Chapter 19

Question 1

Macroeconomics (what is it influenced by):

Answer 1

Study of behavior and performance of overall economy. This behavior is based in turn on that of macroeconomic aggregates and averages, which in turn are influenced by activities and decisions in the various markets.

Question 2

What is gross national product? What is its importance? How is it different from gross domestic product?

Answer 2

GNP is the total aggregate of goods and services produced by a country (total output), including outside its borders (unlike GDP). Its importance is that the production of output by an country produces income.

Question 3

Nominal national income:

Answer 3

Total national income measured in current dollars.

Question 4

Real national income:

Answer 4

National income adjusted for inflation. Helps to determine extent of change due to quantities of G&S only.

Question 5

Y*:

Answer 5

Potential output; output if all resources are fully employed.

Question 6

Recession:

Answer 6

GDP growth falls for 6 months.

Question 7

Business cycle:

Answer 7

Fluctuations of real national income in a wavelike pattern.

Question 8

Output gap:

Answer 8

Difference between actual and potential output.

Question 9

Recessionary gap:

Answer 9

Y

Question 10

Inflationary gap:

Answer 10

Y>Y*

Question 11

In a potential GDP graph (time X real GDP), the graph curves downward during a ___ towards a ___ (also known as a ___) and upwards during recovery towards a ____ (known as a ___).

Answer 11

Recession; trough; slump; recovery; peak; boom.

Question 12

True or False: Unemployed refers to anyone 15 and over who does not have a job.

Answer 12

False; they must be actively searching for a job to be unemployed.

Question 13

Unemployment rate

Answer 13

People unemployed/ people in labour force

Question 14

What are four types of unemployment? Describe them.

Answer 14

Frictional (resulting of taking time to find a new job after quitting or being let go), structural (mismatch between jobs and workers), cyclical (result of ebb and flow of business cycle), seasonal (some workers have jobs that are only needed at certain time of year).

Question 15

Labor productivity:

Answer 15

Real GDP/ unit of labor employed.

Question 16

Hyperinflation:

Answer 16

Excessive inflation

Question 17

Price level:

Answer 17

Average of all prices in economy as an index number (made relative to price of basket of same goods in same base period)

Question 18

Inflation:

Answer 18

Rise in price level.

Question 19

CPI

Answer 19

Price level for prices of foods and services commonly bought by households (base period is 2002 in Canada).

Question 20

Rate of inflation

Answer 20

Change in PL/ initial PL.

Question 21

Purchasing power of money.

Answer 21

Amount of goods and services that can be purchased with a unit of money.