Chapter 4 - What Macroeconomics is All About

Question 1

What is the value of total production of goods and services of a nation

Answer 1

National product or national income
(or output)

Question 2

Total output is measured in __________

Answer 2

dollars

Question 3

With real national income, _______ are held constant to enable us to see changes in _________

Answer 3

prices

quantity

Question 4

What is a nation’s potential output

Answer 4

When all of​ a country’s resources - its ​land, labour, and capital - are being employed at normal levels of​ utilization
(fully employed)

Question 5

What is the output gap

Answer 5

Difference between actual and potential outputs
(Actual - Potential) = (Y - Y*)

Question 6

When does an inflationary gap occur?

Answer 6

When the actual output is greater than the potential one

Question 7

When does a recessionary gap occur?

Answer 7

When the potential output is greater than the actual one

Question 8

What is the business cycle?

Answer 8

Recession –> Trough –> Recovery –> Peak –> …

Question 9

What is the nominal national income?

Answer 9

The total national income measured in current dollars

Question 10

What are 3 ways to increase nominal national income

Answer 10

1- Change in production
2- Change in price
3- Change in both

Question 11

What is the GDP definition?

Answer 11

Market value of all final goods and services produced in a region over a period of time

Question 12

Of what consists the labor force?

Answer 12

The unemployed and the employed

Question 13

What type of unemployment is this:
Caused by the normal turnover of labor. New people enter the market, some quit or are fired.

Answer 13

Frictional

Question 14

What is frictional unemployment?

Answer 14

Unemployment caused by the normal turnover of labor. New people enter the market, some quit or are fired.

Question 15

What type of unemployment is caused by the mismatch between jobs and workers (between the structure of the supplies of labor and the structure of the demands of labor)

Answer 15

Structural

Question 16

What is structural unemployment

Answer 16

Unemployment is caused by the mismatch between jobs and workers (between the structure of the supplies of labor and the structure of the demands of labor)

Question 17

When does cyclical unemployment occur?

Answer 17

When real GDP is less than potential GDP

Question 18

What are the 5 requirements to be unemployed?

Answer 18

1- Out of work
2- Able to work
3- Willing to work
4- Actively looking for a job
5- Aged 15+

Question 19

What is the unemployment rate equation?

Answer 19

unemployed / # in the labor force

Question 20

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

Answer 20

Productivity

Question 21

What is the definition of productivity?

Answer 21

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

Question 22

What is labor productivity (equation)

Answer 22

𝑙𝑒𝑣𝑒𝑙 𝑜𝑓 𝑟𝑒𝑎𝑙 𝐺𝐷𝑃 /
𝑙𝑒𝑣𝑒𝑙 𝑜𝑓 𝑒𝑚𝑝𝑙𝑜𝑦𝑚𝑒𝑛𝑡 (𝑡𝑜𝑡𝑎𝑙 ℎ𝑜𝑢𝑟𝑠 𝑤𝑜𝑟𝑘𝑒𝑑)

Question 23

What is inflation?

Answer 23

A rise in the average level of all prices

Question 24

What is the price level?

Answer 24

The average level of all prices in the economy,

expressed as an index number

Question 25

What is the CPI and what does it measures

Answer 25

Consumer Price Index Measures the average prices of goods and services bought by the typical Canadian household

Question 26

What is the equation for the rate of inflation?

Answer 26

𝑅𝑎𝑡𝑒 𝑜𝑓 𝑖𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛= (𝑁𝑒𝑤 𝐶𝑃𝐼−𝑂𝑙𝑑 𝐶𝑃𝐼) / (𝑂𝑙𝑑 𝐶𝑃𝐼) ∗100

Question 27

Formula of real GDP per person?

Answer 27

Real GDP / Population

Question 28

Formula of real GDP per hour worked

Answer 28

Real GDP / (number of full-time employed worker * hours worked per worker)

Question 29

At what inflation rate do prices come closest to being stable?

Answer 29

If they're close to 0%

Question 30

When is the inflation rate closest to being stable for 2 consecutive years

Answer 30

When it stays the same e.g., 2014: 2.7% and 2015: 2.7%

Question 31

How do you calculate CPI

Answer 31

Total expenditures year x / Total expenditures base year * 100 answer should be around 100 (but depends)

Question 32

What is the real interest rate formula?

Answer 32

Real Interest Rate = Nominal Rate - Inflation Rate

Question 33

Suppose Honest​ Rob's Used Cars buys a used car for ​$5,000 and resells it for ​$6,200. The result of Honest​ Rob's transactions is to

Answer 33

Increase the value of national income by $1,200

Question 34

_________ are better off when real interest rate falls

Answer 34

Borrowers

Question 35

________ are better off when real interest rate rises

Answer 35

Savers

Question 36

What is the main result of​ long-term economic​ growth?

Answer 36

Rising average living standards

Question 37

Understanding business cycles requires an understanding of __________

Answer 37

Monetary policy

Question 38

How can actual GDP exceed potential GDP?

Answer 38

When labour works overtime

Question 39

What is the actual output

Answer 39

What the economy actually produces

Question 40

True or False Economic growth makes everyone better off

Answer 40

False e.g., shift from agriculture to manufacturing

Question 41

What tend to be associated with long-term unemployment

Answer 41

Crimes, mental illness and general social unrest

Question 42

What is the amount of goods and service that can be purchased with a unit of money

Answer 42

The Purchasing Power of Money

Question 43

Inflation reduces, increases, or has no effect on purchasing power

Answer 43

It reduces it

Question 44

What is the interest rate

Answer 44

The price to pay to borrow money for a stated period of time

Question 45

What is the interest rate that banks charge their best customers

Answer 45

Prime interest rate

Question 46

What is the prime rate?

Answer 46

The interest rate that banks charge their best customers

Question 47

What is an exchange rate

Answer 47

The price of one currency in terms of the other In our Class, it's the number of CAD needed to buy 1 unit of another currency

Question 48

If it now takes more CAD to buy one unit of foreign currency, the CAD has __________

Answer 48

Depreciated

Question 49

If it now takes less CAD to buy one unit of foreign currency, the CAD has __________

Answer 49

Appreciated

Question 50

A strong dollar is _____ for importing and _______ for exporting

Answer 50

good and bad

Question 51

What are net exports

Answer 51

the balance between imports and exports Exports - Imports

Question 52

Who plays an important role in the credit market?

Answer 52

Banks They intermediate between households and firms

Question 53

Which type of growth has a larger effect for a society's living standards?

Answer 53

Long-term growth (but its less talked about in the medias)

Question 54

When was the interest rate high in Canada? (2)

Answer 54

In the mid-1970s and between 1980-1982

Question 55

A rise in the exchange rate means that it takes _________ Canadian dollars to purchase one unit of foreign currency?

Answer 55

more $ a rise in the exchange rate is a depreciation of the Canadian dollar

Question 56

What happens when the prime rate increases?

Answer 56

Most other rates in the economy increase as well

Question 57

People may decide to join the labour force during booms because

Answer 57

more jobs become available and hence there are more opportunities to find a job.

Question 58

Is there a link between productivity and employment?

Answer 58

No

Question 59

Consider an imaginary​ 10-year period over which output per ​falls, but GDP increases. How can this​ happen? This is possible if

Answer 59

the rate of technical progress is small

Question 60

How the Bank of Canada uses its policies is associated with short-term fluctuations or long-term growth?

Answer 60

Short-term fluctuations