unit 13

Question 1

GDP

Answer 1

A measure of the market value of the output of the economy in a given period.

Question 2

linear regression line

Answer 2

line of best fit through a set of data

Question 3

reverse causality

Answer 3

two-way causal relationship in which A causes B and B causes A

Question 4

correlation

Answer 4

a statistical association in which knowing the value of one variable provide information on the likely value of the other. does not mean one causes the other or vice versa

Question 5

natural logarithm

Answer 5

a way of measuring a quantity based on the log function f(x)=logx. converts a ratio to a difference- allows us to see pace of growth more easily

Question 6

recession

Answer 6

2 successive quarters of negative growth,
The US National Bureau of Economic Research defines it as a period when output is declining. It is over once the economy begins to grow again. An alternative definition is a period when the level of output is below its normal level, even if the economy is growing. It is not over until output has grown enough to get back to normal. The latter definition has the problem that the ‘normal’ level is subjective.

Question 7

business cycle

Answer 7

Alternating periods of faster and slower (or even negative) growth rates. The economy goes from boom to recession and back to boom

Question 8

consumption

Answer 8

expenditure by households on both short-lived goods and services and long-lived goods, called consumer durables

Question 9

investment

Answer 9

Expenditure on newly produced capital goods (machinery and equipment) and buildings, including new housing

Question 10

inventory

Answer 10

Goods held by a firm prior to sale or use, including raw materials, and partially-finished or finished goods intended for sale.

Question 11

government spending

Answer 11

Expend­iture by the government to purchase goods and services. When used as a component of aggregate demand, this does not include spending on transfers such as pensions and unemployment benefits.

Question 12

government transfers

Answer 12

Spending by the government in the form of payments to households or individuals. Unemployment benefits and pensions are examples. Transfers are not included in government spending (G) in the national accounts

Question 13

exports

Answer 13

Domestically produced goods and services that are purchased by households, firms, and governments in other countries.

Question 14

imports

Answer 14

goods and services purchased by household, firms and governments in home economy that were produced in other countries

Question 15

AD

Answer 15

the total of the components of spending in the economy, added to get GDP: Y = C + I + G + X – M. It is the total amount of demand for (or expenditure on) goods and services produced in the economy

Question 16

inflation

Answer 16

An increase in the general price level in the economy. Usually measured over a year

Question 17

CPI

Answer 17

A measure of the general level of prices that consumers have to pay for goods and services, including consumption taxes. it excludes exports and includes imports

Question 18

GDP deflator

Answer 18

a measure of the level of prices for domestically produced output by taking the ratio between nominal and real GDP
=nominal GDP/real GDP x 100
excludes imports and includes exports

Question 19

nominal GDP

Answer 19

sum of price i x quantity i of good i

Question 20

real GDP

Answer 20

sum of price of good in base year x quantity of good in current year
shows only change in quantity

Question 21

reasons for chang ein actual inflation rate

Answer 21

companies do not adjust prices yearly as inflation fluctuates so when inflation persists then they need to adjust price so we see a sudden increase of p of goods.
its an excuse for companies to increase prices- they can say its due to inflation but just change portion sizes as harder to track by consumers.

Question 22

GDP as measure of well-being

Answer 22

pros-
increased incomes means can buy more G and S. government spending is included which includes healthcare and education
cons- doesn’t include public bads eg pollution
unpaid work eg value of home carers
underground/shadow economy -includes illegal activities such as drug production and distribution, prostitution, theft, fraud and concealed legal activities such as tax evasion on otherwise-legitimate business activities such as un-reported self-employment income
Regional variations in income and spending: National data can hide regional variations in output, employment and income per head of the population
Inequalities in income and wealth: Average (mean) incomes might rise but inequality could grow
Leisure and working hours and working conditions: An increase in real GDP might have been achieved at the expense of leisure time if workers are working longer hours or if working conditions have deteriorated
Imbalances between consumption and investment: High levels of investment as a share of GDP might be superb for creating extra capacity to produce but at the expense of consumer goods and services for the current generation