Chapter 19

Question 1

macroeconomics is the study of the determination of economic ___, such as ____, _____, _____, and ____.

Answer 1

1. aggregates
2. total output
3. total employment
4. the price level
5. the rate of economic growth

Question 2

When aggregate output rises…

Answer 2

the output of many commodities and the incomes of many people rise with it

Question 3

When unemployment rises…

Answer 3

Many workers have reduced incomes

Question 4

When disruptions occur in credit markets…

Answer 4

Interest rates rise and borrowers have difficulty financing purchases

Question 5

The most comprehensive measure of a nation’s overall level of economic activity is:

Answer 5

the value of its total production of goods and services, called national product, or output

Question 6

The value of national product is equal to:

Answer 6

the value of national income

Question 7

nominal national income is:

Answer 7

the total national income measured in current dollars

Question 8

the real national income is:

Answer 8

national income measured in constant (base-period) dollars. It changes only when quantities change.

Question 9

How can you find the dollar value of production of steel and bread?

Answer 9

Multiply the number of units of each good produced by the price each unit is sold. Add these values to give the quantity of total output or national income in dollars. This is nominal national income.

Question 10

What is a recession?

Answer 10

A fall in the level of real GDP. Two consecutive quarters of negative growth in real GDP.

Question 11

what is potential output (Y*) (potential GDP)?

Answer 11

The real GDP that the economy would produce if its productive resources - land, labour and capital - were fully employed.

Question 12

Y is used to denote __ and Y* is used to denote __

Answer 12

Y is used to denote economy’s actual output, Y* is potential output

Question 13

The output gap is:

Answer 13

actual output minus potential output, Y - Y*

Question 14

What value of Y to Y* is considered as a recessionary gap?

Answer 14

When Y < Y* - economy’s resources are not fully employed.

Question 15

What value of Y to Y* is considered an inflationary gap?

Answer 15

When Y > Y* - market value of production is in excess of what economy can produce - workers are working overtime. Upward pressure on wages and prices.

Question 16

Unemployment denotes:

Answer 16

the number of people 15 or older who are not employed and actively searching for a job

Question 17

the labour force is:

Answer 17

the number of persons employed plus number of persons unemployed

Question 18

the unemployment rate equation:

Answer 18

number of people employed/number of people in labour force x 100%

Question 19

When the economy is at full potential GDP:

Answer 19

there is full employment

Question 20

frictional unemployment is:

Answer 20

unemployment caused by normal turnover of labour and mismatch between jobs and workers

Question 21

structural unemployment is:

Answer 21

a mismatch between the structure of the supplies of labour and the structure of the demands for labour - mismatch between jobs and workers

Question 22

full employment occurs only when:

Answer 22

unemployment is frictional and structural, corresponding to actual GDP being equal to potential GDP

Question 23

cyclical unemployment occurs when:

Answer 23

actual GDP does not equal potential GDP. employment rises and falls with business cycle.

Question 24

the december unemployment rate is reported to increase only if:

Answer 24

the unemployment rate rises by more than it’s normal seasonal increase (0.3 percentage points)

Question 25

labour productivity is calculated by:

Answer 25

the level of real GDP divided by the level of employement or total hours worked

Question 26

labour productivity is:

Answer 26

the measure of the amount of output that the economy produces per unit of input

Question 27

the price level is:

Answer 27

the average level of all prices in the economy, expressed as an index number

Question 28

inflation is defined as:

Answer 28

a rise in the average level of all prices (the price level)

Question 29

the consumer price index (CPI) is:

Answer 29

an index of the average price of goods and services commonly bought by households

Question 30

since the price level is measured with an index number, its value at any specific time has meaning only:

Answer 30

when compared with its value at some other time

Question 31

the rate of inflation is measured by:

Answer 31

the change in the price level divided by the initial price level x 100, expressed as a percentage

Question 32

the dollars in a price index are eliminated because the price index shows:

Answer 32

the price of a basket of goods at some specific time relative to the price of the same basket of goods in some base period

Question 33

the purchasing power of money/real power of money refers to:

Answer 33

the amount of goods and services that can be purchased with a given amount of money

Question 34

The rate of inflation in Canada is around ___ and has been since ___

Answer 34

1. 2% per year | 2. 1990

Question 35

when was the last time the price level fell?

Answer 35

1953

Question 36

the purchasing power of money is __ related to the price level because:

Answer 36

1. negatively 2. inflation reduces the real value of anything whose nominal value is fixed in dollars... the real value of $20 in a savings account is reduced by inflation

Question 37

What type of inflation has a smaller effect on the economy?

Answer 37

Anticipation inflation

Question 38

the interest rate is:

Answer 38

the price paid per dollar borrowed per period of time expressed either as a proportion or as a percentage

Question 39

what is the prime interest rate:

Answer 39

the rate that banks charge to their best business customers

Question 40

what is a nominal interest rate?

Answer 40

the price paid per dollar borrowed per period of time

Question 41

what is the real interest rate?

Answer 41

the nominal rate of interest adjusted for the change in the purchasing power of money. equal to the nominal interest rate minus rate of inflation

Question 42

what type of rate of interest does the burden of borrowing depend on?

Answer 42

real interest rate

Question 43

what type of rate of interest has been higher over the last five decades?

Answer 43

the nominal interest rate has always been higher

Question 44

what is the exchange rate?

Answer 44

the number of units of domestic currency required to purchase one unit of foreign currency

Question 45

what is the foreign exchange?

Answer 45

foreign currencies that are traded on the foreign-exchange market

Question 46

what is depreciation and appreciation of the dollar?

Answer 46

``` depreciation = a rise in the exchange rate, taking more units of domestic currency to purchase on unit of foreign currency appreciation = a fall in the exchange rate, taking less units of domestic currency to purchase on unit of foreign currency ```

Question 47

what is a trade weighted exchange rate?

Answer 47

a weighted average exchange rate between the home country and its trading partners, where the weight reflects each partner's share in the home country's total trade

Question 48

the trade balance (net exports) is:

Answer 48

the difference between exports and imports

Question 49

how would you find the CPI between two years?

Answer 49

year 2/year 2 x 100

Question 50

how would you find the output gap as a percentage?

Answer 50

actual - potential/potential x 100

Question 51

how to find nominal interest rate of a loan?

Answer 51

amount paid - value of loan