: Prime Interest Rates- Unemployment

Question 11

What are coincident indicators?

Answer 11

Conditions that occur during a recession or during a recovery

Example: Manufacturing output

Question 12

Which people are included in the calculation of unemployment?

Answer 12

Only people looking for jobs

Question 13

What is Cyclical Unemployment?

Answer 13

GDP doesn’t grow fast enough to employ all people who are looking for work

Example: People are unemployed in 2010 because there aren’t enough jobs available due to the economy

Question 14

What is Frictional Unemployment?

Answer 14

People are changing jobs or entering the work force. This is a normal aspect of full employment.

Example: A recent college graduate is looking for a job

Question 15

What is Structural Unemployment?

Answer 15

A worker’s job skills do not match those necessary to get a job so they need education or training

Example: A construction worker wants to work in an office- so they quit their job and get computer training